The Race for Payments in Africa: Where are we now and what’s next?
Verdant Capital participated in an important panel discussion on the “race” for digital payments at the Africa Fintech Summit in Nairobi this past month. Imran Patel, Director at Verdant Capital, was joined by senior executives from Africa’s leading payments-focused fintechs: Amandine Lobelle, Head of Business at Paystack, Leon Kiptum, Kenya Country Director at Chipper Cash, Hilda Gathuya, Kenyan Country Manager at Global Accelerex, and Sike Bamisebi, Chief Business Officer at Cellulant. The panel was moderated by Tage Kene-Okafor of TechCrunch. The discussion covered key drivers of digital payments including competitive dynamics, cross-border expansion strategies, regulation, success in new markets, as well as how cryptocurrency’s impact on future growth.
Valuable insights were shared from the various panelists. Hilda stated that measuring a fintech’s success should include key socio-economic impact indicators, while Imran added that “one needs to continuously innovate to fend off competition” while also “demonstrating increasing returns on capital invested while scaling through product and geographic expansion” to meet investors’ expectations. Leon further added that there’s “a delicate balance between trying to fend off the competition while still the same competition we are trying to fend off are potential partners.”
The decision of employing an organic approach to cross-border expansion versus an acquisitive strategy very much depends on balancing a company’s internal capabilities with the underlying dynamics of the targeted local market. Although Paystack (which was itself acquired by Stripe in 2021) typically follows an organic expansion approach, Amandine commented the company would assess the trade-off between “acquiring the business ourselves versus trying to build product and technology that we can control” while also looking at the “quality of tech, quality of people, partnerships or integrations” that an acquisition opportunity could offer. Sike commented that a company should consider its capacity and ability to enter a market prior to selecting the appropriate strategy and that choosing an acquisitive approach allows you “to access the local assets immediately…and accelerate growth”. In Hilda’s view, investing resources in truly understanding the local context is essential to successfully realizing the objectives of cross-border expansion. Imran commented that a M&A (“merger and acquisition”) opportunity should be assessed with a multi-faceted perspective considering the financial inclusion “gap”, financial infrastructure, and consumer behaviour (amongst others) through to post-acquisition integration. As we (at Verdant Capital) have seen with Tugende’s organic expansion into a new market in Kenya and MFS Africa’s acquisition of Baxi in entering the Nigerian market, there is no “cookie-cutter” approach to geographic expansion.
It may also benefit fintechs to collaborate with each other through commercial partnerships to expand product and service offerings while leveraging their respective capabilities across markets. Leon suggested that such collaboration can go beyond commercial objectives especially when facing common hurdles such as regulation in various markets including how cryptocurrency is regulated, especially in considering that regulators across the continent have varying capabilities and understanding of the fintech business. Sike added that some common economic areas – such as the CEMAC and UEMOA zones – have unified regulation and payments infrastructure, facilitating fintechs. None the less, the general industry view is that regulators are working proactively with fintechs – disruptors to the traditional financial services sector – in order to bring high impact development to the markets they regulate.
Fintech in Africa has evolved significantly over the past decade and much has been accomplished in terms of infrastructure development. Paystack’s Amandine believes that we must now look to go beyond just facilitating payments across Africa to facilitating payments from across Africa to other continents – facilitating global commerce. However, a significant gap in infrastructure and transaction volumes relative to the global average still needs to be filled. Much more investment is needed into the sector to fill this gap. This opportunity is now being recognised by global players – multinational fintechs as well as global venture capitalists – and we are seeing larger volumes of capital being channeled into the fintech sector across the continent. Stakeholders across the board, including fintechs, capital providers, and regulators, must work together in addressing the gap and realizing on the growth opportunity. Verdant Capital continues to play an active role in advising fintechs across the continent.