Frontier Fintech GPS #01 - Sept 4th
Sanlam acquires 25% stake in Tyme Bank's holding company, RBI launches the United Lending Interface amongst other stories
Artwork by Mary Mogoi - Instagram
Hi All, Welcome to the inaugural edition of Frontier Fintech GPS where I provide key insights on the top global Fintech news items that matter to you. This newsletter will be arriving in your inboxes every Wednesday morning. The idea behind Frontier Fintech GPS is to help you navigate the endless stream of Fintech news and get smart about global Fintech. To those who are yet to subscribe, hit the subscribe button below and share with your colleagues and friends. 🚀
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🇿🇦 Sanlam Acquires a 25% Stake in ARC Unit that owns Tyme Bank
Sanlam has acquired a 25% stake in African Rainbow Financial Services Holdings which controls African Rainbow Capital’s Investments in Tymebank amongst other investments such as the AI Fund, Ooba and CrossFin Holdings. Understanding this transaction requires an understanding of the relationship between ARC and Sanlam.
ARC is 100% owned by Ubuntu Botho Investments (UBI) which has Patrice Motsepe as its chairman and figure head. UBI is an investment vehicle championed by Mr. Motsepe and includes entrepreneurs, church associations, youth associations and a number of groups representative of Black South Africa;
UBI in turn owns 14% of Sanlam and is Sanlam’s largest shareholder;
Patrice Motsepe serves in three roles - Chairman of ARC, Chairman of UBI and Deputy Chairman of Sanlam;
ARC owns the following entities;
ARC Investments;
ARC Financial Services Holdings (ARC-FSH); &
ARC Financial Services Investments (ARC FSI) of which Sanlam is a 25% shareholder;
Tyme bank was last valued at US$ 1 billion and is seeking to raise a US$ 150m Series D by Q4 of this year.
Sanlam is acquiring ARC FSH in a deal worth ZAR 3.9b or roughly US$ 218 million and this transaction will be financed by a mixture of cash ZAR 2.4 b (US$ 134b) and Sanlam’s stake in ARC FSI which is valued at ZAR 1.4b (US$ 78b). At the end of the transaction. Sanlam will own a 25% stake in ARC FSH and ARC FSH will consist of an additional US$ 134 million in cash plus a 25% stake in ARC FSI.
One can argue that Sanlam is gaining exposure in the ARC unit that owns Tymebank and therefore has significant growth potential. However, it seems that what could actually be happening is in fact an internal fundraising measure for ARC FSH with a view of either an additional recapitalisation of Tyme Bank or with a view to make new investments. Remember, TymeBank is gearing up for a Series D in Q4 of this year and the US$ 134 million in cash rhymes with TymeBank’s target of raising US$ 150m. This seems to be the view of the market with Sanlam’s shares down 4.1% whilst ARC’s shares were up 9.2%.
🇮🇳 RBI set to launch United Lending Interface to simplify access to credit for underserved borrowers
The Reserve Bank of India is seeking to launch the United Lending Interface that has been in pilot stage for a year. The United Lending Interface is simply a data exchange that aggregates and centralises information such as land records, asset registries and credit information from various data service providers. The aim is to make lending seamless for lenders by having a trusted source of credit data. India is a massive country with a decentralised governance structure with different roles being performed by individual states as well as the central government. The ULI is an extension of India’s efforts that started with the India Stack targeted at driving positive economic outcomes through data and process digitisation.
Unified credit information is a big problem in the emerging world. Banks struggle with debenture registration, identifying proper ownership details for property used as collateral and even keeping track of different claims on property. A United Lending Interface seeks to simplify this. ULI is built using standard API infrastructure and is permission based. This enables users to control their data and makes it easy for financial services organisations to plug into this data base. Some key take-outs from this;
The project was run by the RBI’s innovation hub - I’ve written before here about the critical role played by government adjacent research institutions in enabling technology to be deployed at scale in emerging markets;
Central Banks will continue playing a key role in shaping the pace of Fintech innovation in the world. Institutions such as the Bank of England, RBI and Banco Central do Brasil have shaped Fintech outcomes in their respective markets;
If Central Banks are a binding constraint in Fintech advancements then VCs should spend more time understanding a country’s Central Bank and it’s plans;
The democratisation of lending data will see a growth in lending Fintechs in India just like UPI drove the growth of PhonePe and others. This coupled with the growth of Private Credit will be a harbinger for an alternative lending boom in the market.
