Africa's Fintech Soonicorns...

Businesses across the world have felt Covid-19's impact, but it is financial technology, popularly called fintech, that has reaped its rewards. The rapid acceleration towards digital solutions in payments, can be directly attributed to this pandemic’s legacy and how fintech companies are innovating today's banks, with new ways for customers to pay for goods and services.?

This digital transformation of financial services is well underway, with new ways to make purchases, withdrawals, savings and get credit - a sign that the world is making a steady shift towards a cashless global electronic economy, with Africa for once, being in that mix.?

Fintech funding reached a record $132B in 2021, more than 2x the 2020 mark. To put that into perspective, one out of every five dollars of funding last year went to fintech! Every major fintech category from payments to peer-to-peer lending saw an increase in investment, signalling there's a big interest for this space among investors everywhere

According to Business Insider Africa, African startups raised a record $4.65 billion in disclosed funding in 2021 on the back of investments, in everything from financial services to fresh produce distribution. TechCrunch says this was double the previous year’s investment, and nine times what was raised five years ago, giving an indication of how much the African startup scene has accelerated over the last few years.

Of the near $5 billion raised last year, 62% or nearly $3 billion went to fintech startups, which is more than double the amount they raised in 2020 and triple what was raised in 2019. The rest went? to other sectors such as health and biotech (8%), logistics (7%), education (5%), cleantech (5%), agriculture (4%), eCommerce (3%), mobility (3%), data & analytics (2%) and others.???

With increasing access to smartphones and mobile internet, as well as a growing middle class, Africans are turning to digital payments in ever-greater numbers in places like my home country Nigeria, where nearly 40% of our 200 million people remain unbanked while according to the Nigeria Communications Commission (NCC) we own nearly 200 million active mobile phones. This provides a significant opportunity for investments into the over 200 fintech companies operating in the Nigerian market alone, according to McKinsey.?

There's no doubt African fintech companies are on the rise and witnessing a surge in demand for their services in a continent that’s home to a tech-savvy youthful population, but where financial infrastructure is extremely weak.? Investment in fintech is therefore a trend which is set to continue as investors, especially those from the United States of America and the United Kingdom, who accounted for nearly 70% of the $3B funding last year continue to eye new opportunities on the continent.

Several startups have emerged as leaders in Sub-Saharan Africa’s fintech ecosystem over the last seven years with some becoming unicorns (startups with a valuation of $1 billion or more) including Interswitch, OPay, Chipper Cash, Wave, Flutterwave and JumiaPay while others including Paga, Cellulant, MFS Africa and TeamApt are on their way there.? All of them offer innovative solutions for everything from consumer payments to merchant transactions to government payments.?

Given my increasing portfolio of early stage fintech companies, I decided to take a look at these African fintech unicorns and soonicorns ((i.e. soon to be unicorns or unicorns-in-waiting) to form my own opinion of this later (than angel) stage investment space. This article shares what I have found - a group of payment fintech companies competing with the others to create enough value on the continent that they could potentially be our next African fintech unicorns.?

SSA’s Fintech Unicorns

According to the South China Morning Post, OPay was founded in 2017 in Nigeria by Chinese billionaire entrepreneur Zhou Yahui, owner of consumer internet company Opera. The company says it now has 160 million active users and has processed transactions worth US$490 billion. OPay provides a mobile money solution that comes with physical debit cards, an offline banking solution and savings facilities. According to Reuters, in 2021 OPay secured $400 million in its latest funding round led by SoftBank Vision Fund 2, valuing it at $2 billion.

According to Business Insider Africa, Chipper Cash was established in 2018 by two African entrepreneurs Ham Serunjogi and Maijid Moujaled to offer a no-fee peer-to-peer cross-border payment service in Africa via its app which now has 4 million users. The fintech startup raised 3 rounds totalling $143.8 million in a year with the $100 million raised mid 2021 pushing its valuation up to $2 billion.?

Wave Mobile Money was founded in 2018 by Drew Durbin, CEO and Lincoln Quirk, Head of Product who met as freshmen and built Sendwave, Africa's largest digital remittance company before turning their attention to Wave, with the mission to bring digital finance to everyone in Africa, as a mobile money provider. Wave provides a mobile money solution that includes deposits and withdrawals, transfers and bill payments. According to Quartz Africa, in 2021 it raised $200 million in a Series A round, valuing Wave at $1.7 billion.

