Frontier Fintech GPS #6 October 9th 2024
Tymebank continues to scale, Zepz secures another mega-round and Lesaka completes its acquisition of Adumo plus other key stories.
Artwork by Mary Mogoi - Website
Hi All, Welcome to the 6th 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. 🚀 If you’re already a subscriber, kindly lick on the “Upgrade” button on the top right.
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🇿🇦 TymeBank Reaches 10 Million Customers as It Attracts Record Deposits for 2024
TymeBank has reached a significant milestone of 10 million customers as of 2024, making it the fastest-growing bank in South Africa in terms of customer deposits, which now stand at nearly US$ 400 million. The bank, known for its 'phygital' model blending digital banking with physical retail networks, has also expanded its SME lending, disbursing US$690 million to over 80,000 small businesses. With a customer-centric approach, TymeBank plans to enhance its app experience and enter new markets like Indonesia. A key driver for the growth particularly in the lending business has been the acquisition of Retail Capital which was finalised in 2022.
I’ve written before about why “Phygital Models” like Tymebank and Moniepoint are well placed to grow over the coming years in SME banking. Some points to note;
Tyme bank has recorded impressive growth. Despite this, its loan book is still approximately 10% of Capitec’s loan book and around 1% of Absa’s loan book. This represents a huge space to grow into;
Tyme bank has integrated its past acquisitions well and this will be a useful muscle to have. Given it’s sophistication in raising investor capital, acquisitions of smaller financiers in niche segments such as asset financing, insurance and trade finance will be important for growth;
It would be useful to get visibility into their profitability particularly their operating leverage i.e. the relationship between revenue growth and growth on costs.
The path forward for Tyme bank should centre around a maniacal focus on it’s core segments i.e. Retail and SME whilst expanding cleverly into new segments. In finance, diversification of your balance sheet and revenue sources is critical for long-term survival and success. There’s an up-coming article around this centred on how banks like Capital One and GT Bank in Africa grew. Challenger banks will be a key theme for Frontier Fintech going forward and we’ll be tracking the likes of Moniepoint, NCBA Loop, Fairmoney and others. The conditions are ripe for the next generation of African banking giants.
🌍 Zepz secures $267m Series F led by Accel
Zepz, the company behind Sendwave and WorldRemit, secured $267 million in a Series F funding round led by Accel, with participation from Leapfrog and TCV. The International Finance Corporation (IFC) also committed up to $20 million. The funds will support Zepz's entry into new markets and expand offerings like the Zepz Wallet. Zepz, which facilitates cross-border payments across over 40 send and 90 receive countries, achieved full-year profitability in 2022. Zepz owns both the WorldRemit and Sendwave remittance brands.
There was a flurry of activity with Zepz three years ago. In February 2021, Zepz then Worldremit acquired Sendwave and both were jointly processing around US$ 10b dollars. Later in the year, they rebranded to Zepz whilst announcing a mammoth US$ 292 million funding round valuing the company at US$ 5 billion. This was on top of their Series D which had raised US$ 175 million in 2019. Accel also participated in their Series E. Between the three rounds, they have raised US$ 734 million. These are large figures. In the mean-time, competitors like LemFi and Nala have grown and have raised impressive Series A rounds of US$ 33m and US$ 40m respectively. Interestingly, Accel which led Nala’s seed round was not mentioned as a major investor in Nala’s Series A.
The question is, how much more funding can the African remittance market support. It would be useful to view this in the following context;
The remittance market is growing but the growth is attracting even more competition including the entry of stablecoins and infrastructure players like Flutterwave;
The market seems to be centred around driving partnerships and licensing in recipient markets whilst doing aggressive marketing in sender markets - both cost intensive endeavours;
Ultimately, there is little pricing power enjoyed by these players given that there are multiple players in the market;
It’s then clear that you can’t achieve pricing power through scaling. One approach could involve acquiring your competitors to build scale and pricing power, but this would be a game of whack-a-mole as more would just pop up. Given these dynamics, I’d worry about how some of these investments would be exited.
🇿🇦 Lesaka completes the acquisition of Adumo, cementing its position as the leading independent fintech in Southern Africa
Lesaka Technologies has completed the acquisition of Adumo, South Africa's largest independent payments processor, for approximately $96.2 million. This acquisition strengthens Lesaka’s position in the fintech space, significantly expanding its reach across Southern Africa. Lesaka now serves 1.7 million consumers and 120,000 merchants, processing over US$ 15 billion in transactions annually. This deal marks a strategic step in the company's goal to digitise commerce across the region and bring new innovations to its payment solutions.
