Outside of Silicon Valley, there aren’t many places where you can boast of a successful tech startup whose founders were either still in school or just dropped out, so when something like that happens in places like the Middle East or Africa, it’s worth keeping an eye on the company.
Ten years ago, three undergraduate students from the American University in Cairo, Islam Shawky, Alain El Hajj, and Mostafa Menesy, started an e-commerce platform in Egypt. At the time, e-commerce was a very nascent industry, with only 2% of the country’s households participating. One of the main reasons was the lack of online payment methods.
“There was a gap between what banks were offering and the financial technology requirements of new business models. No one was addressing digital payments for e-commerce and digital native startups,” Sharkey said in a 2022 interview.
Integrating local bank payment gateways with e-commerce platforms was a hassle, so Shawky and his friends launched Paymob in 2015, while they were still in college, as a payment infrastructure for digital wallets. What started as a small venture quickly grew into an omnichannel gateway that offers over 50 payment methods, including wallets, cards, buy now, pay later (BNPL), and QR payments, and allows over 350,000 merchants in five countries in the Middle East and North Africa to accept online and offline payments.
Paymob, which describes itself as a financial services enabler, has raised over $90 million to expand its reach, including a recently closed $22 million extension to its Series B round led by EBRD Venture Capital, bringing its total Series B funding to $72 million.
Cross-selling services for a growing merchant base
When we last covered Paymob in 2022, the fintech was serving just over 100,000 domestic and international merchants. That number has more than tripled in two years after expanding from Egypt and Pakistan to Oman, Saudi Arabia and the UAE.
Paymob’s initial $50 million Series B round in 2022, co-led by PayPal Ventures, has fueled this expansion. During that time, the fintech has also improved its product line, CEO Shawky said in a call with TechCrunch. It has launched an app for small and medium-sized businesses (SMBs) and introduced payment methods such as built-in checkout experiences and products like lending and advanced payments.
“We help businesses accept, pay, manage and grow. Those are the four segments we have. Acceptance is the engine and the core business, and we cross-sell everything on top of that,” explains Shawky. “Once we onboard the merchant, we help them accept digital transactions, then we help them step up to pay, provide working capital and give them tools to better manage their finances and their business.”
Paymob became profitable in Egypt for the first time in the second quarter of this year, and has grown revenue sixfold since mid-2022. It is not yet profitable in other countries.
Growing the number of merchants and cross-selling additional services to increase average revenue per merchant have been huge contributors to the startup’s success so far. For example, if a Paymob customer only had a POS terminal that accepted cards, that would be only 10-15% of the business. By partnering with Shopify and Tabby to offer a suite of products, Paymob’s margins have improved significantly. Doing this at scale, digitally, and without the need for a large sales force (Paymob has just over 1,000 employees) has likely led to efficient growth.
“What we’re most excited about is that we’ve been able to grow profitably, because over the last two years, a lot of people have said that you have to stop growing to get to profitability or preserve runway,” Shawky said. “But we’ve shown that if you build a fundamentally sound business and you actually solve a customer need, you can grow quickly while getting to profitability.”
Rapid adoption of online payments in the UAE
In fact, digital payments adoption is booming in Egypt and the Gulf region.
According to Mastercard, 88% of consumers in Egypt used at least one new payment method last year, and 85% of SMEs recognize that embracing omnichannel digital payments is important for their growth. Meanwhile, the demand for digital payment methods is more pronounced in the UAE, with around 77% adoption nationwide.
From our conversations with entrepreneurs, it’s clear that despite this strong demand, the market is still underserved. So local players like Paymob, which we covered last week, and Ziina, a fintech that has expanded into the UAE, are racing to fill the gap by offering tailored solutions to the country’s 500,000 merchants, and the country’s growing appetite for digital payments.
As an example of this explosion of demand, Paymob, which only offers online payment products in the UAE, has grown its transaction volume in the UAE to the size of its entire Egyptian business in just 14 months. The Egyptian business was built in 5 years. This rapid growth in the Middle Eastern country is due to increased purchasing power, strong currencies, and the greater use of digital wallets compared to cash.
Nevertheless, Egypt remains the largest market. Shawky is confident that the fintech suite, which aims to develop a cashless society and combined with the efforts of the government and central bank, will help Egypt reach the same level of digital payments adoption seen in the UAE.
“For the Egyptian economy to reach this turning point, issuance and authorization must go hand in hand. The Central Bank has been working hard and investing heavily in the country’s digital infrastructure,” the CEO said. “We are seeing results. Our business has grown six-fold in two years and four months. Of course, we have grown our merchant base, but it is also because merchants are handling more digital volumes.”
Paymob reported a total payment volume of $5 billion in 2020 and processed over 120 million transactions that year. However, the current figures for both metrics are still unclear as the fintech has not released updated figures.
In addition to PayPal Ventures, the fintech company's Series B round was also participated by Endeavor Catalyst, along with existing investors British International Investment (BII), FMO, A15, Nclude, and Helios Digital Ventures (HDV).
