Frontier Fintech GPS # 14 - December 4th 2024
M-Kopa achieves US$ 400m ARR, Safaricom reinvents its approach to its wealth business and promising signs from the Central Bank of Kenya governor.
Illustration by Mary Mogoi - Website
Hi All, Welcome to the 14th 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. 🚀
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🇰🇪 M-KOPA Nears $400 Million ARR, Surpasses 5 Million Customers Amidst Economic Challenges
M-KOPA, a London-headquartered fintech company, is on track to surpass an annual recurring revenue (ARR) of $400 million by the end of 2024, marking a significant increase from the $248 million ARR reported in the previous year. Operating in Kenya, Uganda, Nigeria, Ghana, and recently expanding into South Africa, M-KOPA has provided over $1.5 billion in credit to more than 5 million underbanked Africans. The company's innovative pay-as-you-go asset financing model enables customers to acquire essential products like smartphones and solar systems through affordable daily micropayments, thereby building credit histories and promoting financial inclusion. Despite economic challenges such as currency devaluation and inflation, M-KOPA has achieved profitability in its major markets, attributing its success to a robust direct sales network of over 30,000 agents and a commitment to meeting the financial needs of underserved communities.
M-Kopa this year has celebrated milestones whilst at the same time dealing with tax issues. An initiation into the league of elite African businesses like no other. M-Kopa and Moniepoint’s success to me show that all the fundamental drivers for technology in Africa are valid. Both companies are benefitting from demographics, digitisation and the expansion of the internet economy. What both companies have done well is to combine tech and world class African distribution similar to what MTN and Safaricom did a generation earlier. The biggest take out is for VCs, the continent requires a phygital model to succeed and don’t discourage founders who rightly understand that building people-heavy sales and operations teams matters in the continent.
🇰🇪 Lack of robust infrastructure hinders fintech operations in Africa, CBK Governor
During the 61st Biannual Plenary hosted by the African Economic Research Consortium in partnership with the Central Bank of Kenya (CBK), Governor Kamau Thugge identified several challenges hindering the growth of financial technology (FinTech) in Africa. He emphasized that unreliable internet connectivity, particularly in rural areas, and inadequate mobile network access impede the delivery of seamless financial services to a broad customer base. Additionally, Thugge noted that low customer trust, especially among the unbanked population who often perceive banking as a service reserved for the middle class, poses a significant barrier. The sector also faces threats from cyber-attacks, scalability issues due to limited access to capital markets, and digital literacy gaps. The complex regulatory environments across different African countries further complicate efforts to create a unified market for FinTech services. Despite these obstacles, Governor Thugge expressed optimism, citing research forecasting a 13-fold growth in Africa’s FinTech market by 2030, potentially reaching $65 billion, driven by a compound annual growth rate of 32%.
A number of senior Fintech leaders in Kenya have suggested to me that the current Governor offers a breath of fresh air or at least offers more hope. The speech at AERC where he rightly points out the infrastructure gap in Africa is welcome because it speaks to an understanding of how technology can drive the adoption of financial services even further. Hopefully such thinking should see the fastracking of Kenya’s Faster Payment System, approval of BaaS players and welcoming more PSPs into the market. His role is very pivotal in shaping Kenya’s Fintech landscape. The last time there was a friendly governor, Kenya got M-Pesa.
🇰🇪 CMA approves the Ziidi Money Market Fund from Safaricom
The Capital Markets Authority (CMA) has granted approval to Safaricom PLC to establish the Ziidi Money Market Fund as a Collective Investment Scheme (CIS). This fund will be accessible through the M-PESA platform, providing subscribers with a convenient avenue to grow their wealth via capital markets. In collaboration with Standard Investment Bank, ALA Capital Limited, and Sanlam Investments East Africa Limited, Safaricom aims to offer accessible and diversified investment options. This initiative aligns with the National Government's financial inclusion strategy and underscores Safaricom's commitment to fostering innovation and expanding its footprint in the financial services sector.
