Frontier Fintech GPS #5 - October 2nd 2024
M-Kopa has achieved the 5m customer mark and why I think it's only a matter of time before they reach 20m. Daba wins the Ecobank Fintech Challenge and Helios invests in M2P plus more stories
Artwork by Mary Mogoi - Website
Hi All, Welcome to the 5th 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 Reaches 5 Million Customers, Adding 2 Million in Just 15 Months
M-KOPA, a fintech company providing financial services in Africa, has surpassed 5 million customers, with 2 million added in the last 15 months. The company offers affordable smartphones and financial services through a daily repayment model, facilitating over $1.5 billion in financing across Kenya, Uganda, Nigeria, Ghana, and South Africa. M-KOPA also focuses on enhancing financial inclusion, with 62% of users generating income from their products, and has launched initiatives like a local smartphone assembly and plans for green products like electric motorbikes.
M-Kopa are one of the largest if not largest players in the Kenyan smart-phone ecosystem and I suspect that they can double this customer list in a couple of years. There are two factors that will drive this. Number one is demographics, we’re just getting started. The median ages in each of their markets bar South Africa is 21 and below. This means that a number of people are yet to buy a smartphone particularly with the M-Kopa model of daily repayments. The second biggest factor is that AI is just getting started. I’ve been toying around with the Advanced Voice mode on ChatGPT especially when my daughter asks me countless questions, I shamelessly delegate this task to ChatGPT. The other night my daughter asked me whether ChatGPT is a member of the family. It was both scary and funny. Nonetheless the experience made it clear to me that with the advances of AI in both knowledge and its ability to communicate, there will be a number of use cases across the continent from customer support to education. I see a situation where African Farmers can talk to their AI and get tips on best animal feeding or fertilizer application practices. This will make AI a factor of production thereby significantly accelerating smartphone demand. M-Kopa will be there to benefit. If there’s a global push for AI adoption, then the funds will be there to support M-Kopa;
🇨🇮 Daba Emerges Winner of 2024 Ecobank Fintech Challenge
Daba, a multi-asset investment platform in Africa, won the 2024 Ecobank Fintech Challenge, securing a $50,000 prize and a place in the Ecobank Fintech Fellowship program. Their platform democratizes investing for retail and institutional investors by offering access to diverse African investment opportunities. This victory will allow Daba to explore partnerships with Ecobank, expanding its reach across the continent and further driving financial inclusion.
The challenge supports innovative fintechs, offering cash prizes and partnerships with Ecobank's African network. Past winners include OKO (2020) for crop insurance, Trove Finance (2021) for wealth solutions, and NALA (2018), a remittance app.
Daba is an Ivorian Wealthtech that serves over 20,000 users according to its website. Winning the Ecobank challenge is probably a testament to their execution, quality of their product and traction so far. The wealthtech segment is being driven by Millenials and Gen-Z who want a digital wealth experience as well as exposure to global stocks. Wealthtechs in Africa struggle with two key things. On one hand is low GDP per capita that constrains their TAM. On the other hand is a low-trust environment that favours incumbents, the logic here is Return of Capital is more important than Return on Capital. Growing these businesses will require significant market education, expanding to enable a holistic view of one’s financial health and potentially launching credit cards that are secured by the investment holdings. One of the tailwinds is the growth of remote workers who earn in foreign currency but prefer to live in Africa.
M2P Fintech raised $100 million in a Series D funding round led by Helios Investment Partners. The funding will accelerate M2P's expansion into Africa, where demand for Banking as a Service (BaaS) and API infrastructure is growing. M2P, already a major player across Asia, offers financial services technology to over 200 banks and 800 fintechs. This partnership with Helios will help M2P scale its presence in Africa and drive financial inclusion. Helios is a venerated Private Equity house and recently launched a venture arm. Their team includes the smartest and most networked investors in the continent and their track record proves that. They were a key investor in Equity Bank Group and funded the bank’s rapid expansion across East Africa.
BaaS in my view is a major growth area in the continent. I have an up-coming article on this. However, the key point is that there’s a fundamental conflict between the need for financial innovation in the market and the bank licensing environment in the continent which is focused on stability. Due to this, there is neither a digital banking licence charter nor a friendly traditional bank licence across many African markets. This fundamental conflict leads to a US-type banking environment where the complexity of licensing coupled with the need for innovation leads to a BaaS friendly environment. One may argue that the recent issues in the BaaS space typified by Synapse negates BaaS. Nonetheless this is a growing pain. BaaS providers will mature and become more sophisticated from a regulatory perspective. DTB in Kenya is leading the charge with Astra which is growing a valuable reputation amongst Kenya’s Fintechs. Helios should help unlock a number of sales relationships for M2P.