In 2012, Raphael Kofi Afaedor, Jeremy Hodara, my nephew Tunde Kehinde and Sacha Poignonnec founded Jumia, an e-commerce platform that became Africa's first tech startup with a valuation of $1 billion in 2016. Jumia launched many startups including in 2016 JumiaPay secure payment for people to shop on its Jumia services and now used to pay for more than 50 percent of sales on the Jumia platform. In 2019 Jumia became "The 1st African tech start-up to be listed on the NYSE" and while it has struggled with losses since then, in 2021 according to Bloomberg, JumiaPay accounted for one-third of Jumia's overall business. According to Crunchbase, the Jumia Group raised $340 million in a post-IPO round however, the Nigeria-based company says it does not have immediate plans to expand beyond the 11 African countries it operates in nor is it raising any additional funding in the near future.

Founded in 2002 by Charles Ifedi and my friend Mitchell Elegbe, Interswitch pioneered the infrastructure to digitise Nigeria’s then predominantly paper-ledger and cash-based economy. Interswitch today is a digital payments company, with solutions spanning transactions, collection, disbursement, card issuance and more. In 2019, Interswitch became Africa's first fintech unicorn after Visa bought a 20% equity stake in the company for US$200 million, valuing it at $1 billion.

Flutterwave was founded in 2016 by Iyinoluwa Aboyeji, Olugbenga Agboola and Adeleke Adekoya, and provides a payment infrastructure for global merchants and payment service providers across the continent. It helps these businesses build customisable payments applications through its APIs. In 2021 Flutterwave announced that it had closed $170 million, valuing the company over $1 billion.

The Soonicorns - Cellulant, MFS and Paga

Cellulant was founded by Ken Njoroge and Bolaji Akinboro in 2004 to enable businesses accept digital and mobile payments from their customers. Their Tingg platform simplifies the process for businesses to collect and pay in multiple currencies, with an easy-to use interface which connects consumers through a single inclusive network, allowing for interoperability that has eluded a lot of the other players in the payments space.? According to TechCrunch, Cellulant has partnerships with 46 mobile-money operators in Africa, 120 banks and serves 35 African countries with a physical presence in 18 and offers both online and offline payments. In 2021 Ken Njoroge stepped down as CEO after 16 years and Celluant appointed Akshay Grover, an experienced technology, media, and communications professional to replace him. Cellulant has raised $82 million so far with its last raise being $47 million in 2018.

CEO Dare Okoudjou founded MFS Africa “to make it easy for Africans to send and receive money just as they do with calls”. Today MFS Africa claims to be the largest digital payments hub on the continent,? connected to over 200 million mobile wallets that provide merchants, banks, mobile operators and money transfer companies with a safe, convenient, and cost-effective transaction channel. MFS Africa works in close partnership with players across the ecosystem to bring simple and secure mobile financial services to un- and under-banked customers while “making borders matter less”. In 2021 MFS Africa raised $100 million bringing its total equity raised to over $95 million with $30 million in? debt.

Tayo Oviosu and Jay Alabraba founded Paga in 2009 to “make it simple for people to pay, get paid, shop and sell”. Paga is now a multi-channel network of over 19 million customers including tech entrepreneurs, businesses and individuals. According to Bloomberg, it processed $2.3 billion worth of transactions in 2020 and $8 billion since 2018.? Paga customers link their Paga wallet to their bank cards or accounts, or according to Tayo fund their wallet through one of its over 100 thousand agent points to transfer money, pay-bills, top-up airtime or buy things digitally through its mobile-app. Paga has raised a total of $36.7M in funding over 5 rounds with their latest funding raised in 2018.

My Comparatives…

While all these payment fintechs offer different digital payments to consumers, retailers, merchants, banks, mobile network operators, and governments in different ways, they also vary in terms of the number of countries in which they operate, the number of customers served, number of people employed, number of banks integrated and amount of funding raised. So I decided to take a look at some of these metrics that matter beyond just the revenue, traction and financial fundamentals we all get caught up in and focus on when looking at valuation for investment.

