Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
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There’s a rush on to fund fintech in Africa

A view of a neighborhood in Lagos, Nigeria

Hello and welcome to Protocol | Fintech! This Tuesday: why Africa's the next big fintech market, Coinbase's product chief's bitcoin conversion moment and Visa's NFT purchase.

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The Big Story

Africa on deck

What most people know about fintech in Africa may start and end with M-PESA. A big investment in a digital payments startup based in the continent's largest country may change that, as investors size up the fast growth in the region's mobile and internet usage and a young, growing population.

More venture capital funding is flowing into the region. African fintech startups raised $330 million in the first half of 2021, more than double the 2020 figure.

  • That's more than a quarter of the continent's total for the first six months of the year; funding overall was estimated at just under $1.2 billion for the period.
  • Investors are also hunting for (relative) bargains. Valuations are sky-high in the U.S., Europe and even Latin America, which is driving some investors to focus more closely on Africa.
  • With the success of fintech startups across several categories in Latin America, some investors are hoping that that model can be replicated in Africa.

OPay is the continent's new venture darling. The three-year-old Nigerian mobile payments company is worth $2 billion after attracting a $400 million investment.

  • SoftBank Vision Fund 2 led the $400 million round, its first in Africa. Sequoia Capital China, Redpoint China and Source Code Capital also participated.
  • The funding was the largest ever for a startup operating in Africa, and the fastest to reach a valuation of more than $1 billion.
  • Some debate whether OPay is really an African fintech startup, since it was incubated and is owned by Norway's Opera and Chinese billionaire Yahui Zhou.
  • The company has had some setbacks in its short life, like a ban on its ride-hailing business that forced it to focus on payments.

Payments are the wedge into the market. Mobile payments, both for paying bills and sending money, are a major focus in Africa. But they're just the start, and OPay has lots of rivals.

  • Another payments startup, Flutterwave, raised $170 million at a valuation of more than $1 billion earlier this year. Interswitch, an older company founded in 2002, was valued at more than $1 billion after a $200 million investment from Visa in 2019.
  • Chipper Cash, a three-year-old cross-border payments startup offering free peer-to-peer payments, raised $100 million led by SVB Capital.

Africa is mostly unbanked, but heavily mobile. That's the huge opportunity fueling interest in new challenger banks and other mobile-first financial services.

  • TymeBank, a South African digital bank, raised about $100 million for its low- or no-cost savings product. And Kuda Bank, a London neobank that operates in Nigeria, raised $55 million at a $500 million valuation.

Risks abound. Political instability and other typical emerging-market concerns are still present.

  • Challenges include low consumer purchasing power, a fragmented market of 54 countries, regulatory complexity and still-developing communications infrastructure.

And OPay, Flutterwave and the rest are the lucky ones. While an increasing number of African startups are getting seed funding, the majority do not make it past the Series B, according to a Boston Consulting Group report.

— Tomio Geron

A MESSAGE FROM CHECKOUT.COM

Over the last two years, many retailers have seen the benefit of investing in new, flexible payments. Despite the low-hanging fruit this opportunity presents, our research shows 60% of ecommerce merchants globally do not feel they receive enough payment insight to allow them to innovate their models. So how can businesses turn their ships around before it's too late?

Learn more

From Protocol | Fintech

India's crisis turned Coinbase's chief product officer into a bitcoin believer. Surojit Chatterjee explains what it took for him to buy his first bitcoin and how he plans to "unbank the banked."

Visa bought CryptoPunk #7610. The move either marks the payments giant's big push into NFT commerce, or just a really smart play for cheap publicity.

WeChat and UnionPay will recognize each other's QR codes. The agreement between a Chinese super app and a traditional payments giant marks a big step in the consolidation of the nation's mobile payment industry.

Overheard

  • "Technology is always evolving, as are our markets. As we continue to stay abreast of those developments, the SEC and FINRA should be ready to bring cases involving issues such as crypto, cyber, and fintech."SEC Chairman Gary Gensler at the 2021 FINRA Annual Conference.
  • "Crypto is officially eating the fintech market."Race Capital General Partner Chris McCann, noting how crypto has been driving Robinhood's explosive revenue growth.
  • "Arguably real-life cookies are more dangerous — super addictive with way too much sugar!"Coinbase CEO Brian Armstrong on a new Chrome extension that would block cookie consent notices.
  • "Monte dei Paschi is part of the city's flesh and blood. From a human point of view, it's as if the bank was a branch of every Sienese family." Maurizio Bianchini, former head of communications at the world's oldest bank, which has been put up for sale by Italian regulators.

3 Questions With...

Al Ko, CEO, Early Warning

(Early Warning is the maker of the Zelle payment system.)

What problem would you like to see a fintech company solve?

Small businesses are the beating heart of our economy, but they face a lot of friction when it comes to payments. We are working with our partners to solve these challenges and have already seen a massive increase in Zelle usage by small businesses — 157% year-over-year growth. However, there is so much more to do for small businesses to have a fully digital payment experience, including offering real-time bill presentment.

What's your favorite pastime that doesn't involve a screen?

All things involving a racquet or paddle! When the pandemic struck, we all had to think of new ways to stay active while staying safe. Our family got a ping-pong table — and we use it almost every day. I also revived my tennis game, which has been dormant since my days on the North Hollywood High School tennis team. I recently fell in love with pickleball, a sport I had never even heard of before the pandemic but has been around for 50 years!

What's your biggest career mistake or learning opportunity?

I was told once by a mentor that, as a leader, the organization is vastly better off if you make everyone around you 10% better rather than doing the work of 10 people yourself. That's the distinction between a true leader at scale and being a great individual contributor. Many talented people struggle to make that leap.

Need to Know

  • Substack is adding bitcoin payments. The online publishing platform is integrating OpenNode's API to support subscription payments in bitcoin.
  • PayPal is expanding its crypto service to the U.K. The payments company said customers will be able to hold and sell cryptocurrencies in the U.K. starting this week.
  • JPMorgan Chase is doing a business payments service. Called Request for Pay, it's focused on Chase's corporate clients and is working with an unnamed fintech partner.

Making Moves

Deal Flow

Data Point

20 Million

That's the number of Klarna users in the U.S., more than double the number of customers the Swedish "buy now, pay later" had a year ago.

A MESSAGE FROM CHECKOUT.COM

Over the last two years, many retailers have seen the benefit of investing in new, flexible payments. Despite the low-hanging fruit this opportunity presents, our research shows 60% of ecommerce merchants globally do not feel they receive enough payment insight to allow them to innovate their models. So how can businesses turn their ships around before it's too late?

Learn more

Thanks for reading — see you Friday.
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