A conversation with Perseus Mlambo, co-founder and CEO of Union54, about ChitChat, the startup’s recently launched social commerce platform.
Eleven months after Union54 halted operations amid an attempted $1.2 billion chargeback fraud, the Zambian fintech startup is launching a social commerce platform called ChitChat. The new product is the result of a collaboration between Union54 and Mastercard.
ChitChat lets users chat on an encrypted platform and also send money to each other, get a USD debit card and buy items from digital storefronts on the app. ChitChat sounds a lot like China’s WeChat and Union54’s founders will certainly be hoping they can find similar success with their new app.
TechCabal caught up with Perseus Mlambo, co-founder and CEO of Union54, to learn more about the origins of ChitChat, its mission to revolutionise fintech in Africa, what challenges and opportunities the startup anticipates in the market, and much more.
TC: Can you give us some background on ChitChat?
Perseus Mlambo: What we’re developing is a social commerce platform because we realised that there’s a lot of businesses in Africa. And all of these businesses might have some digital exposure, like they might have a Facebook or a Google page, but for the most part, they’re not actually transacting on those platforms.
So what we have done with ChitChat is to develop an app that allows people to chat to each other, as well as to pay each other and get access to MasterCard debit cards. Our thesis is that if people are already speaking to each other, then it’s easy for them to discover new trades or new business opportunities in their community. So the best way to think about ChitChat is a WeChat but for Africa. In short, it’s a place where social commerce meets payments.
We think that we can give more people an opportunity to monetise their products or their services, especially in their local communities because with what we have built here, you’ll be able to discover businesses near you. If you’re a business, you’ll be able to have an account where you can list your products or your services, your opening hours, and you can chat to your customers directly, and you can get paid directly in the app. So this means that most smaller businesses who don’t currently have a website will be able to actually increase their customer base because ChitChat is giving them that product discovery or that customer discovery opportunity.
TC: Is ChitChat currently available for download?
We are starting with internal testing which is happening in a couple of weeks. So the ChitChat family, including Union54 employees and our partners, will start testing out in a few weeks and then after that, we want to increase our testing base. We’re going to be testing out in Zambia first because it’s our domestic market where we’ve got the home advantage. And then if all things go well, a month and a half after that, we want to roll out to Angola, and then Tanzania and Uganda. We selected those countries, because they present very different opportunities. In Angola, you’ve got a different language. In Tanzania and Uganda, you’ve got some common linkages we have identified and in Zambia, obviously, we’ve got the domestic advantage. So in essence, we chose those countries because they provide as near as possible to what a full rollout would be.
What we’re really planning here is something that we haven’t done before because we primarily have got B2B experience. When we start rolling out to additional markets, apart from those pilot countries, we just want to really have an opportunity to engage with consumers. We plan to roll out a very unique campaign that explains our proposition, simplifies the onboarding, as well as gives people a preview of what’s to come when the network effect of ChitChat is realised. So we are really excited about that because I haven’t seen anybody else do something similar in the past. All in all, I think the platform has really interesting challenges as well as opportunities that fintech can unlock if they do it correctly.
TC: What problems or pain points does ChitChat directly address?
Right now, there’s a number of problems that we’ve identified. To begin with, people who mainly receive support via remittances, it is really expensive to do that. So what we have done with ChitChat is to do various integrations to allow people to use ChitChat to send money internationally to over 150 countries, whether it’s sending from ChitChat to a bank account in the Netherlands, or to a bank account in Indonesia, or to a bank account in Botswana, or to send from ChitChat to any mobile money provider anywhere in the world. What that does is to bring that remittance experience closer to the people who actually receive the funds to the people who are sending them. So no longer do you have to go to a bank and I’m glad that we’ve been able to do that because this is something that I use every day so I know the experience.
Secondly, for people who are living in Africa and other emerging markets right now, I think the main problem that we’re trying to solve for them is to allow them meaningfully participate in their local communities. So the example that I gave earlier with a small business selling at a shop, that shop is not connected on the internet, yet people who walk past that shop everyday know that if I want to go buy batteries, for example, I’m gonna go to the shop two minutes away from me. To enhance that experience, what can happen is that those shops can open a ChitChat account, take pictures of their products, and then they can target a market, which is within a 10km to 15km radius. What that does is to bring all of these different shops, all of these different merchants onto the internet, allowing them to increase their customer base.
