Frontier Fintech GPS # 7, October 16th 2024
Ivorian Fintech Waribei closes pre-seed funding, Flutterwave goes into hotel management services and GT Bank Upgrades its CBS amongst other stories.
Artwork by Mary Mogoi - Website
Hi All, Welcome to the 7th 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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🇨🇮 Ivorian Fintech Waribei Raises USD 817 K in Pre-Seed Funding
Ivorian fintech company Waribei has raised USD 817K in pre-seed funding to support the development of its inventory financing platform for small traders in Africa. The funding round was led by Mstudio (USD 545K) and Saviu Ventures (USD 272K). Founded in 2023, Waribei connects banks, wholesalers, and retailers, offering working capital financing for the purchase of goods and managing payment terms within traditional distribution channels, backed by bank liquidity for wholesalers. The funds will enhance integration with financial institutions for tailored services.
Inventory and supply chain finance has a large unmet gap in Africa. Waribei seems to be approaching this problem by building a marketplace of sorts where buyers, sellers and financiers connect. This is a notoriously difficult problem to solve particularly if you approach it as a marketplace. There are the challenges that are inherent in building marketplaces, but there’s also the challenges inherent in inventory finance. Primarily, the largest in my view is having true visibility into commercial performance and ultimately driving positive repayment behaviour. It’s a challenge that I will tackle in an upcoming post given my experience at Sote.
🇳🇬 Flutterwave and 9jahotel.com launch PoS system
Flutterwave has partnered with 9jahotel.com to launch a point-of-sale (PoS) system called Roomstatus, designed to enhance hotel management in Nigeria. The new solution aims to improve operational efficiency by automating processes like booking, inventory management, and billing. It addresses challenges faced by hotel owners, including outdated systems and high operational costs, by offering a smart management platform that streamlines operations and enhances guest experience.
This seems like a case of Flutterwave moving horizontally to address problems that some of their clients face. We’ve seen this before globally with Stripe launching products like Atlas and Radar. In Africa, I find this particularly useful. In Asia companies like Tata and Tencent have moved horizontally across multiple verticals.In a low trust environment, large players that have built trust have an advantage. Large companies in low trust markets are a good driver of digital transformation. It’s a useful lens to look at large companies like Flutterwave especially given that they are unencumbered by public sector shareholding like Telco players.
🇳🇬 Nigerian Fintech Okra Launches Cloud Unit to Boost Revenue
Nigerian fintech Okra has launched a new cloud unit to diversify its revenue streams and enhance its product offerings. The cloud unit will focus on providing financial institutions and fintech companies with cloud-based solutions, enabling them to improve operations and deliver better services. This move aligns with Okra’s broader strategy to support digital transformation in Africa’s financial sector while boosting the company's growth and profitability.
Okra is a financial API company, think Plaid. African Fintechs have been struggling with their AWS costs given currency depreciations and a keener focus on financial performance. Okra is leveraging the trust they’ve built with their customer base and their technical chops to provide a local currency cloud solution. If they get this right, it’s a brilliant idea insofar as a local Fintech doesn’t get its leverage in the early days from their cloud provider. If this is the case, Okra can support Fintechs to scale up to the point where they need to move to a larger player like AWS or Azure. We’ve seen this before in the banking industry where local core banking providers support MFIs and small banks up to the point where they can no longer serve them and the banks need to move to a Finacle or Oracle;
🇿🇦 South African Revenue Service to Crack Down on Crypto Asset Non-Compliance
The South African Revenue Service (SARS) is intensifying its efforts to enforce tax compliance on crypto assets. With over 5.8 million South Africans holding digital currencies, SARS is concerned about unreported crypto-related trades. The agency is integrating crypto into its compliance programs and collaborating with the Financial Sector Conduct Authority and local exchanges. Using AI and machine learning, SARS will target non-compliant taxpayers, urging them to utilise its Voluntary Disclosure Programme (VDP) to declare assets before facing audits.
South Africa is one of the more forward thinking countries when it comes to Crypto regulation. This move makes perfect sense, with over 5.8 million people slightly under 10% of the population using Crypto, it makes perfect sense to tax crypto transactions. Of course, underhand crypto deals will move deeper into the murk. Nonetheless, proper players will comply thus serving as a filtering mechanism and informing SAs crypto policy even further.
🇳🇬 GTBank to Migrate Core Banking System, Temporary Service Interruptions Announced
GTBank has announced the migration of its core banking system to the new Finacle Core Banking Application, scheduled for October 11-14, 2024. This upgrade will cause temporary service interruptions, including the closure of branches and disruptions in digital services for 11 hours. The new system is expected to enhance the customer experience by providing smoother banking operations and digital interactions. GTBank has assured customers that regular updates will be provided during the transition.
A number of banks have been migrating their new core banking systems including Sterling and Zenith Bank. This has led to widespread disruptions of banking services in an industry already reeling from patchy availability of bank’s digital platforms. The timing of these moves is interesting because I don’t know why so many are migrating within the same period. There could be something here to investigate. Nonetheless, one thing I’ve noted from all these announcements is that no bank has opted for any system provided by these neo core banking players such as 10x Banking, Thought Machine and others. It could be something about these systems not being battle tested as well as a deeper sales presence in the market by the incumbents. Similar core banking upgrades in East Africa have seen players sticking to their existing providers. Sterling bucked the trend by building their own platform and that’s definitely something to keep an eye on. This should inform the marketing strategy for some of the neo-core players in the market.
