$144 Billion value to Sub Saharan Africa – Mobiles lead Fintech for Good

If you joined the Fintech party only this year, and feel you missed on riding the curve – don’t worry. Sub Saharan Africa is where all the Fintech excitement is at the moment. In 2018, Fintech investments in Africa quadrupled to $357 Million. Image Source This is tiny compared to the Billions being invested in […]

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Jumia – Africa’s Alibaba and its IPO roller coaster

Feels like a long time since I posted an article on Africa. Every time I research to write about the African Fintech segment, I invariably stumble upon a story that leaves me with one emotion – hope. The youngest continent of the world is all about hope.

AFRICAEcommerce

Africa is a “mobile-first” market, where consumers access the internet from their mobile first. Sub-Saharan Africa has the highest per-capita mobile money accounts in the world. Financial Inclusion has been achieved at scale, that the number of mobile money accounts have gone past bank accounts. Most of the numbers are humble when compared to the China Juggernaut. But the opportunity to scale is immense with over 1 Billion consumers gradually moving to cities by 2050.

One African firm that has captured headlines in recent times is Jumia. In short, Jumia is said to be Africa’s Amazon and is the first African firm to list on the NYSE. They listed on NYSE on the 12th April this year, and saw their share price close 75% higher at close of business. The shares rose from $14.50 at listing to $46.99 in early May and was one of the top 10 performers of IPO’d shares of 2019. So why is an e-commerce player relevant to Fintech?

That seems to be the trend in emerging markets, as firms use e-commerce and lifestyle business models for growth, and throw in Fintech services as value add. Fintech also helps the stickiness and improves margins.

Jumia have launched their marketplace for 14 African markets. As per their SEC filing, Jumia they talk about their payments platform JumiaPay.

“We have also developed our own payment service, JumiaPay, in order to offer our consumers a safe, fast and easy payment solution, whether they shop using a desktop computer or a mobile device. JumiaPay is currently available in four markets”

For this very reason, I am not sure if they should be instead tagged “Africa’s Alibaba”. They also are catering to customers who prefer cash with on-delivery transactions. They had 81 thousand active sellers as of December 31, 2018 and over 29.5 million product listings on the marketplace.

Considering ~450 Million internet users in the continent, there is a huge market to conquer. Jumia claim they are currently the largest marketplace platform in the continent.

They have a competitor in DHL, who have launched an e-commerce platform. DHL’s logistics business has served as a catalyst of growth. They have launched in 20 African countries and are seen as formidable competition to Jumia. Alibaba are also dipping their toes into the African market, but haven’t yet taken a plunge like DHL.

The Jumia IPO day wasn’t just a big day for the firm, but should be viewed as a breakthrough for the continent’s business community, as they join main stream markets.

However, the IPO was shortly followed by a claim by Citron Research that alleged that “the firm was Fraudulent”, and their “shares were worthless”.

Jumia’s shares hit $24 in early May following these allegations. Citron research have a reputation for reports claiming such frauds in the past. Their strategy was to short the stocks and make quick bucks from the price action post the report. This has got them (Citron) into trouble in the past too.

An analyst in Citi came to Jumia’s defence with a detailed analysis of Citron’s claims. The gist of the defence was that Citron’s claims were baseless, and Jumia just had to respond to a couple of several claims with a bit more detailed disclosure.

  • Citi highlighted that it was not uncommon for firms to update their usage statistics before a key financing round
  • Citi suggested that Jumia should highlight the details of their churn, with plans to address it.
  • Several allegations of Fraud by Citron were pushed back by Citi, citing that Jumia had disclosed fraudulent employee activities in its SEC filing. Citron chose to interpret these disclosed incidents as fraud that the entire company and its management were involved in.
  • Several other points on Citron’s report on the growth of the firm were not just baseless, but contradicting to data that showed healthy growth of the firm.

We are going through a period where several emerging markets businesses are growing in stature and an IPO grabbing the headlines every week. These firms need to understand the importance of market transparency and disclosures. As financial services firms advise them with their IPO, they should also provide enough advise on the right framework for disclosure.

I am hopeful that Jumia has sailed through the initial blips post IPO, and I genuinely hope they become Africa’s Alibaba. Good times ahead for Africa.


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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Africa’s M-Pesa’s landmark deal with Western Union and their global ambitions

mpesa

Image Source

Africa’s poster child for financial inclusion, Safaricom’s M-Pesa, signed a landmark deal with Western Union earlier this week. The deal would give M-Pesa access to Western Union’s mighty distribution network and banks across 200 countries.

M-Pesa’s journey started in 2007 when Safaricom launched the product for its customers in Kenya. It has seen tremendous growth in some African countries, and not-so-impressive uptake from other parts of the continent. The customer base in Kenya alone is about 17 Million, and Tanzania and South Africa are markets where they have their foot print.

M-Pesa’s expansion beyond Kenya and Tanzania have not been without challenges. Their slow growth in South Africa especially was a disappointment, primarily because of the regulatory landscape, payment infrastructure inter-operability issues and customer awareness were seen as key issues.

That didn’t stop M-Pesa from going Global though. They have a presence in India, through a partnership deal with ICICI bank and also in some parts of Europe. However, they haven’t been able to replicate their African story elsewhere.

mpesa-around-the-world

Since the beginning of this year, M-Pesa seem to have revisited their strategy in going global. They have focused on making the most of their existing account holders in Kenya and Tanzania, and providing them financial services that go beyond borders.

“Essentially, how we will do it is look at mapping of customers we have today where we see customers transacting or making calls,”

– Paul Kavavu, Head of M-Pesa New Business Ventures

In order to do that, M-Pesa had to meet global regulatory standards around Anti-Money Laundering and Terrorism Financing. They seem to have done that well now, and are on a roll in signing partnerships with several global financial services organisations.

They had signed up partnerships with Moneygram and WorldRemit four years ago, but that deal largely focused on inward transactions to Africa. The recent deal with Western Union allows Kenyans to send money abroad from their mobile phone.

That opens up major opportunities for M-Pesa to expand globally through its partner channels. Safaricom charge a commission of Sh100 for remitting up to Sh5,000 to a Western Union agent and Sh500 for more than Sh35,000. While this is on the lower end of the pricing spectrum, it should give them the opportunity to grow.

M-Pesa signed a deal with Paypal earlier this year to exploit the market in India, where they also had tie ups with Vodafone. With global players looking at the Africa opportunity, M-Pesa should be able to script their growth story beyond African shores. In the last 6 months, M-Pesa revenues jumped 18.2% to Sh35.52 billion from Sh26.20 billion a year earlier.

Financial-Inclusion

Its good to see African super stars going global, and their success beyond borders will be a case study in itself. However, I believe, the rest of Africa is more of an opportunity for M-Pesa. Their understanding of the continent, clubbed with recent improvements against regulatory standards, should give them a good chance to look at rest of Africa. There are many leap frog moments to be had in Africa, and M-Pesa is perhaps best positioned to make them happen.

 

Arunkumar Krishnakumar is a VC investor focusing on Inclusion, a writer and a podcast host.

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