The Africa SMME Tech Report

Issue No. 17. Africa-Middle East local and small business tech news for 4 October 2021. This issue features Paga, Untapped Global, Prospa, Ukheshe Technologies, Chipper, and more...

Is Paga Africa’s Next Unicorn?

Paga, Nigeria’s largest mobile payments firm, is applying for membership to Africa’s unicorn club. This much was reported back in June when Paga Group CEO Tayo Oviosu told Bloomberg that unicorn status was coming “in the next year or two.”

Last week the company announced an expanded partnership with Untapped Global to help get it there.

In order to get to a billion-dollar-plus valuation, a company needs a compelling growth story. And evidence that it will deliver. Paga seems to be delivering, at least as measured by the transaction volume flowing through its platform.

In 2020, Paga processed US$2.3 billion in transactions and US$8 billion over the last four years.

Oviosu founded Paga in 2009 and the company gained its operating license in Nigeria in 2012. Since its founding, the company has raised US$36.7 million. Its most recent round was in 2018.

Now to Paga’s expanded partnership with Untapped Global, a San Francisco-based company that provides alternative financing programs in emerging markets. The aim of the partnership is to scale up the installed base of SMMEs using Paga’s POS system.

Paga currently has 33,000 merchants on its platform. Paga is relying on its Untapped Global partnership accelerating its progress to reaching 120,000 merchants within the next two years.

“We are excited to scale our POS rollout program with Untapped,” Oviosu said in a statement. “We have built the best on-ramps and off-ramps for cash in Nigeria through the Paga agent network and are further digitizing merchants via our new merchant platform, Doroki.”

The partnership provides small merchants with the financing they needed to acquire handheld point of sale terminals.

Untapped does this through something it calls smart asset financing. In essence, this is a financing model that recovers its investment from the revenues earned on the devices.

“The network of the POS devices that will be available for merchants via this partnership is powerful,” Untapped founder and CEO, Jim Chu, said, also in a statement.

“It enables a seamless process for merchants and their customers to buy, sell, and get paid. We're excited to use smart asset financing to greatly increase access to financial services across Nigeria with partners that know the space best, like Paga.”

In a recent interview on Bloomberg TV, Oviosu explained that Paga’s hybrid offline-online business model is key to its ability to grow to unicorn-worthy levels.

“We believe that in Africa, digital-only strategies do not scale,” Oviosu said in the interview (video below).

He said the reasons are pretty simple. Low smartphone penetration and high data costs make it necessary to “meet people where they are.”

He explained Paga’s hybrid model has three elements. The first is a smartphone app for the estimated 10% to 20% of Nigerian’s with smartphones. The next is a USSD application that works on any feature phone. And then there is an in-store option where consumers can complete transactions via local agents.

Paga reminds us of South African POS and online payments company Yoco. The two companies have similar but far from identical businesses. Both aspire in their own fashion to be an African version of Square, the U.S.-based POS company founded by Jack Dorsey that made it possible for micro-businesses to accept credit cards via a mobile POS terminal.

Yoco raised US$83 million in July, making it the biggest raise yet for a South African payments company. Yoco has raised a total of US$106 million since launching in 2013.

Bloomberg interviews Paga CEO Tayo Oviosu

Both companies are focused on digitally enabling Africa’s SMMEs. And both plan to take their acts on the road to expand into other African markets. Paga has signaled its next stop is Ethiopia. Yoco has thus far been coy about where it will expand.

We imagine unicorn status — or in Paga’s instance pre-unicorn status — will be hailed as an important milestone for some time to come. However, at some point the novelty will wear off. As it already has in Europe and North America.

Does Buy Now, Pay Later Have an Achilles Heel?

Buy now pay later, a popular branch of the payments space that we cover extensively here, may have an Achilles heel.

The issue is a lack of integration among BNPL platforms. This at least in theory means consumers could skirt spending limits by taking on multiple obligations on different platforms.

Unless this issue is addressed through better cooperation among competing platforms, it would seem to present a hidden risk to default rates, which must remain low for BNPL to succeed. Fortunately, that cooperation may be coming soon.

The threat of rising default rates is not just theoretical. A recent survey of 1,044 U.S. adults commissioned by Credit Karma found that one-third of those using BNPL have fallen behind on their payments. And 72% say their credit scores have declined. The survey also found that 44% of adults have used BNPL to make a purchase. We have not seen similar data for the Middle East or Africa.

On a recent episode of the BIG5D Podcast, Tariq Sheikh, CEO of Dubai-based BNPL platform Postpay, argued that BNPL represents a much lower risk to the consumer than high-limited revolving credit ever will.

“When we talk about buy now pay later, we’re talking about $200, $250, you know, at a cap, maybe $300. If you really go far up, maybe $500,” Sheikh said. “But the limits are a lot lower than what we talk about when you talk about credit limits. So even if we go and dig into a credit bureau and the debt burden ratio, $200, $300 is not going to make a huge difference for the vast majority of the population.”