🇿🇲 🤝🏿 🇳🇬 Zambia’s fast growing Challenger Bank Lupiya eyeing Nigeria market
Lupiya, a fast-growing Zambian neobank, is eyeing expansion into Nigeria after successfully raising funds and scaling operations in Southern Africa. Co-founder Muchu Kaingu shared at GITEX Global that Lupiya leverages AI and alternative data to provide near-instant credit decisions. The neobank has raised over $14 million to date and aims to bridge the financial inclusion gap for the unbanked and underbanked populations. Lupiya is currently raising a $10 million Series A to fuel its expansion.
Nigeria, South Africa, Egypt and Ghana are in my eyes good markets for challenger banking owing to the absence of dominant mobile money players as well as a presence of large banking players. Egypt and South Africa regularly contribute to the top 20 banks in Africa. These are ideal conditions for neobanking. Nonetheless, some red flags stand out of this announcement;
I’ve never been a believer in alternative data when it comes to building credit decisioning systems. It’s often a case of spurious information providing false signals. In lending, the biggest thing is having leverage over repayment and this principle informs M-Shwari and most other successful digital credit businesses in the emerging world;
It could be that as a VC funded business and ahead of a Series A, Lupiya has been fielding questions about the size of the Zambian market and one obvious conclusion is to launch in a larger market to justify the Series A.
Nigeria is a tough nut to crack. It’s a massive market and I think to do well requires some sort of ordination by local capital as was the case of Flutterwave. I write about this in a future post about challenger banking;
🇿🇦 Mastercard targets real-time card payments in South Africa
Mastercard is introducing real-time card payment systems in South Africa, the first country to benefit from this initiative. The new standards, developed with ACI Worldwide, will accelerate transaction processing, giving merchants faster payouts and better cash flow management. This upgrade aims to modernise payments, improve transparency, and offer real-time insights for both consumers and businesses. The initiative aligns with South Africa's broader digital transformation goals under the National Payments System Strategy Vision 2025.
This is simply a move from the 2-3 day settlement windows for card payments towards real-time settlement. Insofar as cash flow management is a barrier to adoption of card payments then this should help. Adoption of this will ride on the right type of partnerships and go to market and I see players like Kazang being useful for educating the market. That being said, the costs of accepting card payments is also a barrier given the low margins most small businesses have to grapple with.
🇿🇦 Endeavor South Africa’s Harvest Fund III Secures First Close Commitments
Endeavor South Africa's Harvest Fund III has secured its first close, raising USD 10.8 million out of a target of R500 million (USD 28.4 million). The fund will invest in African tech-focused companies, with 85% of its focus on Southern Africa. This follows the success of Harvest Fund II, which invested in companies like TymeBank and Ozow. Key backers include Standard Bank, Allan Gray, and the SA SME Fund. The fund aims for a 25% return or a 3-4x return on invested capital.
The most interesting thing about this is the presence of Standard Bank and Allan Gray. It’s great to see local backers supporting VC funds and it’s a testament to the depth of South Africa’s capital markets. My experience has taught me that local capital in so far as its connected to the local business environment gives more leverage than foreign capital. The leverage is often in the form of clearing the path for an entrepreneur be it introductions or being brought into spaces that you wouldn’t access before.
🇺🇸 Mercury secures $100m Natixis CIB credit warehouse to fund IO card programme
Mercury, a fintech company focused on banking services for startups, secured a $100 million credit warehouse from Natixis Corporate and Investment Banking (CIB). This credit facility will support the expansion of its IO credit card program, initially launched in 2022 in partnership with Patriot Bank and Mastercard. The funds will enable further product development, hiring, and new features like employee expense reimbursements and integrations with HR and payroll systems.
Mercury was in the news recently for closing accounts associated with Nigerian start-ups. Nonetheless, they have closed a debt facility that will support their credit card program. This transaction shows the growth of private credit markets which is a global phenomenon. I believe credit cards are a useful wedge even within Africa and are a better option to the shylocks and expensive digital credit providers. What is needed is an operator that has a history of financial transactions with a large customer base. This could be credit associations or savings companies. The growth of the private credit market shows that with sufficient credit tape, one can tap into global markets to get a funding line.
🇰🇪 Turaco Surpasses 2.5 Million Customers, Paving the Way for Insurance Inclusion Across Africa
Turaco, an African insurtech company, has surpassed 2.5 million customers, expanding its reach across four markets in six years. This rapid growth, with 1.5 million new customers in the last year alone, highlights the demand for affordable insurance in Africa. Turaco focuses on first-time insurance buyers, offering services that provide financial relief during emergencies. The company aims to insure one billion people over the next 25 years, furthering insurance inclusion across the continent.
Africa has notoriously low levels of financial inclusion and I think the distribution model has a lot to do with it. I have a piece coming up about this. Players like Turaco will do well in ensuring they are a full stack insurance provider in the long run. An advantage that the banking sector has had in its digitisation efforts is that banking is fully integrated and doesn’t rely a lot on third parties. Banks have therefore been able to digitise in a much more efficient manner than their peers in insurance whose main struggle with digitisation is their partners. I’d keep an eye out for digital insurance companies that build out tech driven distribution.