With 2023 approaching, ValU, Egypt’s leading buy-now-pay-later (BNPL) fintech platform, is readying itself for its first regional expansion and the launch of several new products, including cash loans for both consumers and vendors. These endeavours are expected to cost at least $25 million, according to CEO Walid Hassouna. 

“We are waiting for final approvals from the Saudi Central Bank to launch in Saudi Arabia,” Walid Hassouna told Zawya. “We will be launching all our products there in 2023. These products may not come in tandem, but in sequence.”

ValU, a subsidiary of Egypt-based investment bank EFG-Hermes, currently serves more than 500,000 consumers and over 5,000 online and offline vendors. The company had a market share of nearly 30 percent over the first eight months of 2022, according to the latest government figures.

A Busy 2023

In the first quarter of 2023, ValU is expected to launch a prepaid card that will allow its users to make purchases at vendors who are not necessarily within the ValU network, Hassouna said. Customers will also be able to use their cards to withdraw money through ValU’s one-year-old redemption Sha2labaz program, he added.

Other financial services such as salary advances and life and property insurance are also expected to be launched through a set of partnerships with existing fintech startups, Hassouna said.

“We are currently negotiating with a couple of companies where we are going to acquire significant minorities. There is also a third company which we may fully acquire next year. All are fintech companies with complementary products to our services,” he said (he declined to disclose the companies’ names).

ValU has recently acquired minority stakes in two fintech startups: Hoods, a live shopping platform, and Kiwe, a social payment app that helps onboard the unbanked segment. Earlier this year, for an undisclosed amount, ValU fully acquired the digital HR and payroll platform Paynas, which “Paynas will issue salary advances to [ValU’s] customers very soon.” 

ValU is also expected to give merchants similar access to working capital. “We will work with Paynas to develop a closed ecosystem to finance our merchants. We will try to advance to our merchants some parts of their sales with us so that they can stick to our model,” Hassouna added.

He explained that all these endeavours, which will cost between $25 and $30 million, are financed by the company’s positive cashflows and profits. In November alone, ValU amassed EGP 760 million in revenues, compared to EGP520 million during the same month last year, Hassouna said. In November’s Black Friday deals, ValU served 160,000 consumers and concluded 210,000 transactions, with a positive profit margin.

 A Promising Market

ValU is one of at least 37 licensed consumer-financing companies that are currently operating in Egypt. The number of users reached more than 1.8 million during the first eight months of 2022, recording a 120 percent increase since the same period in 2021. These consumers received more than EGP 18 billion in funding, almost double the amount extended during the same period last year.

“The consumer financing market is growing and will continue to grow aggressively for the next three years,” Hassouna said.

Hassouna observed that the 2020 legislation regulating consumer financing market for the first time in Egypt has been one of the drivers of this growth, encouraging more investors to tap into the field.

“Also, banks have become interested in financing licensed consumer-financing companies. Last year and this year, all licensed companies had secured bank financing,” said Hassouna, adding that ValU alone has secured bank financing worth EGP 3 billion.

Weathering Inflation

Hassouna also cites high inflation rates as another key catalyst of the anticipated growth of the market as more consumers are finding it harder to pay the cost of commodities and services in full. 

However, the changing interest rates aimed at curbing inflation constantly impacts consumer-financing operations. “Changes in interest rates increase our cost of funds especially that we cannot change the interest rate of transactions once they are concluded,” he said.

To reduce the risk of a rising cost of funds, every quarter, ValU securitizes bonds worth somewhere between EGP 500 million and 1 billion, said Hassouna.

An increasing default risk amid rising inflation stand as other challenges to consumer financing businesses.

“Inflation has definitely impacted the user’s ability to pay their instalments. To pre-empt the default risk, we change every week our rule engine, which evaluates customers and transactions using artificial intelligence,” he said.

Since 2021, ValU has taken other precautionary measures by focusing on financing non-tradable goods and services which have the lowest default risk, explained Hassouna.

“Most consumer-financing companies are focusing on electronics, tablets and mobiles. This is where the real volume is, but we do not focus on that because the margin of profit is small and the default risk is high,” he added.

For nearly 18 months, the company has been shifting from electronics and durables to services such as club memberships, university and school tuition fees, medical bills, fashion and property finishing, said Hassouna.

“What we are trying to do is to differentiate ourselves from our competitors and from the rest of the market as much as we can,” he said.

(Reporting by Noha El Hennawy; editing by Seban Scaria seban.scaria@lseg.com)