Ugandan dairy farmer Margaret Bahigura knows precisely when her grandson Stone Atwine gets invited to speak at an African tech or banking conference or feels compelled to explain how his fintech, Eversend, works to a journalist, a potential financier or a central banker.
That’s because 87-year-old Margaret’s net worth increases a little bit more each time he does so. Atwine’s party piece is to demonstrate the flexibility of his fintech by sending her some cash through it from wherever he is speaking. These Covid days, that tends to be mostly from Paris where Atwine has based Eversend under a French government fintech support scheme.
So when Margaret’s mobile pings with an alert at her smallholding in the western Ugandan region of Ibanda, close to the Congolese border, she knows that her enterprising grandson is again describing how Eversend is helping transform the personal finances of millions of Africans and the economies of their home countries with it.
“She gets a ton of money because I get to do this almost on a daily basis, especially when we are fundraising,” Atwine tells Euromoney. “She’s the only one who gets the money. For sure, she’s loving me.”
The process has brought Margaret into the financial system. She produces dairy products at a very small scale but is known in the village. Now people can pay her easily using her mobile money account and she can pay her bills on her phone.
There’s a million and more grandmas out there
Stone Atwine, Eversend
“I was trying to take care of my grandmother’s problem because she was basically not included,” says Atwine. “There’s a million and more grandmas out there. Life is now a lot easier for her. She can access microcredit if I don’t send money quickly enough. She can access other financial services, so there’s a massive improvement in her life because now she’s economically included. She has people who get to pay her for her products.”
Indeed, Atwine’s grandmother has become a crucial part of Eversend’s foundation story. Although the fintech has only been operating since March 2019, it had its genesis in 2011 when Atwine was promoted to be country manager of a South African-owned financial software developer in neighbouring Kenya. As many diaspora Africans do, in an annual volume the World Bank estimates to be around $77 billion, Atwine began remitting part of his monthly salary back home to his family in Uganda.
Atwine used long-established operators like Moneygram and Western Union to send cash to Margaret. Their commissions, as high as 15%, were prohibitive enough, but the real concern for Atwine was that Margaret had to spend an hour on a rickety bus to get to the operator’s outlet, spend hours in a queue waiting her turn and then get back on a bus for the return home. Depending on the queues, this could often be at night and she was a vulnerable old lady carrying $300 to $400 in local currency. “It was a lot of money and it was also a bit dangerous,” says Atwine.
That led him to return to Kampala in 2013 and start a business called useremit.com. Around the same time, he also started a microfinance operation called Yetu. As both grew in popularity and Atwine’s fintech credentials with them, he saw how limited and expensive traditional banking services across east Africa really were.
“I knew there was a massive opportunity there and that’s why I started that project [Eversend]. It was really a nice amalgamation to get me to what we’re trying to do with it because it’s basically a mixture of the two,” he says.
“We are helping a lot more grandmas and bringing them some financial products that they wouldn’t otherwise have.”
Eversend launched in March 2019 and at first saw volume growth of about 20% to 30% month on month. By January 2021, Atwine says the app was transacting about $1 million every month. He says the firm is now handling about $60 million in gross transaction volume, with 160,000 regular users.
“We realized that building just for expatriates or international travellers was not sufficient,” he explains. “We started looking at freelancers, we started looking at business-to-business transactions, SMEs and that’s why we’ve had this growth. There’s a massive freelancer community across Africa, people doing remote jobs for companies in the US or in Europe, so Eversend is a way for them to get paid.”
Using the app is mostly free, but Eversend routinely takes a 1.5% commission on foreign exchange.
“I think African SMEs are very underserved by banks, especially on the lending side, because banks just take deposits from them and then lend that money to governments,” he explains. “There’s a massive funding gap, so I think that’s a super-interesting opportunity.”
Eversend’s payroll of two at the 2019 launch has expanded to 16. “I’m definitely not a banker,” he says. “Right now, we’re trying to actually hire from the traditional banking space to improve our banking skills within the company.”
By working with established banks, the app is now licenced in five countries: Uganda, Nigeria, Kenya, Ghana and Rwanda, a region of more than 320 million people of whom he estimates about 60% are unbanked. “Our strategy to get into the market was to work in partnership with regulated entities because, in most of the places, for example, here in Uganda, there was no law that would allow us to operate individually. When we spoke to the central bank, they said: ‘There’s no licence that we can give you to do what you want to do, so work with an established bank.’”
He argues that as new apps are going to happen, it is in the incumbents’ interest to work with them to tap into deposits from their users. These customers are unlikely to be profitable for an institution with a traditional branch network.
