#34 Will we be Wave-ing Goodbye to Telco Led Mobile Money?

Analysing Wave's execution and why what they're building is exciting

Hi all - This is the 34th edition of Frontier Fintech. A big thanks to my regular readers and subscribers. To those who are yet to subscribe, hit the subscribe button below and share with your colleagues and friends. 🚀

Introduction

I had to write this post in an airport lounge as well as on the plane. It’s been a bit of a hectic week, but I’m firmly on the mission to #52. Earlier on in September, Wave raised US$ 200 million in a Series A funding round at a valuation of US$ 1.7 billion. It was great news for the African Fintech space and particularly for the growing band of people who are frustrated with Mobile Money (MoMo).

Since the founding of M-Pesa over 15 years ago now, Mobile Money has grown particularly in East Africa and Ghana where regulatory attitudes have been more forgiving. Despite this growth, the adoption of Mobile Money hasn’t been consistent across the continent. The graph below from McKinsey with some editing by Everett Randle shows the differing outcomes on MoMo adoption.

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Source: McKinsey and Everett Randle

In East Africa, where MoMo adoption has been widespread, financial inclusion metrics have been trending upwards year on year. In fact, according to some studies, M-Pesa alone has lifted over 2% of households out of poverty. The revenues have followed, M-Pesa is on track to achieve US$ 1 billion in annual revenues most likely by 2023 and MTN, Airtel and Orange Money make combined revenues of US$ 2.1 billion.

Despite their success, there is an uneasy tension and energy where competitors both banks and fintechs seek to dethrone them. The main reasons for this are;

1. They are still considered to be expensive with average P2P rates of approximately 2%;

2. A walled garden approach to integration;

3. A culture of killing any innovation that grows on their platforms. This is contrasted with Tencent which has a corporate VC strategy of nurturing and acquiring anything that is growing on their platform.

The tweets below summarise the energy;

Firas Ahmad @ahmadfirask

@StoneAtwine Telcos build their MM empires based on a walled garden strategy that is neither sustainable long term or is it beneficial to consumers. Good luck to Wave on this effort. Time is now, payments need to be open. anything less is wasting time at this point.

STONΞ 🚀 @StoneAtwine

The default reaction of telcos to any sign of competition is to block access. If you’re optimistic about progress and open APIs, you haven’t been around long enough. No, it won’t improve.

It is no surprise then that the recent announcement by Wave created excitement amongst the disillusioned class of founders who have run up against Mobile Money. In this article, I do a short introduction to Wave as well as giving context on the MoMo space given my experience of competing against that sheds light on why Wave is executing so well.

Wave

Founders Drew Durbin and Lincoln Quirk started their entrepreneurial journey in the big leagues with Sendwave. Drew ran an NGO in Tanzania and he got fed up with the experience of sending money from the US to Tanzania. Together with Lincoln, they founded Sendwave back in 2014. Sendwave was a simple user-friendly app that enabled people in remittance source markets to send money back home. Funds could terminate in either a bank account or a mobile wallet. In the back end, Sendwave integrated in each market to a bank that would enable payouts as well as sell local currency to Sendwave.

Nonetheless, they realised that the beneficiary wallets were just as broken as the global remittance system. Both bank accounts and mobile wallets were expensive and sometimes unreliable. This led them to pilot Wave back in 2016 before fully launching a year later. They sold Sendwave to WorldRemit in February this year for US$ 500 million and turned all their attention to Wave. They figured that to make a deeper impact, they’d have to build full stack mobile wallets in Africa from the core systems all the way to the Cash In Cash Out (CICO) networks. They started off with Senegal because as in Drew’s words;

“Senegal is a big enough market that we would have to work really hard to potentially win the market. But also a small enough market that if we were doing well, we could win the market quicker than if we were in a giant country. And so that combination of those two things made it seem like a good place to start,”

Wave has grown to over 5 million active users in Senegal and is significantly more affordable than Mobile Money. Wave is estimated to be 70% cheaper than existing solutions with free deposits and withdrawals and a 1% fee levied for P2P transfers.

The following links give a useful overview of Wave;

• Emerett Randle’s Substack;

• This TechCabal Article;

• This TechCrunch Article; & 

• This overview by Emeka Ajene on Afridigest - If you haven’t subscribed to this newsletter, I suggest you do.

Drew and Lincoln have proven experience in building world class tech from their work with Sendwave and it’s no surprise that they have taken Wave to where it is. Lincoln from his website seems to share a lot in common with Stripe founder Patrick Collison, key amongst them an incredible intellectual curiosity. In his website, you can read his musings on a variety of topics such as “Process Orientation and how we should evaluate technical work” to “how to select a bicycle” and even “How ambitious people can raise kids”.The team is super capable and has the right hires to execute. 

It’s no surprise then that recently, Wave joined the growing list of African Unicorns.

Source: Afridigest

The tweet below by Stone Atwine captures what this funding does to the financial services ecosystem in Africa;

STONΞ 🚀 @StoneAtwine

Capital allows founders to dream. Competition against telcos and their mobile money is going to be very hard. Wave is already making waves in Senegal, Ivory Coast and soon Uganda, going up against telcos. Capital allows them to play. Great for the ecosystem. Great play.

Building Digital Financial Services in Africa

I have experience of building a mobile banking solution that includes a nationwide agency banking network. Anyone who has done this appreciates the work already done by Wave and sees the potential that Wave has in a Mobile Money world. 

For any financial service provider looking at Africa, it is evident that you need different distribution to enable widespread financial service delivery. Mobile Money is thus best suited to the delivery of financial service in Africa using the agency model. The key reasons are;