This project has been going on for a while. Safaricom has an existing Savings Product called Mali which is easy to use and really democratises savings. My understanding is that the registration as a CIS offers it greater control of the product due to management issues of the Mali fund. With Mali, Safaricom wanted to expand the number of fund managers whilst Genghis Capital who had been selected to be the pioneer fund manager wanted to retain sole ownership of the brand and product. Safaricom has a strategic decision to make, should they focus on distributing financial services? or focus on having greater control?. In a distribution model they can create rules that each product owner must adhere to including technical rules such as product availability and system reliability. In an ownership model they control more of how the product is managed and sold with control driving reliability and trust. I lean more towards distribution because it would lead to more consumer choice and better savings rates for its clients.
🇨🇮 HUB2 banks $8.5M to become the ‘Stripe for Francophone Africa
Hub2, an Ivory Coast-based fintech startup, has secured $8 million in a Series A funding round led by Partech Africa, with participation from Saviu Ventures and Launch Africa Ventures. The company specializes in providing payment solutions tailored for Francophone Africa, aiming to enhance financial inclusion by offering services such as mobile money interoperability and digital payment processing. This investment will enable Hub2 to expand its operations across the region, develop new products, and strengthen its technological infrastructure to better serve businesses and consumers in the rapidly growing African fintech market.
Hub2 has built payments infrastructure that include pay-ins, pay-outs and interestingly crypto on-ramps and off-ramps. They claim clients such as Djamo and Onafriq. The combined GDP of the markets they serve is roughly US$ 290 billion showing significant growth potential. Like in most parts of Africa the complexity of managing different payment methods, currencies and regulatory standards requires a tech player to create a payments platform that makes it easy for businesses to accept and make payments. I wonder how this interplays with Wave who are also building strong payment propositions for businesses in the same markets. However Nigeria has shown us that a Flutterwave can co-exist perfectly with a Moniepoint given the scale of the problem.
🇰🇪 Bank-to-Payless: Kenya’s Fintech is Growing Up Smart
Payless, a Kenyan Fintech app introduced the "Bank-to-Payless" feature. This innovation enables seamless transfers between traditional bank accounts and Payless wallets, catering to the country's tech-savvy youth and enhancing financial inclusion. The move reflects Kenya's rapid adoption of mobile banking solutions, with mobile money transactions surpassing $75 billion annually—a 30% year-over-year increase. By bridging traditional banking with digital wallets, Payless is positioning itself as a key player in Kenya’s evolving fintech landscape.
Payless is on the journey of building a Gen-Z neobank and has had recent run-ins with Safaricom regarding API availability. Although we can’t verify this claim, the underlying complaint is something we’ve talked about in this newsletter as the imperative for a Faster Payments System. Whilst Neobanks in Africa have been caricatured as a vestige of the Zirp era, I think the fundamental business case is there. I argued in a recent article that GT Bank and Equity were similarly caricatured close to 30 years ago and nobody thought that customer service was a serious wedge. In the digital era, customer experience is the in-app experience and players like Payless have what it takes to succeed. Nonetheless, like with Moniepoint and M-Kopa, the key is to enable physical distribution whilst ensuring world class reliability.
🇰🇪 Choice Microfinance Gains Nationwide Status after Central Bank Greenlight
The Central Bank of Kenya (CBK) has approved Choice Microfinance Bank's transition from a community-based to a nationwide microfinance institution, allowing it to operate across the entire country. Initially licensed in May 2015 to serve Kajiado County, primarily targeting Kenyans in the diaspora, Choice Microfinance reported a post-tax profit of KSh 8 million in 2023, with 8,990 deposit accounts. This upgrade positions Choice among Kenya's 11 nationwide microfinance banks, expanding its reach and potential customer base.
What’s interesting about this news story is that Choice is building an integrated Banking as a Service proposition combining an MFB license as well as technology. Much like Cross River in the US or Providus in Nigeria. I’ve written before about the imperative for BaaS. Fundamentally this is about the disconnect between the need for continued innovation in the financial sector and the current regulatory environment that is insisting on ever larger banks. Potentially the new Trump administration may unwind some of this regulatory excess but it may be a while before it trickles down to Africa. Players like Choice are setting up to fill this gap. Success relies on world class tech, strong regulator relationships and the personnel to sell and manage BaaS.