“It’s a lot easier for a business like ours, which can piggyback on some of the mobile money infrastructure and serve these customers without necessarily investing millions. It really leaves us an opportunity, but banks, why would they lend money to my grandma or to an individual or to a small business without collateral if they can lend it to government in bonds, where they can get in some places 17% on 25-year bonds?” asks Atwine. “Those groups of people are not profitable for them and that creates a gap for us because we can serve them cheaply and efficiently.”
He believes that African regulators are starting to get excited about supporting regional fintech. “We’re seeing a lot of improvement in Uganda, for example, with the new national payments systems regulation and a real serious desire for the central bank to engage new players, especially fintechs. I think the future is going to be really interesting.
“There’s a massive gap in the market right now. We are trying to build a digital bank in multiple countries at the same time with multiple products. The vision is still the same: this one-stop shop for financial services for Africans in Africa and around the world. I think we are in a good place, but we haven’t even done 5% of what we intend to do.”
Running in the family
Robust banking and finance genes also seem to run through the DNA of Nigeria’s Dozie family.
The genetic line starts with the fabled Nigerian banker Pascal Dozie, who founded Lagos-based Diamond Bank in 1990, then a rare example of a genuine home-grown Nigerian bank. It was built over the next three decades into an African financial powerhouse, one part-owned by the influential private equity house, Carlyle Group.
Now 82, Pascal and his wife Chinyere had five children, all sons, and each has gone into the financial sector. In 2014 their eldest son, Uzoma, took over from his father as Diamond’s chief executive and presided over its 2019 sale after some turbulent loans in Nigeria’s energy sector saw it stumble. When Uzoma sold Diamond to Nigeria’s Access Bank, he started up Sparkle, a fintech that’s part payment platform, part bank and part retailer. Two other Dozie sons also run financial-oriented technology companies.
But it’s the two youngest Dozie boys, Chijioke and his brother Ngozi who seem to have inherited some of the family’s more intrepid entrepreneurial code. They are behind Nigeria’s neobank startup, Carbon, created with the intent of disrupting Nigeria’s legacy banking system, ironically biting the very hand that created their family’s banking fortune.
Indeed, it was their thorough understanding of Nigeria’s banking system that helped them to identify the opportunity for Carbon. The Dozie brothers had run a private equity and distressed asset investment house, Kaizen, and had noticed a repeated roadblock: traditional banks were restricted because the wider system lacked a sophisticated credit scoring system.
“All that the banks were doing was just taking deposits, and then lending, and then either buying treasuries or lending it to corporates,” says Chijioke. “Banks typically go around and say: ‘Give me your money, I’ll give you interest rates,’ and then they don’t see you again after you give them the money. They charge you all these fees and that’s it.”
The Dozie brothers felt that data and technology was the answer, building customer profiles based on spending habits and personal history and what it said about their creditworthiness, even the type of device Nigerians used. Then they noticed how few Nigerians had meaningful exposure to the financial system; a recent report by French bank BNP Paribas included Nigeria’s 200 million people as one of the world’s five least banked economies.
The central bank of Nigeria has calculated that 37% of bankable Nigerians don’t access the financial system. “We asked: ‘What do people want the most that they’re not getting?’ The answer was credit. Let’s start off as a consumer lender first and then we’re going to move in to get their trust, because now we’re trusting them on day one.
“There’s only about a 6% credit penetration here,” says Chijioke. “Now we compare this to Kenya, it’s at 30%. Credit to GDP is about 30% in Kenya and South Africa is about 72%. In the West it’s about 114% or something.”
Telling customers: ‘Hey, if you miss your payment, your credit score is going to be affected,’ doesn’t matter here. They don’t care. It’s meaningless
Chijioke Dozie, Carbon
There was another factor. As Nigerians, the Dozie brothers knew that there wasn’t an inculcated credit culture in the country, partly because of the financial system’s inefficiencies. “In our markets, everything is pre-paid,” he notes. “You pay rent a year upfront. You buy a car in cash. Telling customers: ‘Hey, if you miss your payment, your credit score is going to be affected,’ doesn’t matter here. They don’t care. It’s meaningless.
“So we change that with a card saying: ‘If you miss a payment, you probably won’t have the same access to Carbon and even if you do, the rates are going to be high or higher. But if you pay us back, we’re going to do a couple of things: we’re going to definitely reduce your rates or we might give you a bit more or we might do both.’
“We give you money first and then hopefully you trust us. No one has collateral, so it’s an unsecured loan, but then you can only build credit if you use credit first and so that’s what we did. We priced for the risk but with the expectation that as the risk was reduced, we would reduce the price.”