Although one continent, Africa is over 50 countries each with its own jurisdictional restrictions on payments. Fintech companies have to deal with compliance associated with each jurisdiction's regulations on payments, international transfers, cross-border corridors, currency exchange amongst other operational matters to adequately serve any African market.

According to the Guardian and other publicly available data, when it comes to market reach, OPay leads the fintech payments pack, providing transfers to 50 countries through its partnership with leading global digital payments platform WorldRemit. Flutterwave, MFS Africa and Cellulant each have operations in over 30 countries. Although focused on Nigeria and Ethiopia, it’s partnership with Western Union means international money transfers for pick-up via Paga can be initiated in 24 countries. Interswitch operates in 23 countries, JumiaPay in 11 countries, Chipper Cash in 9 countries and Wave in 5 countries.

Fintech companies use their advanced technology to provide financial services to consumer and business customers manifesting as users, cards, mobile money accounts, QR codes or wallets.?

MFS Africa connects more than 320 million mobile money wallets, says Techcrunch. According to its website, Cellulant connects more than 150 million mobile money wallets, Interswitch has 22 million cards activated and 190,000 merchants active daily; Paga boasts 17 million unique users while OPay has over 10 million registered app users and 500,000 merchants; JumiPay has access to the Jumia Group’s 6.1 million users, Wave has 4 to 5 million users on their platform, Flutterwave supports 290,000 merchants, and Chipper Cash has 4 million users.

By building their own full-stack infrastructure which typically includes agent network, agent, merchant and consumer applications, merchant cards, business collections, and disbursements, fintech companies not only build up the underlying e-Payment infrastructure, but also hold the prospect for job creation, with the attendant social and economic development in their countries of operation across the continent.?

JumiaPay staff could not be distinguished from the 5,100 Jumia Group employees making Jumia the biggest direct jobs creator in our group. Opay at 1,425 employees and Interswitch at 1125 employees both employ over a thousand people, each making them the second largest job creators in our group. According to Craft, Cellulant has 436 employees, Flutterwave has 396 employees, Paga has 250 employees and Chipper Cash 231 employees.?

The future of banking in Africa is dependent on when the continent will adopt open-banking which enables third party developers, such as fintech companies, to access data held by banks and develop applications or services based on it. Until then, integration with banks will continue to be a critical differentiator for fintech companies even as they attract and engage the unbanked.

According to their website, Cellulant is connected to 210+ banks which is more than all other fintech companies in the group. MFS Africa says it’s connected to 180+ banks, mobile network and money transfer operators.? Flutterwave says it's connected to 12 banks while Opay lists 10 banks connected on its website. Unfortunately, my team could not find any reference to bank integration with reference to the others in the group. It is also worth noting that most of the largest payments and remittance companies on the continent now use Cellulant and MFS Africa infrastructure to provide some services in different regions.?

Investor interest in African fintech continued to grab headlines with large fundraises in 2021 and OPay led the pack having raised $400 million. The Jumia Group to which JumiaPay belongs raised $340 million, Flutterwave raised $170 million, Chipper Cash raised $150 million and MFS Africa raised $100 million.

Final thoughts…

The soonicorns have all taken the route of building the foundational infrastructure? (connectivity to mobile money, to banks, licensing across multiple jurisdictions, agent networks) required for the next generation of financial services on the continent.?

This infrastructure is absolutely essential to our payments ecosystem and critical to building enduring businesses with a strong social and economic impact. This building phase typically does not reflect in the revenue growth curve resulting in the slower uptick of valuations on them relative to the newer fintech companies who have focused on rapidly monetizing ab initio by growing their offering with products such as crypto trading and ecommerce.

These fintech soonicorns however are each turning their monetization engines on, Cellulant with Tingg, MFS Africa with its revamped campaign and Paga with its new PoS partnership and actives growing 105% year-on-year.?

In the months ahead I expect to see discerning investors recognising this blend of infrastructure and monetization. These are sustainable models that are defensible and should help in upward valuations of these soonicorns.??

So which of these soonicorns do you think will be Africa’s next fintech unicorn?