• Rob Heath

Is the future of African Fintechs already here?

Updated: Jan 27


2020 has seen the wholesale acceptance of high-tech solutions and it is now a given that everything is touchless, paperless, remote and in the cloud. The world is on Zoom, using cryptocurrencies to buy groceries at the tap of a smartphone button, everything can be ordered online, and we’re all going on holiday inside our VR headsets. We have arrived in Marty McFly’s future! As we wrap up and look back at this year of COVID lockdowns, whilst the speed of adoption of these high-tech solutions has rapidly increased, the opening statements are not entirely true. There are no Deloreans and flying skateboards, and looking around the room, it probably hasn’t changed too much. Bill Gates famously said that people overestimate how much change can happen in a year, yet completely underestimate the change that can happen in 10 years. Possibly we can halve those numbers as a result of the rapid adoption in technology we have seen in 2020, however the main premise likely holds true. As professionals plying our trade in this ever-changing world of technology, we look for, adopt and nurture those solutions that will make the big changes over the next 5 and 10 years. These innovations, businesses, platforms and solutions are generally not widely publicised, are not easy to find and are often not the obvious investment choices. Further to this, the solutions we look for don’t always involve completely new technologies. Instead, they often consist of components built around proven technology that is put together in new architectures or applied in different ways, offering their users new sets of attributes within a niche but high growth market segment. Bringing it closer to home, and in-line with a key sector we focus on, one such winner in the world of African Fintech, M-Pesa, the world’s first major digital currency, makes for an interesting mini case study. This started off as a simple mechanism to transfer credit through smartphones, then evolved into a unit of currency, i.e. a digital currency, and has now grown so large that it is a major contributor to Safaricom’s overall value as one of the top 20 largest companies in Africa. However, even though M-Pesa is touchless, paperless, remote and has wide penetration, it is not as pervasive in the day-to-day lives of average Kenyans as you may think. For the more affluent segment of the Kenyan market where smartphones, data and lattes are prevalent and accessible, M-Pesa has high penetration and usage. However, more than ten years after M-Pesa launched, for the larger, less affluent, price sensitive and resource challenged market, quite simply, cash remains king. As per a report by Financial Sector Deepening, cash is still the main transactional medium in Kenya, which is completely counter-intuitive given the above and the global push towards less physical and more digital. Between 2016 and 2019, traders received over 90% of their revenue in cash. And this is in a market with one of the first, most successful, ubiquitous digital currencies in the world. Setting aside the cultural reticence to try new technology from this market segment, this high cash transaction rate is really due to two main factors. Firstly, high transaction fees on most digital solutions are unpalatable to a very price sensitive population (withdrawing $5 in cash through M-Pesa can cost as much as $1). Secondly, as a result of inadequate access to ATMs, bank branches and agents providing cash in and cash out facilities, consumers retain cash in hand (there are 5 bank branches and 7 ATMs for every 100,000 adults in Kenya, compared to 25 bank branches and 111 ATMs per 100,000 adults in the UK). Thus, in Kenya the opportunity is for Fintech and payment solutions to provide simple, elegant solutions for accessing cash services, agency banking, acquiring for merchants and paying using alternatives to cash with affordable transaction fees. This is not futuristic but identifies todays problem and while presenting a solution for the future. In steps Tanda, a Kenyan Fintech and HAVAÍC portfolio company, that is addressing this problem by turning everyday neighbourhood dukas (micro-retailers or spaza shops) into virtual ATMs and bank branches. Through a mobile-based (smart and feature phone) solution, micro-retailers can offer bank withdrawals and deposits, as well as mobile money and payment services to their customers without any new apps, wallets or currencies. Tanda agents can also acquire for two major international card payment companies from physical or virtual cards. Furthermore, because of the strategic locations of Tanda’s agents being near where people live, a large and fast-growing network and the low cost of mobile phones, Tanda is able to grant access to a variety of financial services in a far more affordable and convenient way compared to traditional banking channels. Tanda is a conduit for financial inclusion for the Kenyan population without the traditional high costs and obstacles around financial access, all built with existing technology and Fintech components in a unique architecture. Applying Tanda’s solution across East Africa may work, but when asked about spreading into North and West Africa, we have the same feeling as when foreigners refer to Africa as a homogenous country. These well-meaning comments come from people who can’t quite understand why a cash withdrawal is so difficult. Walking miles, getting a matatu and standing in a queue for hours to withdraw $5 for a day’s work to only receive $4 in cash is very different to swiping your Oyster card, popping into Sainsburys and getting cash back alongside your feta and rocket salad all with no transaction charge. Each country and region will have their own nuances, rates of adoptions and unique challenges relating to financial inclusion at both a fundamental and practical level. In Nigeria, which has a very large, highly mobile, digital savvy, youthful, emerging middle class, and a reasonably sophisticated banking system, an example of a non-obvious and regional specific solution is for more advanced or mature banking services providing non-physical as opposed to physical cash, ATM, and branch solutions. Another HAVAÍC portfolio company, Kuda, has stepped into the market with a fully digital native core banking platform similar to other international digital banks (Monzo, Revolut, and N26). Interestingly Kuda’s solution is almost the anthesis to Tanda’s, but is the right solution given its specific environment. Importantly, its simple, elegant, low cost, low admin, app-based solution is well suited to the underlying economic and market factors in Nigeria and is well placed to rapidly expand across Nigeria’s vast and underbanked youthful tech-savvy population. Whilst also being an African fintech solution, Kuda has a vastly different product, market and clientele to Tanda, but both have the potential to service a large market and produce favourable returns for investors, borne from their own unique architecture and design for their specific market. The challenge in Africa is not that Fintech opportunities don’t exist, its more that the market appropriate ones are difficult to find, and require a nuanced, country and market specific perspective. Recent separate acquisitions of Paystack and Sendwave for $200m and $500m respectively demonstrate the appeal and value in African Fintech solutions. In South Africa, a different analytical lens is required, where in our view there are two main considerations for Fintech's. Firstly, the market is dominated by a few large banks who tend to develop and innovate from within as opposed to trying out or supporting new external technologies. This observation is not a criticism and the strategy is clearly working as it has justifiably produced international innovation awards and much success for these banks. Secondly, and not too removed from the first, is that corporate South Africa has a more consistent commercially driven personality than the diverse, multi-cultural, dispersed and economically unequal society of the Rainbow nation. That being said, South Africa as a leading financial services hub cannot be ignored, both from an investment and partnership point of view. Regardless, whether in East, West or Southern Africa, there are many exciting Fintech opportunities, however given their access to millions of under-serviced consumers, the non-obvious game changers in the FinTech space could come from markets such as Kenya, with access to close on 150million people in the greater East Africa region, or Nigeria, with around 200million people at their doorstep. Without Marty McFly’s DeLorean we won’t know for sure, but maybe the winners from 2021 and beyond will truly be ‘out of the future’ and completely touchless, paperless, remote and in the cloud, or maybe they’ll be stacks of existing architecture built into innovative products. Our sense is that they will be a combination of the two, with future winners in the African Fintech space being made up of those who in the present day are able to balance technology of the future, with simple, accessible and affordable solutions that solve actual problems facing people of today.


Rob Heath (Partner, HAVAÍC) Geoff Mulei (CEO, TANDA)



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