🇰🇪 Kenyan e-commerce startup Chpter raises $1.2 million in pre-seed round
Kenyan e-commerce startup Chpter raised a US$ 1.2 million pre-seed round led by notable Angels such as Ken Njoroge of Pani, Norkksen Ventures and angel investors such as Benjamin Fernandes of Nala. Chpter seeks to convert social media from a marketing channel to a sales channel. This is done by unifying a seller’s social media channels such as Instagram, Whatsapp and Facebook into one portal. Through a mix of features such as chatbots, workflows and payment links, a business can then manage multiple sales simultaneously with a view of optimising revenue. Some of the problems being solved are; missed sales due to a seller’s personal unavailability, lack of cross-selling due to limited customer data and the inability to detect customer intent resulting in abandoned sales. Chpter charges businesses a monthly subscription as well as commissions on payments processed through the platform.
Chpter is taking advantage of social commerce which is how e-commerce in Africa has evolved. Social commerce in Africa was worth US$ 9 billion in 2023 and is anticipated to grow by an annualised growth rate of 33.4% over the next 5 years. A number of factors therefore seem to validate this business and Chpter’s specific approach;
Growing social commerce with a Whatsapp adoption rate of over 90% in key African countries such as Nigeria, South Africa, Ghana and Kenya;
The growth of micro-enterprises that is expected to be driven by demographics - this is a topic I’ll write about in a future article;
The subsequent ability to unify data through creating an omni-channel experience. The mix of operational (sales and inventory) data combined with financial data could form the basis of a strong SME lending proposition;
The homogeneity of the social commerce market in terms of problems faced across the continent - enabling a business to scale based on a common pain point much in the same way that Flutterwave has grown on the back of the inability for businesses to collect on online payments.
Nonetheless, it seems that to an e-commerce business in the continent, Chpter is a lever for business growth meaning that it needs to demonstrate significant differentiation i.e. businesses using Chpter can achieve 10x revenue growth compared to those that don’t. Without such a strong proposition, then traction will be patchy. SME’s selling in the continent rely on a mixture of marketing via social media, communication through Whatsapp and off-line payments and fulfilment. These so far seem to be working well. Therefore a proposition needs to be truly a game changer to make a difference. Lastly, as a tech driven business, it seems that the space has low barriers to entry with sales and business development seeming like the true differentiator. If indeed this is the case, then there should be some pricing pressure leading to an ordinary margin profile. However, all said and done, stellar execution from an experienced team can overcome some of these pitfalls
🇺🇸 OpenAI and Anthropic Team With US Government on Safe AI Testing
Two of the most high-profile artificial intelligence firms inked a deal with the United States government. OpenAI and Anthropic agreed to collaborate with the U.S. Artificial Intelligence Safety Institute on AI safety research, testing and evaluation, according to a Thursday (Aug. 29) press release.
The agreements establish a framework for the institute to receive access to new models from each company before and after their public release, the release said. They also enable collaborative research on how to evaluate capabilities and safety risks, as well as methods to mitigate those risks.
AI will be a key topic for Frontier Fintech going forward. The cynic in you may argue that I’m jumping on a hype train to get my numbers up, but that is refuted through such announcements. The two most important frontier model providers are now working with the US government on AI safety, particularly model review and Standard Setting through the National Institute of Standards and Technology. This is a bold step towards wide scale AI adoption in industry and government once rubber stamped by the US government. The US will lead in AI and the people who set the standards tend to control the industry. Open AI and Anthropic are moving like mature companies by putting the regulator at the forefront of their plans. I’m reminded of a talk given by Bill Gurley on the role played by the axis of incumbents and regulators in controlling industries with a specific focus on Telcos.
Some questions that emerge;
What happens to Open Source Models when it comes to standard setting and the resultant AI regulations that will emerge from such engagements;
Are there similar engagements between Crypto leaders and NIST?