🇿🇦 EA Capital Secures Regulatory License in South Africa, Bridging Traditional Finance and Blockchain
EA Capital, a financial services firm, has obtained a Category I Crypto Asset Service Provider (CASP) license from South Africa's Financial Sector Conduct Authority (FSCA). This license allows the firm to integrate traditional finance with blockchain technology. With this milestone, EA Capital aims to bridge the gap between traditional banking and digital asset services in South Africa, positioning itself as a key player in the regulated crypto space.
I recently wrote about Stabelcoins and how this will be a growing space. The drivers for crypto in the continent are the need for more seamless payment services led by Stablecoins as well as the need for a stable store of value given the volatility in African currencies. South Africa has been very forward thinking as regards crypto licensing. The Financial Intelligence Centre Act (2001) was updated in 2022 to include crypto services, specifically the exchange, intermediation and storage aspects of cryptocurrencies. Under this, they launched the CASP licensing framework. I see a situation where traditional banks slowly start dipping their toes in this space particularly for their Wealth clients and down the line for SME trade payments.
🇳🇬 Send App by Flutterwave now available in 49 States
Flutterwave's Send App is now live in 49 U.S. states (except Texas), allowing users to transfer money to Africa securely and conveniently. The Flutterwave Send App is designed to simplify cross-border money transfers, allowing users to send money seamlessly from the U.S. to multiple African countries. It offers fast and secure transfers, supporting various payment methods, including cards and bank accounts. This service is aimed at the diaspora, helping users send remittances to family and friends in Africa. The Send App was launched in 2022 and the growth to 49 states within that time frame is impressive.
Flutterwave has recently been very aggressive securing licences in Ghana, Uganda and Malawi whilst adding to their executive ranks. As the owner of the underlying money movement infrastructure, building Send as a remittance app could give it a pricing advantage over other remittance providers who rely on Flutterwave rails. Nonetheless, despite this, reliability has been an issue raised by some players in the market leading to Nala building out their own underlying B2B infrastructure. I argue that one profitable approach could be to build out stablecoin rails and distribute this through their existing Send customers. There’s a reliability issue that’s in-built into the Send, Nala remittance model.
🇮🇳 India Payments Authority eyes Africa and South America’s Digital Payments Push
India is working with countries in Africa and South America to help them build digital payment systems using the Unified Payments Interface (UPI) as a model. NPCI International Payments Ltd (NIPL) has signed agreements with Peru and Namibia to launch real-time payment systems by 2026-2027. Rwanda is also in serious discussions. NIPL is expanding its global reach by linking UPI with other payment systems like Singapore's PayNow and is doubling its workforce to support these international efforts.
UPI has been a massive success in India and has grown to a volume of US$ 247 billion in transactions in the month of August alone. This represents an annual run-rate of close to US$ 3 trillion which would be roughly the size of India’s economy. In an up-coming article, I argue that African countries are better served building systems like UPI and Pix rather than following the mobile money route. The key argument is that Mobile Money is more of a Kenyan success story rather than an African success story. You’re more likely to build a successful payments system. The key considerations for countries should be;
Governance of the payment system should be by the Central Bank and not banks;
Identity should be embedded - both Pix and UPI have identity;
Considerations should be made about who the participants in the payment system should be and how they should be incentivised.
Look out for the article this coming week.
🇳🇬 Surge in Digital Lending: 320 Companies Now Approved to Offer Loans to Nigerians Amid Economic Hardship
The number of approved digital lending companies in Nigeria has risen to 320, reflecting the surge in demand for loans amid economic hardship. Of these, 264 have full approval from the Federal Competition and Consumer Protection Commission (FCCPC), while 42 operate with conditional approval. However, many unregistered lenders remain active, leading to increased regulatory scrutiny, including 88 loan apps under watch and 47 delisted. Digital lending is crucial for many Nigerians, though concerns over customer harassment and defamation persist.