🌍 Standard Chartered exploring potential sale of wealth and retail banking units in Botswana, Uganda and Zambia
Standard Chartered is considering selling its wealth and retail banking operations in Botswana, Uganda, and Zambia as part of a strategic shift to focus on more profitable markets and client segments. This move aligns with the bank's broader strategy to concentrate on affluent clients and international corporations, aiming to enhance income growth and returns. The potential divestitures are expected to have a minimal financial impact on the group, allowing it to reallocate resources to areas with higher growth potential.
Source: Standard Chartered Q3 Results Presentation
Standard Chartered has been exiting a number of African markets over the last 10 years and will look more and more like Citi in Africa. Small bespoke Corporate Banking divisions in a few select markets across the continent. From a global perspective, most of their income comes from Wealth Management, Corporate Banking and Global Treasury & Trade operations. Retaining retail banks in some markets in Africa doesn’t make sense particularly given the amount of capital it has to maintain to run these operations. From a group level this makes most sense and similar moves have been done by Societe Generale in West Africa. Local banking giants are taking over these franchises. Again, it will be interesting to watch President Trump’s approach to banking regulations particularly Dodd-Frank, easing of these rules could see these players flooding back into the market.
🇨🇴 Puntored and Nu partner to enable cash deposits at correspondents
Nu Colombia has partnered with Puntored to enable customers to make free cash deposits into their Nu accounts at over 15,000 locations nationwide using a unique alphanumeric identifier called Nuplaca. Puntored is a Fintech company that provides bank agent networks across Latam. This collaboration aims to enhance financial inclusion by providing accessible deposit options across all Colombian municipalities. Additionally, Colombia's central bank is developing an interoperable payment system, Bre-B, to democratize the country's payments market, which is currently dominated by a few players handling over 90% of transactions.
This is simply a story about how innovation is always local. Equity Bank in Rwanda for instance introduced and scaled their agent banking model aggressively helping them grow market share. Similarly, Nubank in Colombia has the operational expertise and the commercial agility to structure the right partnerships and solve problems such as cash deposits.
🇵🇭 GCash launches Bank Cash-In feature for Filipinos in Europe and the UK
GCash, the Philippines' leading finance super app, has introduced a new Bank Cash-In feature for Filipinos residing in Europe and the UK. This service allows users to link their international bank accounts directly to the GCash platform, streamlining the remittance process by reducing fees, expediting transaction times, and providing competitive exchange rates with real-time fund access. The initiative addresses longstanding challenges in cross-border money transfers, such as high costs and reliance on multiple intermediaries. In collaboration with Thunes, a global payment platform, GCash aims to enhance financial inclusion for the estimated two million Filipinos in these regions, reinforcing its commitment to accessible digital financial services.
This is a brilliant way to do business development. GCash is going straight to the source markets for remittances and enabling Filipinos living abroad to be able to send cash directly. Doing this requires a modern app and this is an area large MoMos like Safaricom and MTN could look to replicate to drive their global payments revenues.
🇪🇬 Geidea expands its SoftPOS services into Egypt
Geidea, a leading digital payment solutions provider in the Middle East, has expanded its SoftPOS (Software POS) service to Egypt following successful implementations in Saudi Arabia and the UAE. This strategic move aims to drive digital transformation in the region by enabling merchants to accept contactless payments directly via smartphones, eliminating the need for traditional point-of-sale devices. The SoftPOS technology complies with MPOC and CPOC standards, ensuring secure transactions for businesses of all sizes.
This is simply a Square for Egypt product enabling people to turn their mobile phone devices into merchant POS devices. However unlike Square, its a software driven solution and no additional hardware is required. It’s a useful solution for low income markets that are card based. Similar products have been launched by Kuda in Nigeria and Tuma in Kenya. Some of the use cases involve building payments acceptance capabilities into any neobank or through e-commerce where the company delivering the goods can accept payments. It has promising use cases but needs wider adoption of contactless cards in the market. Egypt, South Africa and Nigeria are ideal markets for this. You can read more about Softpos solutions here.