Articles I’ve published from the last couple months include:
- a vision for transformational learning,
- a letter to Marc Andreessen,
- a reflection on innovation in education and at Streetlight using an IDEO framework,
- a primer on CRISPR-Cas9 prime editing with broader commentary on ideation, innovation, iteration (complete with part 2 and part 3), and
- a growing list of emerging communities of entrepreneurs globally.
I’ve decided to tackle a new industry and topic this week: financial services and fintech.
Saison Capital was looking for Scouts to help their fund source deal flow and get smarter on markets around the world. Although they have a broad mandate, their edge is in fintech. I got to have a chat with Chia Jeng Yang who has had an amazing journey thusfar (including stints with Rocket Internet, Antler, and Saison).
After hours of reading and researching, note taking, value chain table creation in Google Docs, and looking at too many names to count across China, the US and Africa, I decided to share some reflections and thoughts, with a particular focus on regional hubs for the continent: South Africa, Nigeria, Kenya and Egypt.
As a starting point, this gives a high level understanding of penetration along two different dimensions (cards and mobile money) in different countries (thanks to Marcello Schermer):
I started with South Africa, as the largest economy on the continent and a major hub for sub-Saharan Africa. I’ve also spent the last three years living and working here. It has a number headwinds when it comes to disrupting the existing value chain:
- Dominance by a few large, institutionalized banks (FNB, Standard Bank, Capitec, Absa and Nedbank) (who themselves are trying to participate in the fintech space, e.g., with Standard Bank partnering with Founders Factory Africa and Alphacode launched by Rand Merchant Investments, which itself launched some of the largest insurance providers in the country)
- High credit card penetration (~80%) with low mobile money penetration (MTN recently tried to relaunch mobile money with MoMo earlier in 2020 prior to COVID) — because of safety, those who can prefer to carry cards rather than cash
- Low overall economic growth (hasn’t reached 5% annual run rate in a quarter from 2010–2020)
- Low overall penetration of ecommerce as a % of retail (it’s seen steady growth, but the country’s measures during lockdown didn’t allow acceleration of ecommerce like the US experienced)
However, I believe there are interesting opportunities to build offerings focused on underserved market segments that 1) aggregate demand and 2) connect this demand to markets and capital to help them grow their services and businesses. In this way, these companies can either be fintech first and start with financial offerings (financing, investing, insurance, savings and/or payments) or build traction through other offerings before adding financial offerings to the mix.
For instance, Yoco is trying to serve the long-tail of merchants who previously weren’t able to accept credit or debit cards with a PoS solution. In South Africa, they’ve grown since launch in 2014 to become the largest non-bank mPOS player and serve over 50,000 merchants as of Oct 2019 (with 85% having never accepted card payments before).
The question for them (like for many) is how to grow — should they:
- Expand horizontally to other markets where mPOS solutions?
- Expand vertically, by partnering with other financial institutions to use the data to facilitate other financial service offerings to merchants?
- How can they support small businesses and survive the impact of COVID and lockdown?
Quona Capital is an investor in financial inclusion companies in Latin America, Asia and Africa, and they have a number of investments in South Africa (including Yoco) that are also working to expand offerings to those that might be traditionally underserved (e.g., health insurance for those with chronic conditions like HIV, a working capital lender to SMEs,
- 3 operate in the crypto space
- 2 are in insurance
- 2 are trying to support informal traders and spaza shops, one enabling them to add money services to their offerings and the other providing them with logistical supply chain and financial services
- 4 offer online-first business lending and capital solutions (working capital, invoice financing, etc) to small and medium businesses
- 1 created a platform for unlocking capital from individuals and institutions who want to invest and get a return from agricultural businesses (I’m keeping an eye on this one; it seems interesting and one that has potential outside of South Africa where it started)
- 1 has created a digital / kiosk based bank without bank branches (if you live here, you know it as you’ve probably seen their kiosks in Pick N Pay possibly without actually registering or realizing it)
- 1 has created a market place for (university) student accommodation
From my experience, we cannot forget social media platforms that dominate in South Africa and across the continent: Whatsapp, Instagram, Facebook (Shops also will be an interesting opportunity for those already selling through Instagram and Facebook when and if it becomes available in South Africa). I’ve observed both buying and selling taking place through these channels for various products and services, and I think potentially focusing on building a solution that is 10x better for a specific vertical (likely a combination of payments, guarantees to help with trust / fraud issues, shipping that allows the business to build its own audience and retain branding and identity— a bit like a local Shopify) would allow for an interesting opportunity (UPDATE: lo and behold, a few weeks later through Be On Deck’s ODF4 Hackathon during the weekend of 21 Jun 2020, a team led by someone else had precisely this idea and coaleseced to build it). Even though I haven’t seen a specific company doing this yet, I’m sure there are on the continent and across the world and plan to keep an eye out for them.
To close this section, a great mapping of fintech startups and respective verticals in South Africa from 2018 (originally made by Irrational Innovations):