Frontier Fintech GPS #12 November 20th 2024
CBN Deepens its efforts at financial inclusion, Former Solaris execs launch an SME neobank in Cape Town, Teraco furthers Africa's AI Agenda and many other stories
Illustration by Mary Mogoi - Website
Hi All, Welcome to the 12th 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 as it applies to Africa. To those who are yet to subscribe, hit the subscribe button below and share with your colleagues and friends. 🚀
First a Word from our Sponsors
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These learnings were then exported to Europe whilst the continent was witnessing its own Neobank boom in the middle of the last decade. Skaleet is therefore a Global Next Gen Core Banking platform built on the back of hard won insights from launching in the continent. They know how the continent works and have built for it. With a single code base and one platform, Skaleet’s extreme level of configurability combined with an in-market solutioning approach drives predictable localized success. Since December 2020, Skaleet has raised nearly $ 50 million from Long Arc Capital, a NY-based growth equity fund and has grown to a team of over 130 people, giving them the scale and chops to successfully manage both large and small digital propositions. Contact Brice for Partnerships and Beatrice for Sales;
Contact me on samora@frontierfintech.io for sponsorship and partner piece opportunities. Spots for 2025 are filling up quickly.
🇳🇬 IFIC 2024: Nigeria’s CBN Reaffirms Commitment to Financial Inclusion, Unveils We-Fi Code And Dashboard
The Central Bank of Nigeria (CBN) has launched the We-Fi Code, WFI Dashboard, and a strategic roadmap for Financial Deepening Providers (FDPs) during the International Financial Inclusion Conference (IFIC) 2024. These initiatives aim to enhance financial inclusion by providing affordable financial services to all Nigerians, regardless of location or economic status. The CBN has also revised minimum capital requirements for banks to better serve underserved markets, including micro, small, and medium-sized enterprises (MSMEs) and rural communities. This strategy is expected to boost credit access, job creation, and the expansion of digital financial services, contributing to Nigeria's goal of becoming a $1 trillion economy.
Source: The Africanist Substack by Ken Opalo - Diagram shows Nigeria’s small administrative state compared with SSA and Kenya
The CBN’s efforts towards financial inclusion in Nigeria have been impactful. One can almost argue that Nigeria’s Fintech industry owes its existence to the CBN’s 2010 financial inclusion strategy. One must see this in the context of Nigeria’s small administrative state. The government is very small in Nigeria when one looks at government expenditure as a percentage of GDP. Nigeria is therefore a liberal dream given its low level of government interference. Therefore, concerted efforts by the CBN are impactful given they’re the few examples of strong administrative execution in Nigeria. To this end, the CBN is doing a great job. What I disagree with is the idea of higher capital requirements as a way of driving financial inclusion. Across the world we’ve seen evidence that higher capital requirements actually drive banks towards larger clients and away from SME’s. The solution should be focused on either promoting BaaS or coming up with newer licensing frameworks targeted at digital or virtual banks like we’ve seen in S.E Asia.
🇿🇦 Former Solaris execs to launch fintech start-up Zazu for African SMEs
Former Solaris executives Rinse Jacobs and Germain Bahri are set to launch Zazu, a fintech start-up aimed at providing inclusive business banking services and financial management tools to underserved small and medium-sized enterprises (SMEs) in Africa. Based in Cape Town, South Africa, Zazu plans to combine everyday banking with features like invoicing, bookkeeping, and cash flow management to facilitate SME growth. The platform has already attracted over 300 SMEs to its waiting list and secured 15 integration partnerships with business service platforms, including Lula, Shopstar, Xero, Govchain, Outsourced CFO, Stub Africa, and Mansa AI. The minimum viable product is ready for launch, pending final regulatory approvals.