🇪🇬 🇰🇪 MaxAB and Wasoko Complete US$ 230m merger
Wasoko and MaxAB completed their merger that has been in the works for over 8 months. According to TechCrunch, this is a merger of equals and will lead to an almost 50-50 split between the two companies. With over 450,000 merchants in their combined network, this will create Africa’s largest B2B e-commerce player. Scale could prove critical given their ability to centralise some opex leading to better operating margins. Some interesting points to consider;
Such a merger enables the two entities to enable seamless cross-border trade. According to Daniel Wu, Wasoko’s Kenyan operations could for instance enable the sourcing and export of Tea to Egypt with direct sales being done by their Egyptian merchant network;
Vendor financing is a critical focus area for the two as a lever that can unlock additional margin per transaction on top of their existing B2B sales;
I’ve written before here about the challenges in embedded B2B lending. There are a number of challenges with layering Fintech on top of B2B e-commerce;
Informal retailers have low margins on their key staples such as Sugar, Rice, Wheat etc thus making interest payments too costly;
Existing off-line distributors who are Wasoko’s core competitors often provide funding at no extra cost given that they look to retailers to push volumes. I’ll write about how African supply chains are mapped out in an upcoming article;
Usually B2B vendors lack leverage to drive positive repayment behaviour given that they are not the exclusive source of product for retailers;
Lastly, layering payments on top of B2B retail is possible but super low margin;
🇳🇬 Busha and Quidax granted provisional licenses by Nigerian SEC
In what I can only describe as a landmark moment for Nigerian Fintech, the Securities and Exchange Commission of Nigeria has licensed Busha and Quidax to provide Crypto services in Nigeria. The two are specifically licensed as Virtual Asset Services Providers in Nigeria under the SEC’s Accelerated Regulatory Incubation Program. This gives the SEC’s green-light to the two entities and offers both Busha and Quidax a blanket of credibility as they market their services in Nigeria.
Similarly to the RBI, Nigeria seems to be making interesting moves in Fintech regulation. This is particularly relevant in the crypto space. Africa with its low property rights protection could lead to more people seeing Crypto assets as safer than traditional assets such as local currency and property. Of course one could make the argument that Bitcoin is hot air and wouldn’t sound crazy saying this. Nonetheless the crypto space includes tokenized assets as well as stablecoins that offer Africans not only access to stable currencies but a store of value and payment options. Some things that I’m thinking about;
Crypto will largely be a portal for Africans to access and own property in the outside world. Tokenised Western Assets will give Africans access to Western wealth and property rights protection;
Crypto particularly stablecoins will play a key role in African involvement in gig and remote work;
The African legal stack will take time to catch up in enabling tokenization of local assets so this is not an area I see a lot of activity happening in the interim;
There will be a fight looming between the Central Bank of Nigeria and the SEC over crypto. Whereas the SEC looks at Crypto and thinks about investor protection, the CBN looks at Crypto and sees capital flight. There will be an uneasy tension;
🇳🇬 Nigerian fintech chief fined $250mn after holdings described as a ‘fiction’
The US Securities and Exchange Commission (SEC) has ordered Dozy Mmobuosi, the CEO of Tingo Group, to pay over $250 million and barred him from serving as a director of any public Company. At its ‘height’ Tingo marketed itself as a global Fintech and Agri-Fintech company with operations in Africa, Middle East and Asia. It claimed over 9 million customers in its Agri-Fintech business and at one point claimed over US$ 467 million in cash and cash equivalents. Weirdly enough, nobody knew of them. Of course this scam has heightened investor wariness of African tech given some of the scams that have happened over the years. However, Scams are not unique to Africa as some of the biggest and most savvy investors fell for FTX. Narratives need to be critically analysed. Nonetheless some frameworks;
If people don’t know about a large business, then your ears should peak up. With cash and cash equivalents of close to US$ 500m, this would be a whale of a client for most African banks and would be on a first name basis of all bank CEOs in the markets in which they operated in;
Often, money is made in silence on the continent. When you’re making real money in Africa, the incentive is to stay under the radar so as to not draw any unnecessary attention to yourself. Only recently due to extraordinary circumstances were we treated to a battle of giants when Dangote came out swinging over his tussle with the NNPC which was eventually resolved;
Due to the opacity of business in the continent, people tend to give people such as Dozy the benefit of doubt. Some of the thinking is that “maybe he knows people that we don’t know” or “he knows something that we don’t know”. I’ve come to realise that if something doesn’t add up then it’s most likely not true. African entrepreneurs should trust their instincts way more than they do. The Mara of Atlas Mara is a prime example.
🌍 Crown Agents Bank to Collaborate with Visa on FX and ‘Last Mile’ Payments Across Emerging Markets
Crown Agents Bank (CAB) and Visa today announced a collaboration to enable fast, efficient and reliable payments and FX, especially across the ‘last mile’ – a term for the final and most complex stage in the payment process.
CAB is a UK-regulated bank specialising in FX and cross-border payments for hard-to-reach markets. Visa has historically used CAB to provide FX liquidity in the settlement of high value payments – such as bank-to-bank transfers, or payments between large institutions – in certain jurisdictions.
The newly announced collaboration will see CAB’s network, which covers 100+ currencies across 700+ currency pairs, connect via API with Visa Direct, a payment capability that helps people and businesses send money to eligible cards, accounts and wallets around the world. This will enable CAB customers to move much lower value payments across emerging markets cost-effectively, and settle those payments directly into an eligible card, account or wallet of that customer’s choosing.