However, Sheikh did acknowledge that with so many new players emerging, the industry is only now having discussions about collective safeguards to prevent consumers from circumventing spending limits by making multiple BNPL purchases across different platforms.

“Technically, if they’re not all integrated into the same system, then yes, you could end up getting into a situation,” Sheikh acknowledged. “So it’s definitely noted and something that I’m also in conversations with other buy now pay later founders and CEOs, on how to bring it together. Because I believe that that’s probably the next step, not only for debt burden but also for fraud.”

We confirmed the legitimacy of this concern with David Galvan, Mastercard’s Vice President of Digital Partnerships.

“That’s one of the big holes,” he said.

Galvan, whose job involves meeting with fintech founders around the globe to assess their viability as Mastercard partners, noted that broader concerns over consumers getting in too deep with BNPL are drawing regulatory scrutiny.

“There’s no consumer oversight,” Galvan said. “In Europe, they’re starting to think hard about that. In the UK, especially, they are thinking about how they regulate buy now, pay later. It hasn’t hit the U.S. yet. But I suspect at some point it will.”

And Africa-Middle East will no doubt follow.

Thanks to Matchcraft for sponsoring this issue of The Report. Matchcraft is a global martech company powering local search, social, and display campaigns. Matchcraft’s latest offering, “Powered By”, is an API solution giving third-party platforms access to the technology behind its flagship AdVantage platform.

The BigFive Community Mourns the Passing of Paul Plant

BigFive Digital Founder Paul Plant passed away on 31 August 2021. His deep passion for Africa and for the digital transformation of its small business community inspired Paul to create BigFive Digital in 2018, along with an international team of co-founders.

BigFive is a product of Paul’s vision, passion, and commitment. Paul was a driven business leader. He was also a loving husband, a loyal friend, a deep thinker, and a passionate fan of rugby, fine wine, and world travel. He is greatly missed. The BigFive team carries on with great determination in Paul’s memory.

Nigeria’s Prospa Raises Seed Round to Scale Its ‘5-Minute’ Banking for Creators and Side Hustlers

Prospa, a Nigerian company offering an all-in-one fintech solution for entrepreneurs, recently raised a $3.8 million seed round.

In a blog post, Co-founder and CEO Frederik Obasi said, "We’re building a product for real people. These people are entrepreneurs, creators, freelancers, and side hustlers. Building for real people helps us solve real challenges and not follow fintech trends."

Prospa offers its customers a platform where they can "open a bank account in five minutes and access tools to start, grow and scale their businesses.” Its solution includes invoicing, inventory management, customer management, and an e-commerce platform.

Ukheshe and Chipper in Payments Partnership

South Africa’s Ukheshe Technologies has announced a partnership with U.S.-African P2P fintech Chipper (formerly Chipper Cash) to serve as an enablement partner as Chipper continues to roll out its digital payments offering across Africa.

“Ukheshe’s Eclipse API provides access to payment technology, products and services – all from one convenient platform,” said Ukheshe CEO Clayton Hayward, in a statement.

“The rapid shift towards innovative digital-first solutions is undeniable. And we are thrilled to partner with Chipper, a company that shares our vision and enthusiasm for credible, seamless payment solutions that drive the payments revolution in Africa.”

Chipper Cash was founded in San Francisco in 2018 by Ugandan Ham Serunjogi and Ghanaian Maijid Moujaled. The company offers mobile-based, no fee, P2P payment services in Ghana, Uganda, Nigeria, Tanzania, Rwanda, South Africa and Kenya.

Chipper recently launched its money-transfer and cross-border payments solution in South Africa. The service features free unlimited instant domestic money transfers, the ability to invest in cryptocurrencies, and to buy and send airtime and data to friends and family.

In Case You Missed It….

A Closer Look at Earned Wage Access

Lower-wage workers tend to run out of cash before payday. This is true everywhere. But even more so in Africa where 30-day pay cycles are common.

These cash crunches often lead workers to take out high-interest short-term loans to survive until the next payday. These can be street loans or their legitimized cousin, the payday loan.

Read More (Subscription Required)

Episode 23: Tariq Sheikh, CEO, Postpay

Episode 23 of the BIG5D Podcast features Tariq Sheikh, founder and CEO of Postpay, A Dubai-based buy now, pay later platform. Postpay was formed in 2019 by Sheikh, a former management consultant, and his co-founder Dani Molina, who was previously co-founder and CTO of Spanish BNPL Aplazme.

Listen Now

Episode 22: Deepankar Rustagi, CEO, Omnibiz Africa

Episode 22 of the BIG5D Podcast features Deepankar Rustagi, CEO of Omnibiz Africa. Deepankar founded Lagos-based Omnibiz in 2020 to help small FMCG (fast-moving consumer goods) retailers run their businesses more efficiently.

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17 February 2022
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