Frontier Fintech GPS # 15 - December 11th 2024

Moniepoint and O-Pay both get fined by CBN, Leja continues to scale its transaction volumes and M-Pesa Africa deepens its global payments capabilities

Illustration by Mary Mogoi - Website

Hi All, Welcome to the 15th 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. 🚀

Reach out at samora@frontierfintech.io to discuss sponsorships, deep-dives and advisory work.

This is the last Fintech GPS of the year, the next one will be in Mid-January!

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🇳🇬 CBN fines Moniepoint and OPay ₦1 Billion each as Nigeria tightens fintech regulation

In the second quarter of 2024, the Central Bank of Nigeria (CBN) imposed fines of ₦1 billion each on Moniepoint and OPay following routine audits that uncovered compliance issues. These audits are standard for financial institutions under CBN oversight. The fines reflect the CBN's intensified scrutiny of the rapidly expanding fintech sector, which has seen companies like OPay amass approximately 40 million customers and Moniepoint process 5.2 billion transactions in 2023. Concerns have arisen over these fintechs operating under microfinance bank licenses, originally intended for supporting micro, small, and medium enterprises, which may be inadequate for their current scale of operations. Additionally, the CBN has raised issues regarding adherence to Know Your Customer (KYC) protocols. In April 2024, the CBN temporarily halted customer onboarding for several fintech firms, including Kuda Bank and Palmpay, due to KYC non-compliance, prompting these companies to revamp their onboarding processes and enhance compliance measures. While Moniepoint declined to comment on the fines, OPay refuted the claims, stating that the allegations of a ₦1 billion fine are entirely false.

Some take-outs from this story;

1. Globally Fintechs have come increasingly under scrutiny with Revolut in particular being in the cross-hairs. This story is not unexpected when seen from this perspective. The danger is driving a narrative that Fintechs are reckless and not acknowledging that banks like TD Bank have recently been hit with massive fines due to worse infractions. This is not “whataboutism”, it’s a balanced view on things;

2. This can only be excused if there’s progression towards more compliance. As someone who has managed retail and agent-led Fintech operations, I know how difficult keeping on top of compliance is. As I’ve argued before, such Fintechs can only succeed if they approach their compliance efforts from a tech first perspective. Radar-like systems that conduct automated audits, now possible with AI, would be a useful first step;

3. When building a business, compliance may not be your first concern and in fact, it may be an area that you don’t like to spend your time on. Like I argued recently, this is perfectly normal. Charles Koch in the 90s had his awakening that led him to drive a compliance culture across Koch Industries. It’s part of the entrepreneurial journey.

🇰🇪 Kenyan Fintech Leja Processes $2 Billion in Business Transactions in 2024

Kenyan fintech startup Leja has processed $2 billion in B2B payments within its first year, driven by rapid adoption from over 1.4 million MSMEs, including many women- and youth-led businesses. Its app replaces manual record-keeping with digital tools, integrates with mobile money, and enables businesses to track sales and reduce costs. Leja also uses transaction data to build credit profiles, addressing financing challenges for MSMEs. With a 30% monthly growth rate, the company plans to expand to new East African markets in 2025.

Leja’s key wedge is that it enables low cost or free payments through the app. This has enabled it to grow the volumes to the stated levels. I’m not sure how monetisable record keeping is for Micro SMEs or whether that’s the main job to be done from a commercial perspective. The idea of then using this to create a credit profile is interesting but it's a crowded space with the likes of Pezesha and numerous other efforts including the digital loan industry. I’ve also been sceptical of the scale of MSME finance, particularly shop-keepers given that across many products they actually get products and sell before they need to pay their distributors. Nonetheless, I'm impressed by Leja’s ability to scale and serve these clients reliably. It speaks to a solid go to market effort coupled with the technical chops required to maintain such a product stable.

🇰🇪 M-Pesa Expands Payment Capabilities to China Through Partnership With Thunes

M-Pesa Africa, a joint venture between Safaricom and Vodacom Group, has expanded its partnership with global payment provider Thunes to enable seamless payments for users in Kenya and Tanzania when traveling to China. This collaboration allows customers to use the M-Pesa Super App to scan and pay at Chinese merchants, integrating with local cashless payment systems like Alipay and WeChat Pay. The partnership eliminates the need for foreign exchange conversions, facilitating direct payments from M-Pesa accounts and enhancing convenience for travelers.

Safaricom has in the past worked to enable payments to AliExpress and generally to China through WeChat. China is Kenya’s largest source of imports and there’s significant direct MSME and individual imports from China. Temu recently launched in South Africa and has seen good volumes. M-Pesa has been very active in building their global payments capabilities through partnerships with Thunes, Mastercard, Visa and Alipay. This not only taps into remittances but trade which in my view has way more potential.

🇳🇬 USSD Transactions in Nigeria Hit N2.19tn in First Half of 2024 Amidst Debt Challenges

Between January and June 2024, Nigerians conducted 252.06 million transactions totaling US$1.4 billion via Unstructured Supplementary Service Data (USSD) codes, according to the Central Bank of Nigeria's electronic payment statistics. This represents 45.3% of the US$ 3.12 billion transacted through USSD in the entire year of 2023. USSD services, which operate without internet connectivity, are vital for financial inclusion, especially in rural areas with limited internet access. However, the system faces challenges, including a longstanding US$ 132 million debt owed by banks to telecom operators for USSD services.

These stats show that the bulk of Africa transacts outside of smartphones. Given this situation then digital financial services will continue to rely on Telcos. To this end, Mobile Money will continue being the dominant way the bulk of Africans access digital financial services. This will only reduce if smartphones become as cheap as feature phones and even then, the latent barrier will be internet data. This is further proven by the impasse between banks and Telcos in Nigeria over a US$ 132 million debt. In this impasse, Telcos are demanding payments for USSD sessions and banks are playing hardball. Banks need the Telcos to deliver digital financial services. The smaller banks are paying but the larger banks haven’t budged. Behind the scenes, both have leverage. Banks can withdraw FX and Telcos can cancel the USSD service.