I spoke to Germain and Rinse a couple of years back as they were ideating and I’m glad to see the progress they’ve made. The idea of dedicated SME banking makes a lot of sense to me and is something I’ve written about before. The opportunity is based on the fact that modern technology, particularly communication and productivity tech e.g. AI has made it easier to set up a business. SME formation will therefore be significant in the coming years. The idea is to abstract finance and that means helping an entrepreneur all the way from incorporating to bookkeeping and that’s what Zazu are setting up to do. The challenge as always is regulatory particularly when it comes to securing a BaaS partner. I’ve written about BaaS here before. In essence, higher capital requirements without a corresponding regulatory shift towards licensing smaller players means that the only viable option is BaaS.
🇿🇦 Teraco Taps Absa for $442 Million Loan for AI-Ready Facility
Teraco Data Environments Ltd., Africa's largest data-centre operator, has secured an 8 billion rand ($442 million) loan syndicated by Absa Group Ltd. to expand its capacity to 228 megawatts, positioning itself to meet rising demand for AI applications. The new facility will feature advanced hyperscaler specifications, including liquid cooling for power- and heat-intensive AI equipment. This expansion follows a 2023 raise of 11.8 billion rand (US$ 650 million) for refinancing and facility completion, with the latter set to launch in early 2025. Africa, with its rapidly growing and tech-savvy population, holds under 2% of global data-centre capacity but offers significant growth potential, with projections estimating a $7 billion market by 2027. While Teraco dominates the market, competition is intensifying with new entrants like Equinix, AWS, and Microsoft, which plans a 1-gigawatt facility in Kenya.
There is going to be demand for local AI ready data-centres for local companies training their own AI models. The advantage that Teraco offers from an AI perspective is lower costs compared to going fully on cloud whilst still offering an on-ramp to cloud providers, data sovereignity and enhanced connectivity particularly from a latency perspective given your data doesn’t have to travel too far. I wrote about it here in my discussion with Kamal Budhabhatti on AI adoption in financial services. I expect to see much more activity in this regard when it comes to players like Teraco and Equinix expanding their data centres. AWS, Azure and Huawei will also be very active.
🇳🇬 Carbon is bringing back its card services
Nigerian digital bank Carbon is set to reintroduce its card services this month after a six-month hiatus. The initial suspension in June 2024 was due to rising costs with its international card provider and challenges in the delivery system. With a refined distribution process, Carbon aims to enhance customer convenience and loyalty. The bank is also exploring cost-effective alternatives to traditional Visa and Mastercard options, such as Interswitch’s Verve and the Central Bank of Nigeria's Afrigo card, to offer more affordable, locally tailored solutions.
Ngozi the Co-Founder of Carbon wrote about their shift away from cards on his substack, the article is more about how the card story leaked then. I recommend the newsletter given he’s one of the few founders who write about their business journey in the continent. The shift back towards cards should be seen in two perspectives. On one perspective, one in three Nigerians uses a debit card so you can’t run any sort of serious consumer finance business without cards and this couldn’t have been lost to the Dozie brothers. On the other hand, we’re seeing a realignment of Nigerian tech supply chains given the currency depreciation. Only recently did we write about Okra and their provision of cloud services as a means to serve companies who want to pay for cloud in Naira. It’s nothing new, the tech industry in Africa is just doing what traditional industry has been doing for decades, optimising for the unique economic environment in the continent. This is a good thing.
🇳🇬 🤝🏿 🇲🇺 Access Bank UK to acquire Mauritius-based Afrasia Bank
Access Bank UK, a subsidiary of Access Holdings, has announced plans to acquire a majority equity stake in AfrAsia Bank, Mauritius's fourth-largest bank by total assets. This strategic move aims to expand Access Bank UK's personal and corporate banking services into Mauritius, leveraging the country's robust financial sector, which contributes 13.1% to its GDP. AfrAsia Bank reported total assets exceeding $5.7 billion as of June 30, 2024. Access Bank intends to utilize Mauritius as a strategic hub for trade finance and regional connectivity, enhancing its capacity to facilitate cross-border transactions across Africa and beyond. This acquisition aligns with Access Bank's ongoing expansion strategy, following recent approvals to acquire the National Bank of Kenya and the African Banking Corporation of Tanzania.