But even for people who don’t have a formal business, like people who are providing gardening services, or mechanics, right now, they only get business through word of mouth. They don’t advertise their services on Facebook, they don’t advertise in the newspaper, they’re not going on the radio to talk about their service offerings. The only way they get clients is through word of mouth referrals and now, through ChitChat, we allow them to list their services that they offer on the platform. And because they get ranked by their customers, they can then start to become the best or the leading provider for that service in their immediate community and then over time, they can even start to have other partners that they work with in other parts of the country. So the ChitChat experience is really looking at what needs to happen now, because a lot of people have gotten used to using apps and services on the internet but they haven’t done that on a local level where they can actually start to monetise and increase their customer base.
Given our experience as Union54, where we grew to issuing over 3 million debit cards over nine months, we know what people are looking for. A lot of our customers still exist today and they want to have access to a virtual US dollar card so this is something you’ll be able to get on day one from ChitChat.
TC: What challenges do you anticipate in the rollout of ChitChat?
So at the moment people are used to using fintech products separately. The fact that we’re trying to combine all of these different experiences in one app means that we’ve got a big job that we need to do to explain the value proposition that we are bringing, especially for the informal businesses that I spoke about.
ChitChat will only work if we’re able to help people in the local communities to make more money so that’s our core focus, to share that message. To be able to help those people, we need to be able to go down and find them wherever they are, and help them understand why this is a product that’s going to grow their business. The opportunities that we have are really exciting because you have to go out, identify these customers, speak to them and walk them through the onboarding. This is something that we will be spending a lot of time and energy on.
TC: What would you say is ChitChat’s competitive advantage as it enters a relatively competitive market?
I would say the current market players have done a really great job of showcasing what ChitChat can become in terms of the scale and the presence of meaningful opportunities. But I also think that we have a greater opportunity in front of us because we’re not tied to any existing multinational or big company. What that means is that we can actually afford to spend more time with customers, we can afford to develop features quite quickly, and we can afford to actually build something that people are looking for and that excites people. A good example is maybe the rollout for some of these products where they are constrained by the markets where their parent companies operate. So if you’ve got a telco who’s got a licence in Zambia and in Zimbabwe, they can only introduce their service in Zambia and Zimbabwe, because they’re relying on the SIM card.
So the fact that ChitChat is SIM card agnostic and telco-agnostic means that we can afford to launch in more markets quicker than what the competition have done otherwise. And just more generally, as a startup, I think our biggest strength right now, is the fact that we need it more so we’re willing to work harder, move faster, and just generally spend more time with the customers. If you look at the current products in the market, you realize that a significant number of them have been developed to augment the existing telco relationships like the SIM cards, whereas ChitChat has been developed primarily to help small merchants.
TC: ChitChat is a joint effort with Mastercard. Can you share the details of this partnership?
We have partnered with MasterCard for the last four years now, the first time being when we did Zazu (a Zambian payments platform) with them. And that was primarily a card issuing partnership where we issued domestic debit cards. That partnership turned out so well that we extended the relationship to develop Union54 so we could expand the user base. With Union54, we got into quite a lot of countries with MasterCard but now with ChitChat, I think we’ve got an even greater partnership scope.
In addition to issuing cards, we might be looking for other products or services that can help MSMEs in Africa, because the strength of working with an entity like Mastercard is the support that you get via brand recognition which nudges MSMEs to come on board quicker. So it’s a multi-year partnership and we’re really excited about the number of products and services which have been created together, some which are novel, that we will introduce to augment the ChitChat experience. And for the consumers, if you really think about it, the benefit of using ChitChat is knowing that MasterCard is supporting this so they can also expect to get better products and services.
TC: ChitChat has an interesting ownership structure with Union54 retaining a 40% stake, and significant equity going to “partners” in the various markets it will be present in. Please explain this structure in more detail.
This strategy has been a focal point of our deliberations over the past few years. To explain it, if you look at history, African merchants have always had what are called “cooperatives” which allowed merchants to pool together resources to make purchases. Cooperatives have a clear structure and membership rights make sure that there is not one individual person who’s benefiting more from a cooperative than another. The problem that we’ve had in Africa, at least to the best of my understanding and experience so far, is that you then end up with a merchant in the cooperative who’s got a licence to move money, or a licence to trade currency in Zambia. But for this merchant to be able to go to three or four different markets costs a lot of money and as a result, the merchant is not able to offer those network effects in a quick enough timeline for his customers which creates a very disjointed user experience.
