South African Telcos want to be the Next Safaricom
Welcome to TC Daily! In today’s digest: Helios backs Thunes’ $60 million round, Nigeria looks on as PayPal rolls out Instant Transfers globally, and South African telcos want to be the next Safaricom.
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In yesterday’s newsletter, we reported on Piggyvest’s activation of two-factor authentication on its mobile app. In fact, our description of the new security features was incomplete. We have provided a fuller picture in this article,
with direct quotes from Odunayo Eweniyi, the startup’s Chief Operating Officer.
This news will make Nigerians cringe.
PayPal has teamed up
with Visa to expand a service that allows users globally to receive funds transfers faster. The service is called Instant Transfers and it was first launched by PayPal in March 2019 in the US.
Now, the service is going global, using Visa Direct to make electronic payouts and cross-border transfers quicker. Instant Transfers cuts down the waiting time for funds transfers from a matter of days to minutes.
The global rollout of Instant Transfers was accelerated by the pandemic. According to TechCrunch: “PayPal said that a recent survey it conducted found that 76% of small businesses in the US have reported that they are struggling with cash flow shortages, and 91% said the having real-time settlement could help with some of that.”
This is great news for PayPal users globally. But not for Nigerians.
See, for the better part of the last decade, Nigerian-based users have had restricted access to PayPal’s services. Nigerian users can
only send money abroad but can’t receive funds via PayPal.
The US company hasn’t disclosed why, but many suspect the country’s international reputation for online fraud has played a big role.
In 2011 when former Forbes writer Mfonobong Nsehe tried to find out why, he wrote: “PayPal replied to me, saying that they suspected illegal activity was going on with my account since it was being accessed from Nigeria.” While PayPal did formally launch in Nigeria in 2014, the restriction has remained.
Painfully, PayPal’s expansion of Instant Transfers comes at a
time when a number of Nigerian banks have placed limits on international transactions as the country’s foreign exchange scarcity causes uncertainty.
With a Naira Mastercard or Visa card at GT Bank, one of the country’s biggest banks, users can only transact up to $100 monthly. For Ecobank Nigeria, the spending limit is capped at… $20 only.
Of course, there are a few workarounds including the use of cryptocurrency exchanges and cross-border services like Flutterwave’s dollar virtual card on the Barter app.
However, the fact that Nigerians are limited
from the international trading environment is a reminder that this problem hasn’t been fixed. While there are many innovative payment solutions for in-country transactions, cross-border transaction remains challenging.
This problem affects everybody from local merchants who wants to sell abroad to Nigeria-based gig workers providing services on platforms like Fiverr, Upwork, among others.
Here’s uplifting news.
Helios Investment Partners has led the $60 million Series B round in Thunes, a Singapore-based cross-border payments company. Thunes was formed in 2016 under a company called TransferTo. But
following a restructuring in February 2019, it became a standalone business.
Thunes is a cross border payment network, similar to SWIFT, the global standardized messaging system for the finance industry. Thunes provides a standardised set of rules and APIs that allow a variety of financial services to communicate with each other and make transactions.
Speaking to TechCrunch, Thunes’ CEO, Peter De Caluwe says the company is focused on a number of categories:
Countries where digital wallets are popular, like Kenya’s mPesa.
Markets with many payment gateways like Nigeria where there is Paystack, Flutterwave, Interswitch, Remita, among a few others.
It serves banks that “usually work with businesses.”
International remittance services such as MoneyGram and Western Union. Thunes counts both companies as customers including PayPal.
Because of its focus on non-bank customers, De Caluwe calls Thunes the “SWIFT of emerging markets”.
With its latest $60 million round, Thunes has now raised $70 million since 2019. It will use the recent funding to expand its team and presence in Kenya, Tanzania, Zimbabwe and Ethiopia. De Caluwe said the round also brought on strategic investors like Helios who could help with potential clients, bank and regulatory support in new markets.
But Thunes has serious competition and some of them have made important deals recently.
One competitor is MFS Africa which operates a payment hub connecting banks, mobile money operators and telecom companies. The fintech supports cross border payments in highly fragmented African markets with interoperability between 200 million mobile wallets across 34 markets.
Recently, WorldRemit has morphed to become a sort of competitor to both MFS Africa and Thunes. Last month, it announced the acquisition of Sendwave, a cross-border payments service available in 5 African countries including Ghana, Nigeria and Kenya.
This acquisition gives WorldRemit leeway to build its own cross-border payment network in Africa and possibly ditch its current partners like MFS Africa in the long term.
Nigerian behemoth, Interswitch is another notable competitor that could rival Thunes.
The fintech has presence across West and East Africa and continues to extend its reach internationally.
In the end, they’re all trying to solve the huge challenge of cross border payment on the continent.
SOUTH AFRICAN TELCOS WANT TO BE THE NEXT SAFARICOM?
The South African financial system is by far the most advanced in Sub-Saharan Africa. The country’s banking sector has 34 banks with a total balance sheet of R5.52 trillion ($325.6 billion) in March 2019, according to the South African Reserve Bank.
A few banks
dominate the industry namely ABSA, FNB, Investec, Nedbank and Standard Bank. Of course, there are digital banking upstarts too like Tyme and Discovery Bank. Financial Inclusion in South Africa is high with over 80% of people[PDF] having bank accounts and just 7% financially excluded.
While the finance industry is already crowded, more players are attempting to get in and others are expanding. This time around, it’s the telcos.
Over 89% of the
population had access to mobile phones by 2018. Similarly, according to a recent report, smartphone penetration has risen from 43% in 2016 to 91.2% in 2019.
While mobile adoption is high, cash transactions still represent over 50% of consumer payments in South Africa. Telcos believe they’ve found an opportunity to digitise finance while diversifying their revenues.
After years of sitting on the sidelines, in the last three months, at least three South African telcos have announced their fintech solutions. Vodacom is the most ambitious.
The telco had attempted to grow mPesa in South Africa in the early 2010s, but it never scaled, perhaps because the country’s financial system was already too advanced.
But in July Vodacom partnered with
Alipay, the Chinese payments behemoth, and announced a new superapp. The app will offer financial services including lending to customers, with Alipay as the technology provider. Vodacom says it has its sights on South Africa’s 11 million unbanked population.
Telkom SA, another telco, recently announced plans to roll out financial services. In early August, the telco unveiled a funeral insurance service for customers. Then a few weeks later, Telkom partnered with Fundrr, a lending startup. The plan is to offer loans to small businesses on Telkom’s Yellow Pages
classifieds listing website.
MTN is the third telco with fintech ambitions and will possibly use the superapp. It has already developed a strong digital finance product in countries like Ghana where thousands of MTN mobile money subscribers participated in the telcos Ghanaian IPO.
With the superapp model, Vodacom and MTN are trying to win two battles: digital services and financial services.
TC LIVE in partnership with VERIFYME
Imagine this: your favorite fintech savings platform cannot verify who is trying to access your account at every point in time? For one, someone other than you could withdraw your funds. Scary right?
Digital identities are important. Fintechs need a robust identity verification system to enable them to protect your funds.
This month, on Wednesday, September 16th, 2020, TechCabal in partnership with identity verification company, VerifyMe will mark International ID-day by bringing industry
veterans together to explore the state of digital identity in Nigeria.
Speakers include Mitchell Elegbe, Founder / Group Managing Director, Interswitch, and Esigie Aguele, Co-Founder and CEO, VerifyMe Nigeria. They will answer questions including how a digital identity ecosystem will enable the Nigerian tech community, particularly fintech; and how entrepreneurs and professionals can shape and take advantage of a working digital identity system?