Access Bank has been very focused in its international expansion. On July 14, 2023, Access Bank Plc entered into agreements to acquire Standard Chartered's shareholdings in its subsidiaries located in Angola, Cameroon, The Gambia, and Sierra Leone, as well as its Consumer, Private & Business Banking business in Tanzania. Access’ network expansion and their current scale as the largest bank in Nigeria is very impressive given their story is only about 20 years old. Their idea for a Pan-African bank is based on network effects where having a strong subsidiary in one market adds to the value of the larger network from a trade and customer coverage perspective. I wouldn’t be surprised to see Moniepoint at the same scale in 15 years time.
🌍 Standard Chartered and BII Partner on $350 Million Agreement to Boost Trade in Africa and South Asia
Standard Chartered Bank and British International Investment (BII) have renewed their partnership with a $350 million risk participation agreement aimed at enhancing trade finance for small and medium-sized enterprises (SMEs) and corporates in Africa and South Asia. Building on a decade-long collaboration that has facilitated over $10 billion in trade across more than 10 countries—including Kenya, Tanzania, Nigeria, Bangladesh, Pakistan, and Nepal—this renewed agreement expands its scope to additional dynamic markets. It focuses on key sectors such as agriculture, healthcare, technology, industrials, and infrastructure, aligning with the United Nations' Sustainable Development Goals (SDGs) to promote economic growth and responsible consumption.
BII has been very active in driving risk sharing frameworks across the continent. How they work is that they partner with a Tier 1 bank and essentially guarantee a portion of a bank’s SME trade book so long as the lending criteria meets BII’s framework. The challenge is two fold. These customer segments are sometimes not the partner bank’s core priority from a strategy perspective and therefore their go-to market motions to acquire these customers are not well coordinated. Standard Chartered in Kenya for instance is not known as an SME Bank. Moreover, BII’s risk-sharing products are not recognised by the Central Bank as collateral and therefore banks are still hesitant to give unsecured loans given the capital implications. We discussed this dynamic in my recent private credit article. From my experience in trade and supply chain is that there needs to be a centralised project manager who helps the bank with customer acquisition and scoring whilst helping BII with visibility. Companies like Finverity are building their businesses around this reality. Additionally, entities like BII need to take on more tier 2 bank risks where the target markets are well aligned with BII’s intended beneficiaries.
🇳🇬 Accrue shifts focus as it ends stock investment feature by year’s end
Accrue, a fintech platform, has announced plans to discontinue its stock investment feature by the end of 2024. In preparation for this transition, all pending stock orders have been cancelled and users have received refunds. This strategic shift aligns with Accrue's evolving vision to concentrate on services more directly suited to the financial needs of African consumers. Founded with the mission of democratising investment opportunities, Accrue has provided African users with the chance to access and invest in global stock markets. The discontinuation of this feature signals a pivot, as the company looks to emphasise products that offer more immediate, practical financial solutions.
There are gradual shifts happening in the wealthtech sector in the continent. Rise recently acquired Hisa App and Bamboo introduced a cross-border payments capability. My view is that it's a slow march towards consumer neobanks where you have diversified revenue pools coupled with payment capabilities. The growth of fractional stocks was based on the insights that young Africans want to invest in global opportunities whilst also diversifying away from volatile African currencies. This is still true. I suspect that lower spending power in Nigeria coupled with the recurring costs of offering this service have made it difficult to sustain. This could therefore mean that Accrue needs to provide a cheaper alternative to fractional stock ownership such as stablecoins because the idea of diversifying away from a volatile currency is still true. They are already doing this by offering high yield dollar savings accounts. In 5 years time, my view is that Accrue, Piggyvest, Bamboo and Rise will all look the same.