Some facts about Lesaka;
Lesaka is a South African company that has a primary listing in the Nasdaq and a secondary listing in the Johannesburg Stock Exchange;
Its primary goal is to provide payments and banking solutions to the underserved players in Southern Africa with a focus on SA. These are;
Micro-merchants estimated to be around 850,000 in South Africa alone;
Consumers particularly the underserved;
Lesaka generate revenues of US$ 602 million in FY 24 split as;
US$ 533m through merchant services - primarily payments processing, value added services and cash management solutions;
The balance in its consumer division primarily payments and lending;
Whilst it makes more revenues in it’s merchant division, their consumer segment’s EBITDA Margins are almost 4x higher at 21% vs 6% for merchants;
It’s core brands are Kazang that offers merchant payments acceptance devices that also double up as Value Added Services selling points and Easypay as its consumer brand;
Lesaka’s business is driven primarily by the dominance of card and cash payments in Southern Africa. Their ability to distribute devices, accept payments and sell VAS services creates a lock-in for merchants given that vas enables small businesses to earn additional revenue. Moreover, the commissions from VAS can often be useful in subsidising the card acceptance costs that merchants accrue. Adumo is very strong in consumer payouts which would be a useful product within Lesaka’s portfolio.
SA has shown that it’s a vibrant Fintech market especially in the payments space. The long-term interaction between Lesaka and players like Stitch and Yoco would be interesting to see and some kind of consolidation there wouldn’t surprise me particularly if Lesaka wants to go upstream i.e. into more formal businesses.
🇿🇲 Kazang Launches Kazang Pay in Zambia, Enabling Card Payments for Merchants
Kazang, a division of Lesaka Technologies, has launched Kazang Pay in Zambia, enabling merchants to accept card payments, including VISA debit, credit cards, and mobile wallet payments. Merchants can now use their existing Kazang terminals for these transactions, with payments settled into their Kazang wallets on the same day. This launch aims to increase financial inclusion and expand digital payment options across Zambia, following the success of Kazang Pay in South Africa.
Kazang is a key revenue driver for Lesaka. How these businesses work simply revolves around signing POS terminal deals with manufacturers in China, programming them with your proprietary payments software, signing deals with utility companies and any other company that sells subscription-like products and importantly getting them into the hands of merchants. If you get it right it can be very lucrative as each transaction generates revenues of at least 4% of the transaction value. Higher value purchases such as insurance are real money spinners. The key drivers for adoption of these payment services by the market centre around cash and card usage. In Kenya for instance, they wouldn’t take off because people use Mobile Money for all their payments including tithe at church. Where mobile money is present, the adoption centres on whether people use MoMo predominantly for CICO. Based on this, the Zambian market would work and I expect them to succeed in this market.
🇿🇦 SA fintech startup LittleFish secures funding from TLcom, Flourish
This has been a very active week for South African Fintech. South African fintech startup LittleFish has secured funding from TLcom Capital and Flourish Ventures to scale its operations. LittleFish, founded in 2021, focuses on helping banks better serve SMEs through a digital platform offering financial services, payment processing, and access to credit. The startup's partnership with Visa provides a competitive edge, enabling it to serve banks more effectively. The funding will allow LittleFish to expand its services across Africa and strengthen its impact on SME banking. Interestingly, it’s TLCom’s first investment into South Africa as it has previously been focusing on East and West Africa.
The opportunity for LittleFish is based on the fact that banks may not have the agility to produce the type of products that are required for SMEs particularly when you compare them to the likes of Yoco and Kazang. Littlefish then serves these banks by providing them with the software tools to target these markets better. The natural questions that emerge are;
Is the problem a software problem or a focus problem i.e. banks are not really incentivised to win in these segments and software won’t solve the problem. It could be a bit like how Spleet created a solution for the Lagos rental market that innovated around rental payments. The underlying problem was of supply and demand and not payments;
Merchant services is a very competitive space in SA and success will likely lead to imitators. What exit opportunities would then exist.
Ultimately, it will all boil down to execution and a commercial focus and I’m sure the founders will figure it out. Ultimately they know a lot about the space and the ways to win.
🇳🇬 Nigeria’s Digital Payment Surge: PoS Registrations Soar to 26.54 Million in Seven Months
Nigeria has seen a sharp increase in digital payments, with Point-of-Sale (PoS) registrations reaching 26.54 million in the first seven months of 2024, a 22.59% rise from the previous year. This surge highlights the country's shift toward cashless transactions, driven by policy and private sector initiatives. Electronic transaction volumes have also soared, with July 2024 alone seeing N89.50 trillion spent through digital channels, marking a record high and an 89 percent increase from N47.39tn in July 2023.
The growth in electronic payments can be attributed to the cashless drive that the CBN has spearheaded that included a change in the notes in circulation. This has driven more payments into the digital space. Nonetheless the growth of PoS is hard to explain.
🇳🇬 🤝🏿 🇿🇦 Fincra secures payment licence to expand services in South Africa
Fincra, a Nigerian fintech, has secured a Third Party Payment Provider (TPPP) licence in South Africa, allowing it to expand its services in the country. The licence enables Fincra to offer its Pay-In and Pay-Out solutions, supporting businesses with seamless payment processing across various methods, including card payments. This expansion aligns with Fincra's mission to build a continent-wide payment infrastructure, enhancing financial inclusion and cross-border transactions.