This is an interesting deal. Remittances and FX capabilities go hand in hand. Typically, a big part of last mile payments are for aid especially as cash is becoming a bigger form of aid than traditional food and material based aid. This is where companies like CAB come in as they sit at the heart of markets such as London and New York with relationships with key donors such as Oxfam, Save the Children and WFP. The main challenge I see with this partnership could be Visa’s capabilities in mobile money termination which is critical in Africa. This could be a space for Nala and Onafriq to take advantage of by having partnerships with the likes of CAB and other London based brokerages which have long-standing relationships with main donors in the West. This is particularly relevant in the East and Southern Africa region;
🇵🇭 GoTyme Bank Has Raked up 3.7 Million Users, PHP 17.3 Billion in Deposits
GoTyme Bank which was formed through a collaboration between Filipino conglomerate The Gokongwei Group and SA based Tyme Group reported impressive user growth in the first half of 2024. Total users grew by 1.7 million customers to reach 3.7 million customers overall. This represented a growth rate of 85%. Impressively, GoTyme has accumulated deposits worth PHP 17.3 billion or US$ 305 million. This added to the results posted by Nubank and Revolut validate the continued promise of Neobanks which will be a key theme for Frontier Fintech going forward. A number of thoughts emerge that are thematic to Frontier Fintech;
Bangko Sentrale de Pilipanas, which is the Philippine Central Bank, has shown regulatory clarity. Already 6 digital banks have been licensed such as Tonik, Maya Bank and GoTyme Bank with plans for an additional four more. This should bring the total to 10 digital banks. The key criteria for licensing will be centred around differentiation. Again, regulatory clarity and forward mindedness is proving to be the binding constraint for Fintech innovation;
There’s something to be said about Family Based businesses in low-trust economies such as South East Asia and Africa and their role in catalysing economic outcomes. Similarly to India where Tata Group is in multiple verticals due to the trust it has engendered over years, GoTyme owned by Gokongwei and G-Cash owned by the Ayala Family are playing a key role in driving innovation due to the trust element. It’s worth noting that a similar dynamic is at play with TymeBank in South Africa. ARC which is owned by UBI has at its core a diverse set of community and church based organisations as shareholders. This definitely plays a key role in engendering trust which is a critical ingredient for Neobank deployment in the emerging world;
With the last dynamic, one questions therefore whether countries such as Ghana, Kenya, Egypt and Nigeria have a deep enough bench of indigenous entrepreneurial capital that can be deployed to drive innovation.
🇺🇸 Affirm report US$ 381m in operating income for Q4 24
US Based BNPL provider founded by Paypal Mafia member Max Levchin reported operating income of US$ 381 million marking the fourth consecutive quarter of positive net operating income. Some of the other notable results were;
Total GMV jumped from US$ 5.4 billion in Q4 2023 to US$ 7.2 billion in Q4 2024 representing a 31% jump;
Active customers grew by 19% to 18.6 million;
Transactions per active customer grew by 22% from 4.0. transactions per active customer to 4.9 transactions per active customer per quarter;
Total revenue grew by 48% to US$ 669 million from US$ 446 million;
GMV per active customer grew by 10% from US$ 352 to US$ 387 per quarter;
Ultimately revenue less transaction costs fell within the 3-4% range which Max Levchin claims is the sweet spot for sustainable profitability
Some key take-outs;
Affirm joins the likes of Nubank and Revolut in showing the wider market that purely digital financial services benefit from a long-term advantage in operating leverage. This is the ability to rapidly growing your operating margin as you scale. Additionally, it shows that whereas some of these Fintechs were over-estimated in 2021, they may be as yet underestimated in the long-term;
African founders should look at the GMV per active customer when thinking about BNPL in the continent. If annualised, the GMV per active customer is close to US$ 1,548. South Africa, Nigeria, Egypt and Kenya respectively have GDP per Capita’s of US$ 6,006, US$ 2,460, US$ 4,178 and US$ 1,814 respectively. If you consider income inequality which is very rampant in the continent, then the business case for consumer focused BNPL becomes flimsy;
A case could be made for Vendor focused BNPL given that US$ 387 in purchases does not sound ridiculous. Nonetheless with take rates of 9% plus including transaction costs, such a service will eat into the already thin margins prevalent in African informal retail;
As always thanks for reading and drop the comments below and let’s drive this conversation.
If you want a more detailed conversation on the above, kindly get in touch on samora@frontierfintech.io.