🇿🇲 Natsave and Airtel Money launch Fikiliza overdraft to boost financial inclusion in Zambia
Natsave and Airtel Money have introduced the Fikiliza overdraft service in Zambia, providing Airtel Money users with instant credit directly through their mobile wallets. This initiative aims to enhance financial inclusion, particularly for unbanked individuals and small business owners lacking access to traditional banking services. The service aligns with Zambia's expanding mobile money sector, which accounted for 56% of all retail payments in 2023. This collaboration reflects a broader trend of financial institutions partnering with telecom operators to deliver digital financial services across Africa.
The product is inspired by Fuliza which is an overdraft service provided through a partnership between Loop DFS a subsidiary of NCBA and Safaricom. The idea is great as it's a very useful way of enabling small scale financial inclusion particularly for small merchants who are the biggest users. From my experience, the biggest predictor of success is Mobile Money dominance by one player. In Zambia, MTN MoMo is the biggest but they don’t have the dominance of an M-Pesa meaning players like Zamtel and Airtel Money play a significant role. If switching between MoMo providers is easy then the probability of default shoots through the roof. As I always argue, with credit, the leverage of a lender is more important than lending algorithms. Fuliza’s success is based on the fact that being locked out of M-Pesa is the functional equivalent of being locked out of the economy. The same doesn’t apply here.
What could happen is that Natsave could start with its own customers and provide digital credit to them. As they scale, they can figure out how they can leverage their influence to drive repayment behaviour potentially through credit scoring and blacklisting defaulters.
🇪🇹 Ethiopia Government Generates $55 Million from Bitcoin Mining Operations Over the Past 10 Months
Ethiopia has generated over $55 million from Bitcoin mining operations in the past 10 months, following power purchase agreements between Ethiopian Electric Power (EEP) and 25 mining companies. Leveraging affordable renewable energy from the Grand Ethiopian Renaissance Dam (GERD), the country has dedicated nearly 600 megawatts to Bitcoin mining, contributing approximately 2.25% to the global Bitcoin hash rate. This positions Ethiopia as a significant player in the African Bitcoin mining landscape, ranking fourth globally in hash rate contribution, behind the United States, Hong Kong, and an unspecified Asian country. The influx of Chinese miners, following China's 2021 ban on Bitcoin mining, has bolstered Ethiopia's mining capacity. Additionally, Ethiopian Investment Holdings (EIH) signed a $250 million memorandum of understanding with Hong Kong-based West Data Group in February 2024 to develop infrastructure supporting data mining and artificial intelligence training operations. Despite having an installed generation capacity of 5,250 MW, with 90% sourced from hydropower, only half of Ethiopia's population has access to electricity, resulting in a substantial surplus.
Ethiopia is a key market to watch from a Fintech perspective given its recent move to liberalise its capital account i.e. remove foreign exchange restrictions. One can almost draw a direct line between Kenya lifting its restrictions in the early 90s to the Fintech boom that occurred 20 years later driven by M-Pesa. The key thing here is that money can move in and out and that enables new products to be launched particularly around remittances and payments. Given their large population, this is definitely a market to keep an eye on.
🌏 Two-Thirds of Businesses shun Legacy Banks for FinTech solutions, study finds
A recent study by Revolut Business and Dynata reveals that 63% of European businesses find traditional banks too slow to meet their financial needs, leading many to adopt agile fintech solutions. Key concerns include high fees, slow transaction times, and inadequate mobile experiences, with 79% of respondents expressing dissatisfaction in these areas. Notably, 64% of large enterprises fear losing ground to competitors without fintech support. In response, Revolut has launched Revolut Business 5, a financial management platform designed to address these challenges and support modern business requirements.
Of course one would question the validity of such a study given the findings serve Revolut’s commercial interest. That being said, my view has always been that the intersection between Finance and Technology, particularly as it makes finance more intuitive and valuable to its users, is getting bigger and bigger. It’s an inevitable march. We’ve seen this with the growth of Stablecoins and Stripe’s recent acquisition. It’s a case of the world slowly realising that money that works as intuitively as the internet is inevitable. The idea here then is that if this march is inevitable then improvement won’t come only from new Fintechs but by incumbents getting better and that’s where my focus would be as an incumbent bank.
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