Investors pour almost $400m into African fintech in a week

Investors have poured almost $400m into payments companies based in Nigeria in the past week, in a sign of how seriously venture capital firms are taking the opportunity to build financial networks across the continent.

OPay, the Africa-focused, Chinese-backed payments company founded by Opera, on Monday announced it had raised $120m from a group of investors including Sequoia Capital China and SoftBank Ventures Asia, following a $50m fundraising in June.

The news came just days after Visa announced a $200m investment in Lagos-based Interswitch and another local fintech company, PalmPay, said it had raised $40m in a round led by China’s Transsion.

“The growth in the payments space is probably like no other on the continent at the moment,” said Segun Agbaje, chief executive of Guaranty Trust Bank, Nigeria’s largest lender by customer base and a pioneer in digital payments. “There is so much untapped potential . . . this is a space where people are growing 20-30 per cent, month on month — that tells you why the money is pouring in.”

The tally announced by the three companies in the past week is a significant slice of the total $1.2bn in venture capital raised across all of Africa last year, according to data from Partech Ventures.

All three companies suggested they would use the infusion of cash to expand across sub-Saharan Africa, where only a third of adults have bank accounts.

Each is aiming to become the first pan-African payments company, a goal that has been hamstrung by complicated foreign exchange controls, inefficient cross-border trade and complicated, diffuse regulatory regimes. All are using Nigeria — the biggest economy in Africa — as a launchpad for their expansion.
Nigeria’s central bank recently opened the gates for mobile money — a sector pioneered in east Africa by Kenya’s Safaricom and its dominant M-Pesa service — and is pushing towards a more cashless society. Roughly 95 per cent of transactions in Nigeria are still done in cash, and about 60m adults do not have bank accounts, representing a tantalising opportunity.

“When it comes to payments, the Nigerian market is probably big enough [to sustain a business]”, said Omobola Johnson, Nigeria’s former ICT minister and now a partner at TLcom’s Africa-focused venture fund. “And it’s much easier to start here and expand to other parts of the continent than the other way around.”

Lagos has become a centre for the continent’s fintech sector in the years since Interswitch was founded in 2002. Interswitch built most of the mobile applications for Nigerian banks, creating the system through which digital payments run more smoothly — and are much more widely accepted — than in many developed economies.

The company has since become the dominant infrastructure through which digital payments are made in Nigeria and has issued 19m of its pan-African Verve debit cards. But founder Mitchell Elegbe said the company has a broader goal, even as his home market expands, with Nigeria’s population has grown from 160m when Interswitch was founded to 200m today.

“Despite the growth that we’ve done, it’s like we’re chasing an accelerating vehicle on foot, so the opportunity in Nigeria is huge and it still remains,” he said. “I believe the opportunities in other African countries are similar [and] the [Visa] partnership allows us to replicate the same thing in multiple markets at the same time.”

Interswitch reported $15m in profits after tax in 2016, $19.2m in 2017 and $23.3m in 2018.

The company said Visa’s $200m investment valued it at more than $1bn, making it Africa’s first true homegrown ‘unicorn’, ahead of a long-gestating initial public offering in London that is expected early next year.

In March, Mastercard invested $300m in rival, Dubai-based, Network International, the largest payments processor in the Middle East and Africa, ahead of its London IPO.

Interswitch is at the vanguard of a payments scene that also includes Opera, the Chinese-backed, Norway-based web browser that launched OPay in Nigeria last year.

Its green-helmeted ORide motorcycle drivers are ubiquitous on Lagos’s crowded streets, ferrying people and goods, and the company has also moved into food delivery with OFood, and marketing for small businesses with OLeads. All are essentially vehicles for its payments business, which it plans to expand across Nigeria, Ghana, South Africa and Kenya using the infusion of cash.

OPay has been able to attract major investment in part because of the exponential growth of Lagos-based companies such as Paystack and Flutterwave, which has its own partnership with Visa and another with Chinese ecommerce giant Alibaba’s Alipay to offer digital payments between China and Africa.

Iyinoluwa “E” Aboyeji, Flutterwave co-founder and one of the leaders of the Lagos tech scene, said global players were teaming up with domestic companies because they needed local expertise to gain access to Nigeria’s fast-growing young population.

“When you consider that half of the world’s working population is going to be in Africa over the next 35 years, then you start looking at the total market opportunity differently because ultimately all those people can hopefully get jobs and make money . . . and spend money,” he said. “You’ll be the ultimate conduit for that.”

SOURCE: Financialtimes   /  www.ft.com