Celebrating a new era in Africa financial services and payments innovation- Afrikoin
After 18 months and 9 investments later, I have learnt a lot about the challenges and opportunities of startups in the region. Lately, I realized one of the areas most challenging is for startups to monetize and accept payments from customers on a continent that is rapidly shifting in accepting different payment forms ontop in a mobile centric internet world. I often spend as much as a third of time not only talking to emerging and established services, but also merchants struggling to get online or even big players such as Uber, whose model starts to get complicated around payments when they try enter African markets. Its easy to sometimes feel that sectors like Ecommerce won’t take off in Africa until key areas are addressed from user experience, settlement time to fraud management. Many startups often drift into the payment sector trying to address a problem they have had in handling digital transactions for another service offering. Its a nascent arena with a lot of potential. At Savannah fund we launched Afrikoin to coincide with our 2nd accelerator class demo day to show our commitment to the space, we have at least 4 ecommerce related investments out of 9.
Flying close to the M-PESA sun
On one hand, the story of mobile money keeps getting told over and over again and no doubt it is an area that Africa leads the world. M-PESA, the service that facilitated peer to peer local remittance transfers in Kenya has since grown to take up large portions of Kenya’s GDP and has recently started moving into P2B and even B2P (e.g.salary disbursements) , so much so that many startups are building businesses ontop or adjacent to services like M-PESA . Recently, we saw KopoKopo raise their $2.6 series A helping ordinary small to medium merchants better accept mobile payments across East Africa in the face of “co-optition” from Safaricom with their “LipaNaMpesa” service. Its great to see KopoKopo expand and hit an important milestone, my sister now uses their service in Tanzania to sell event tickets from her website, iLoveDar.com. And every day I buy lunch and coffee I have reliably transacted with mobile money this way.
On the consumer side we are also seeing some interesting innovation. I recently discovered M:ledger and android app that helps track of mobile money finances, akin to the “mint of mobile money”– if you dig closely, you’ll see that its more than a mobile app and provides an important service for consumers for tracking finances that’s better than the banking portal African banks provide and bring a level of transparency in areas such as transactions fees which still remain very high and are often increasing.
Moving Horizontally: Evolving to credit cards
Other startups I have known for a while like Pesapal and 3G Direct Pay have focused more and more on being a one stop shop for accepting both credit cards and mobile money and offering value added services such as ewallets and ticketing solutions or focusing heavily on a lucrative vertical like travel. Accepting credit cards in Africa is not something to dabble in- sky high fraud rates means as well a lack of formal banking access has meant that it is often something only tourists or expats in the country dare use at a vendor they trust like an airline or reputable supermarket chain. But without credit cards, its hard for business to happen across borders. And we are starting to see the rise of both Prepaid Visa and Mastercard credit cards that don’t require a bank account- you top them up with (yes, you guessed it), mobile money services like M-PESA or at agent outlets such as a bank. Even mobile phone maker Mifone recently got into this industry, often partnering with a bank whose goal is often to increase deposit accounts. The services comes first, bank accounts later- a reversal on how it has normally happened in developed markets.
Convergence of Remittance Value chain and New Digital Currencies.
The recent entry of Paypal to the market with Equity bank signals the potential of ecommerce in Africa. Now merchants can finally accept a globally recognized ewallet that facilitates money movements across the continent. But dig deeper and you will start to realize that a more lucrative opportunity in the short to medium term might be to tap the growing remittance market that has been controlled by incumbents such as Western Union for way too long. Suddenly moving dollars to paypal wallet that you can then pull down to an Equity Bank account might be more convenient than lining up at retail outlet of Moneygram to send money to pay for relatives bills.
When I wrote a post about the impact of Bitcoin in Africa earlier this year,I had to clearly label it that it was not an April Fool’s joke. Now bitcoin has almost gone 5X in value and just a few days ago, innovators at the recent Senate hearing in Congress were talking about how bitcoin innovation might move overseas and have the most impact with the billions around the world who are “unbanked”. And the perhaps the biggest impact of bitcoin is to revolutionize the remittance market and cut the sky high fees in Africa, the highest for money transfers in the world. Now even impact investors, traditionally risk averse in early stage startups, might realize the “crackpot” bitcoin fits their investment thesis.
Suddenly we have come full circle, mobile money started off as a regional remittance service. Prepaid credit cards are emerging more and more to allow regional commerce from traditional payment network brands such as VISA and Mastercard that don’t require a bank account (at least initially until they make you open one). And bitcoin may turn everything we once knew about financial transactions on its head.
Join me today for Afrikoin where we will be tackling the issues around digital currency and payments innovation followed by our 2nd Accelerator batch Demo Day. We will be livestreaming in the entire event from November 20th 9.30am-7pm East Africa time. Some of the top innovators in the space from MamaMikes, KopoKopo to established yet innovating players such as Equity Bank and Visa will be there on great panels to celebrate ecommerce innovation on the continent. We will have 3 bitcoin related speakers as well, I am happy that Pelle from Kipochi helped assemble a great lineup to educate us on cryptocurrency innovations as well as help sponsor the event.