And we can’t really replicate what other platforms in other markets have done. For example, with WeChat, they’ve got the advantage of a common culture whereas in Africa, we’ve got very different cultures, even in the same countries, and even different competitive landscapes. So our thinking was that if we really want to be able to say we are offering a cross-cutting solution that users in different countries in Africa can use, the only way to do that is by showing that ChitChat is the infrastructure layer of that user experience. So we are happy to invest in the product, and we’re happy to invest in the marketing, but we also know that all of these markets have different realities, very different regulatory regimes, very different thoughts about communications, very different thoughts about fintech, and innovation in general. So it was going to be a tall order for me, as a foreigner, to go into each market to try to understand them in a quick enough time that I can then launch ChitChat and get meaningful traction. If you look at some of the much more experienced players like EcoBank which has a presence in 33 countries and still haven’t yet managed to operate in each and every single African country, you realise that it will be very difficult for fintechs, and not just ChitChat or Union54, to do that.
But if you look at each market individually, there’s somebody who’s licenced by the central bank and there is somebody who’s licenced by the telecoms authority. And those licences may or may not be used to their fullest extent. So for ChitChat, we figured that the way we can confidently say that it’s going to work for every single person in Africa is to form a cooperative around this infrastructure that Union54 has developed. By going that route, we believe we will end up getting significant market share in all of these markets and the merchants who partner with us can also get value through ownership.
So for me, it’s something that’s really exciting because what’s been happening over the last few years is that a lot of money has been pumped into fintech but we have not yet seen the results of that money. I think this is a very nice way to flip that script, where you’ve got one central partner doing the product development, and you’ve got very different partners in each market who are then able to provide localised feedback about what works for ChitChat in that market.
TC: In your interview with TechCrunch back in March, you stated that Union54 would use the lessons learnt from the chargeback fraud incident to build a more robust product offering. Which lessons learnt from that experience would you say have been vital in building ChitChat?
The ownership structure, for example, is something that we have added to ChitChat as a lesson from that previous experience. What we were doing before with Union54 was using a central product, and a central rolling out strategy, without the local partners on the ground to push our agenda. So what we’ve done in this iteration is to incorporate that element where we’ve got local partners that we’re going to be rolling out the product through and with. As a result, we are much more equipped to help the product get enough traction to actually function in a way that’s going to increase that adoption.
We made a few mistakes which resulted in us having to stop the Union54 card issuing API, but with ChitChat, because we’ve got local partners who own the product as well, they are the ones who are going to actually drive that strategy, drive that adoption and drive that retention using the localised feedback and lived experiences.
TC: What would you say was key to Union54 being able to make a comeback with another product less than a year after halting operations?
When Union54 was up and running with the debit card issuing business, we really had a difficult time understanding and staying in control of what was happening. What we didn’t want to end up doing was developing Union54 into a product that would become an index for fraud in Africa. We were spending so much money paying fees to associated partners as a result of the fraud and we wanted to stop that because if we’re not making money, then we can’t be a responsible company, to our stakeholders, our investors, our partners, our employees, and to the shareholders. So the first thing that we did was to stop that spending by switching off the product. And the second thing that we did was to just take a look at what was really happening by speaking to consumers about how to be better.
Everybody now has a mobile wallet, everybody has got maybe a prepaid card somewhere from their bank, from their fintech, but for some reason, none of these things have allowed local businesses to benefit meaningfully. So we thought of that when we were looking at making a comeback. We wanted to develop a product that would allow us to interact more meaningfully with an increased user base and with ChitChat, we have something that’s cross-cutting so that students, local professionals, professional services, and informal businesses can benefit from it.
TC: What is the future of super apps in Africa and how will ChitChat contribute to that future?
I don’t think of ChitChat as trying to be a super app because that’s a very big label. For now, we’re thinking of it as a social commerce app platform that once we’ve got enough users on the only platform, we can then offer the API for third party developers to do integrations into, basically acting as an integration layer.
We don’t want to do everything because we know what we’re good at and we know what we’re not good at. What ChitChat is aiming to do is grow enough of a user base, such that it’s interesting for local developers to do integrations into it, so that they can offer their services to our user base. And I think this is where Chitchat is a little bit different from everybody else, because everybody else is trying to own the entire value chain whereas we recognise that’s going to be a weakness. The only way that we can grow stronger is through collaborations and partnerships, and through giving different experiences. So people in Botswana don’t want to see the same features that are not applicable to them but are being used by people in Nigeria. The experience needs to feel different in each market.
So from a market perspective, I think the people who are looking into these platforms or into these super apps are doing so with the thought of maybe payments being the main driver, and it makes sense because payments unlock everything. And to a certain extent, that’s what we’re also doing, but really, our focus is on trying to help people participate more meaningfully in their local communities.
Interview has been condensed for length and clarity.
