In African fintech, the fourth quarter of 2019 brought big money to new entrants.
Chinese investors put $220 million into OPay and PalmPay — two fledgling startups with plans to scale in Nigeria and the broader continent. Several sources told me the big bucks had created anxiety for more than few payments ventures in Nigeria with similar strategies and smaller coffers. They may not need to fret just yet, however: lessons from Africa’s most successful mobile-money case study, M-Pesa, suggest that VC alone won’t buy scale in digital finance.
Startups and fintech in Africa
Over the last decade, Africa has been in the midst of a startup boom accompanied by big growth in VC and improvements in internet and mobile penetration.
Some definitive country centers for company formation, tech hubs and investment have emerged; Nigeria, South Africa and Kenya lead the continent in numbers for all those categories. Additional strong and emerging points for innovation and startups across Africa’s 54 countries and 1.2 billion people include Ghana, Tanzania, Ethiopia, and Senegal.
This runs parallel to the region’s off-the-grid SME’s and economic activity — on display and in commercial motion through the street traders, roadside kiosks and open-air markets common from Nairobi to Lagos.
IMF estimates have pegged Africa’s informal economy as one of the largest in the world. Thousands of fintech startups have descended onto this large pool of unbanked and underbranked citizens and SMEs looking to grow digital finance products and market share.
In this race, the West African nation of Nigeria — home to Africa’s largest economy and population — is becoming an epicenter for VC. Many fintech-related companies are adopting a strategy of scaling there first before expanding outward.
Enter PalmPay and OPay
PalmPay, a consumer-oriented payments product, went live in November with a $40 million seed-round (one of the largest in Africa in 2019) led by Africa’s biggest mobile-phones seller — China’s Transsion. The startup was upfront about its ambitions, stating its goals to become “Africa’s largest financial services platform,” in a company statement.
To that end, PalmPay conveniently entered a strategic partnership with its lead investor. The startup’s payment app will come pre-installed on Transsion’s mobile device brands, such as Tecno, in Africa — for an estimated reach of 20 million phones in 2020.
PalmPay also launched in Ghana in November and its U.K. and Africa-based CEO, Greg Reeve, confirmed plans to expand to additional African countries in 2020.
If PalmPay’s $40 million seed round got founders’ attention, OPay’s $120 million Series B created shock-waves, coming just months after the mobile-based fintech venture raised $50 million — making OPay’s $170 million capital haul equivalent to roughly a fifth of all VC raised in Africa in 2018.