In Kenya as well, 27 digital credit providers were recently licensed bringing a total of 85 licensed DCPs. The Central Bank of Kenya nonetheless has received over 730 applications. One challenge that Digital Credit Providers (DCPs) have had is their reputation, especially some predatory antics around recovery where they’d use personal data against the borrower. With improved regulations nonetheless, we’re seeing an improvement in the DCP landscape and a shift towards segment specific lending companies in areas such as asset finance and trade finance. One should note that a big driver of this space besides the tight economic conditions, is the constraints banks have when it comes to unsecured lending particularly from a capital perspective. Globally this has manifested in the growth of global private credit growing to over US$ 2 trillion. Some of that global private credit is finding its way into segment specific digital credit providers in Africa. We should expect to see a growth in DCPs as well as increased lending by DFIs as these are the two primary channels in which private credit is being deployed in the continent.
🇮🇳 Indian FIntech Jupiter in talks to buy stake in SBM of India
Indian neobank Jupiter is in talks to acquire a 5% to 9.9% stake in SBM Bank India, continuing a trend of fintechs partnering with traditional lenders. The deal, which is pending approval from the Reserve Bank of India (RBI), follows similar moves in the Indian market, such as fintech Slice merging with North East Small Finance Bank. This trend highlights fintechs’ efforts to expand their reach and serve underbanked populations.
I’ve written here before how innovations such as UPI, The India Stack and now the United Lending Interface are going to drive India’s credit market. This is being accelerated further by India’s growth and demographics with India boasting the world's 5th largest economy. Acquiring part of a bank could be an effort to drive a deeper partnership specifically where you need specific services from the bank such as payments and store of value services. It’s a natural extension of their growth. If you think about it, the idea of acquiring a stake in a bank makes perfect sense as a Fintech as it’s an investment in ensuring that you secure the partnership. The downside is limited because you’d anticipate that the bank will continue being well run. It therefore acts in much the same way a security deposit would work.
🇦🇷 MercadoLibre Becomes Latin America's Most Valuable Company With Fintech Success
MercadoLibre has overtaken Petrobras as Latin America's most valuable company, largely due to its booming fintech business. With a market cap over $100 billion, its fintech unit, including data-driven loans and credit services, is growing by nearly 50%. The company aims to triple its user base to over 300 million, given economic and population growth in Latam.
Mercardo Libre’s most recent results show quarterly revenues of over US$ 5b almost evenly split between e-commerce and Fintech. If you understand Alibaba’s business model particularly the interplay between Ant Group and the different e-commerce offerings, then you have a good framework to understand Mercado Libre. Starting off with e-commerce, Mercardo Libre has built S. America’s largest e-commerce business. Through the data and lock-in, they have with merchants they have layered credit products for both merchants and customers. Moreover, due to insights on spend, they have extended a credit card in Brazil and Argentina. To top this up, given the trust that they’ve built over the last 25 years, they can offer savings products by enabling both customers and merchants to fund their wallets. This has led to over US$ 6.6 billion in AUM.
Some key stats from their most recent quarter;
Total GMV of US$ 12.6b;
Total TPV of US$ 46.3b;
Net Revenue of 5.1b;
Net Income of US$ 531m;
52m Fintech Active users;
Credit porftolio of US$ 4.9 billion which is mostly short-term lending;
Additional growth drivers will include their expansion to Mexico with a banking license supported by US$ 250m in funding from JP Morgan.
🌍Mastercard and KaiOS Partner to Bring Affordable Payment Devices to SMBs in Africa
Mastercard has partnered with KaiOS Technologies to provide affordable payment devices for small- to medium-sized businesses (SMBs) in Africa, starting in Cote d’Ivoire and Nigeria. The collaboration combines Mastercard’s payment technology with KaiOS’s smart feature phones, enabling SMBs to accept digital payments, including Mastercard QR Pay by Link. This initiative aims to overcome the barriers of high costs and technical complexity in payment acceptance for SMBs, advancing financial inclusion across Africa.
It’s a smart move to enable merchants to have access to lower cost POS services across the market. The key challenge here though will be in distribution, Companies like Moniepoint are building a full-stack service that includes low cost and reliable POS devices in Nigeria. Will either Mastercard or KaiOS be involved in distribution? This is where the rubber meets the road. Having said this, it’s a critical insight by Mastercard to understand that digital payments are the future of payments in Africa. Ngozi Dozie in his newsletter had a great article about the challenges with running card programs in Nigeria.