Fincra has been active given that it recently acquired a Money Transfer Operator licence in Nigeria. They’re building payments infrastructure much in the same way that Flutterwave has done. The growth here is the increased digitisation of payments and remittances. Fincra is relatively young and only received their payments licence from the CBN in January 2023. Despite the presence of multiple players such as Paystack and Flutterwave, a company can define its wedge either through better reliability, pricing or focusing on a specific niche of the market. There is growth to be had given demographics and increased digitisation. Who will win in the space is hard to tell but there’s a lot of space to grow into for all the players. Of course, some consolidation will happen down the line.
🌍 Africa to See Triple-Digits Growth in Consumer Spending Over the Next Decade, EBANX Shows
EBANX's report highlights that Africa is projected to see significant consumer spending growth, with countries like Ethiopia expected to grow by 429%, Egypt by 167%, and Kenya by 115% over the next decade. The continent’s shift toward digital payments is driving this growth, with mobile money being a key contributor. This surge places Africa as a major frontier for digital commerce, alongside emerging markets in India and Latin America.
Ebanx is a Brazilian payments company that has joined the likes of d.Local in expanding into Africa. These Latin American players view the continent as being x years behind Latin America in a number of areas such as digitisation, urbanisation and payments. The view then is to get to Africa at the ground floor and benefit from the expected growth in the payments and Fintech space. However this assumption whilst it sounds logical may be wrong. Ken Opalo of the Africanist substack does a good job at describing the differences between different geographies, in his most recent post, he stated that;
The nations of sub-Saharan Africa surpassed 40 percent urban share in 2010 at a GDP per capita of $1,481. For comparison, Latin America passed the 40 percent mark in 1950 at a GDP per capita of $2,500, while East Asia surpassed a 40 percent urban share in 2000 at a per capita GDP of $5,451.1 For reference, in 1900, per capita in Western Europe was at least twice that of sub-Saharan Africa today.
The simple point is that, we could actually be 60 years behind rather than 5 or 10 years behind and the expected growth in payments may not materialise. It’s always useful to question your logic.
🌍 Flutterwave’s chief on the company’s executive hires, product focus, and IPO plans
The Flutterwave CEO Olugbenga Agboola recently sat with Techcrunch to discuss a number of issues. Some interesting nuggets;
Increased focus on their core business. Flutterwave recently shut down Barter, their consumer app given it was not generating sufficient revenue. Currently, their enterprise product that enables enterprise payments accounts for 90% of their revenue with Send, a remittance app accounting for 10%;
Flutterwave has continued investing in licences partnerships, reach payment types and technology. Their goal is “to be that infrastructure layer that powers all the who’s who of payments on the continent… to be the Adyen of Africa.”
Olugbenga realises the need to reduce third party partnerships and drive more reliability in their service. “To go deeper into the stack, you have to ensure that you eliminate as many third-party layers as possible and ensure you are the direct owner of your infrastructure. This will allow you to give your customers more value. We cannot afford third-party downtime, so we need to hold our licences”. This is particularly true for their core markets;
On Key markets - Flutterwave is targeting Egypt, Morocco, Nigeria, Ghana, Senegal, Côte d’Ivoire, Cameroon, Rwanda, Tanzania, Uganda, and Kenya;
Flutterwave sees Enterprise still being the key driver of revenue for the foreseeable future. In the CEO’s words “Our enterprise will keep growing. That’s where our bet is, and I don’t see that changing much. Remittance will keep growing, too, for us… However, we’re yet to scratch the surface when it comes to payment and enterprise infrastructure in Africa;
On fraud, Flutterwave believes that the industry has to take a consolidated approach. This makes a ton of sense and could include shared databases and sharing information on best practices and the types of fraud that are taking place;
🇬🇧 HSBC launches embedded finance venture
HSBC has launched a joint venture with B2B global trade network Tradeshift, named SemFi by HSBC, which aims to offer embedded finance solutions to businesses. Initially focused on the UK market, it provides SMEs access to digital invoice financing and virtual card payments integrated within e-commerce platforms. HSBC is focusing on embedding seamless financial services into business processes to enhance growth opportunities for SMEs.
This plays into a number of Frontier Fintech themes. The growth of SMEs and financial tooling as a wedge in the provision of financial services. Embedded finance makes a ton of sense for a large player like HSBC that has a large balance sheet, a corporate focus and extensive trade infrastructure and relationships. Extending these through an embedded finance partnership is a low cost way of extending your distribution and serving SME segments. Banks in Africa are well advised to think through embedded finance particularly for trade. Fintechs would have to solve a number of issues prior to approaching such partnerships primarily around onboarding and KYC.