🇰🇪 Kenya - Mergers, buyouts loom as 12 banks seek fresh capital

Kenya's Parliament has approved a bill to increase the minimum core capital requirement for commercial banks from KSh1 billion to KSh10 billion over a five-year period, aiming to enhance the sector's stability and resilience. This legislative change is expected to prompt mergers and acquisitions, particularly among smaller banks that may struggle to meet the new capital thresholds. The phased compliance schedule mandates banks to hold a minimum core capital of KSh3 billion by December 2025, escalating to KSh10 billion by December 2029. As of September 2024, twelve banks, including Housing Finance Company (HFC), Access Bank Kenya, and Credit Bank, had core capital below KSh3 billion, collectively needing approximately KSh11.85 billion to comply with the initial requirement.

We’ve spoken before about the trend towards larger banks in the continent and the second order effects i.e. a gradual shift away from small business lending towards larger ticket loans. This has been a global phenomena and I don’t see this changing unless the new Trump administration slowly shifts bank regulations away from their existing strict stance towards capital. This is a likely occurrence given some of the noises some influential figures are making.

🇿🇦 Peach Payments partners with RCS and accepts its cards as a payment method

Peach Payments, an online payment platform, has partnered with RCS, a South African consumer finance company, to accept RCS cards as a payment method. This integration allows customers to use their RCS Store Cards and selected retailer-branded cards, such as Game mystore card, Makro Credit, and Edgars Account, for online purchases. For merchants, this collaboration offers access to RCS's network of over 30,000 stores, potentially increasing sales and fostering customer loyalty. Customers benefit from flexible repayment options and up to 55 days of interest-free credit, enhancing their online shopping experience.

RCS is a consumer finance company that has built a retail card based financial services business by partnering with major retailers in Southern Africa. The business rides on high card penetration in South Africa as well as low financial inclusion amongst lower income segments in SA. This is a space that Capitec took advantage of a generation ago and current businesses such as Tyme Bank and Kazang Pay are serving. The partnership with Peach enables Peach to offer RCS as a payment option. The race in SA’s payments market is based on offering merchants a wider selection of payments options as well as providing reliability to payments teams at large merchants.

🇮🇳 MobiKwik cuts IPO size, values company at USD 250 mln

MobiKwik, an Indian fintech company, has reduced its initial public offering (IPO) size for the third time, setting a price band of ₹265 to ₹279 per share, aiming to raise approximately ₹572 crore (around $69 million). This adjustment values the company at about $250 million, a significant decrease from its $924 million valuation in 2021. The IPO is scheduled to open on December 11, 2024, with shares expected to commence trading on December 18, 2024. MobiKwik plans to utilize the proceeds to enhance its financial services, expand payment offerings, and invest in artificial intelligence and technology development.

MobiKwik’s lower valuation, almost a quarter of their 2021 valuation, is a story that is echoing across the global Fintech ecosystem, not just Africa or emerging markets. The big question which I raised in my previous article is about how realistic some of the terminal valuations embedded in past and present late stage funding rounds are. Is the ecosystem healthier if terminal valuations i.e. the valuation as a mature growth company are at the $250 - 500m range?

🇳🇬 Nigerian Fintech Moove Partners with Waymo to Revolutionize Autonomous Fleet Management in the U.S.

Moove, a Nigerian-born fintech company specializing in vehicle financing solutions, has partnered with Waymo, Alphabet Inc.'s autonomous driving division, to manage and dispatch Waymo's fully autonomous, all-electric vehicle fleets in the United States. The collaboration will commence in Phoenix in 2025 and expand to Miami in 2026. Under this agreement, Moove will oversee fleet operations, facilities, and charging infrastructure, ensuring the seamless operation of Waymo's autonomous vehicles. Waymo will continue to offer its services through the Waymo One app and maintain responsibility for the validation and operation of its autonomous driving technology, known as the Waymo Driver. This partnership marks Moove's entry into the U.S. market and represents its first venture into managing autonomous vehicle fleets, highlighting the growing influence of African fintech firms in the global mobility sector.

Calling Moove a Nigerian Fintech nowadays is a bit of a misnomer, whilst their original market is Nigeria, they have grown to be a truly global company now across multiple continents. It’s a testament to the founders' ambition that they have not only sought out global markets but have executed well. It lends credence to the argument that African founders should build for a global market.

🌏 Banking as a Service Market Projected to Reach $85.73 Billion by 2032 Amid Digital Banking Surge

According to a recent SNS Insider Report, the Banking as a Service (BaaS) market is projected to grow from USD 21.27 billion in 2023 to USD 85.73 billion by 2032, reflecting a compound annual growth rate (CAGR) of 16.76%. BaaS enables non-bank entities to offer financial products by partnering with licensed banks, eliminating the need to develop their own banking infrastructure. The rise of mobile banking, digitalization, neobanks, and supportive regulatory frameworks are key factors contributing to this growth.

In Africa there are very few world class BaaS propositions similar to Solaris or Clear Bank. This is an area that requires additional investments in both technology and expertise. The drivers in my view are;

1. I strongly believe in the SMEfication of the world. In such a world, you’re either an infrastructure provider or a business serving a niche. I expect we’ll have smaller niche financial service providers mostly digital and these will rely on BaaS Capabilities;

2. Banking licenses in Africa are becoming ever more expensive and this is not expected to change. In the absence of a reasonable licensing framework, BaaS becomes the only game in town;