Carbon has made a solid start in its three years of operation. Chijioke says the firm has disbursed over $100 million and processed about $480 million in transactions in the last two years. He says that revenue over that time is close to $30 million.
The customer demographic is young, mostly male and educated. “Right now, it’s 70% men, 30% women, average income is about $200 per month, 40% of our customers identify as self-employed, the rest are salaried. Over 60% are university graduates. Age 28 to 35 is the sweet spot. Android is about 80% of the market because Apple is too expensive.”
He says over 3.1 million registered users or about 7% of the bank population have applied for a loan account. “We were and we still are a lot of people’s first experience of credit or real banking,” says Chijioke. Carbon makes loans from as low as $5, ranging up to $50,000 to $100,000 and $2,600 for small and medium-sized enterprises. It has received $10 million in first round funding from Nasdaq-listed South African tech investor Net1 UEPS Technologies, alongside a $5 million debt financing in 2019 from London-based fintech backer Lendable, which helped finance a licenced rollout in Kenya and Ghana.
“A typical customer will download our app either on the Apple or smartphone, they would upload their identification, so we have a bank verification number, unique identifier. We would ask for permission to look at the data on the phone. We will also check two credit bureaus instantly; we’ll check all the verification, the databases.
“If it’s their first exposure, that’s fine, we’ll still look at them,” says Chijioke. “We’ll look at their data and ask: ‘OK who looks like you and how did they perform?’ as a risk assessment. And that’s all done within five minutes. If you’re approved, the money goes into your Carbon account, all licensed and regulated by the central bank. You can pay your bills, you can save money on high-interest accounts, we can give you a debit card. We’re probably the only financial institution in Nigeria that gives you free credit reports to take somewhere else.”
Chijioke says that the traditional banks would never lend to many of his customers. “So we said to users: ‘Look borrow money from Carbon, use us but take your credit report and go to the banks and show them that look, if Carbon can lend me this and I can perform, I should definitely be able to get a loan from my own bank where I put my own money.’
“I think that giving credit to people who don’t have access to credit is impact. People don’t have access to working capital and that’s what we’re doing. You’re bringing people into the credit financial world with the result and economic impact that comes from that; we’re making them more bankable.”
‘Kate Adie of fintech’
A continent and a half away from Lagos, in Copenhagen, Sofie Blakstad is known among her fintech team as ‘the Kate Adie of fintech’. That’s because, like the former BBC foreign correspondent, Blakstad has enjoyed a banking career venturing to markets where, she says, “there’s always a slight risk of getting shot”.
Now 55, Blakstad has worked at Citi, UBS, RBS and Nordea among others, a banking technologist whose job it was to connect and secure, say, Citi’s branch network in Senegal within the country while hooking it to Citi’s global network.
At Citi, Blakstad was responsible for making its technology functional in 54 countries, 13 in Africa and in many places where infrastructure doesn’t really function. “When I was putting communications infrastructure into Senegal, I really started to understand the challenges of monkeys eating the cables and so on,” she says.
She also noticed Africa’s stark inequities and believed that technology could bridge them. “I was the only socialist in banking,” she says. “I had a massive chip on my shoulder about everyone else getting educated and having networks. I’ve made a successful career out of looking at the structures and the organizations and the technology and saying: ‘This is shit, it’s not working for the customers, what you need to do is this.’ My entire career was built on impatience because I hate things that don’t work.”
After years connecting multinational banks, now she’s doing much the same for her blockchain-based HiveOnline network, a polyglot gathering of bankers, techies, consultants and social workers, which looks like an non-government organization but, she says, is built to make money.
Blakstad has spent much of her life helping profitable banks make even more money more efficiently, so now she does the same for the poor, farflung and unbanked – mostly in Africa. “We tend to end up in places where the financial industries moved out,” she says. “We don’t go to the easy places.”
One such place is northern Mozambique, specifically the province of Cabo Delgado, which has been besieged by Islamic State insurgents. It’s a war that has devastated the area’s traditional cash crop, cashews.
For years, Mozambique was the world’s biggest cashew grower and exporter, now it is struggling to make the top 10. Cashew farmers’ plight there has been made worse because the war has seen the region largely abandoned as unsafe by conventional commerce normally serviced from the capital Maputo, 1,700 kilometres south.
But with the blockchain-based system that Blakstad’s Hive has introduced locally, now-digitized Mozambican growers and cooperatives can get online on smartphones and share information about orchard levels, harvest yields and other key data that connects with buyers and helps draw a wider financial picture.
“It means that the banks in Maputo can safely lend to cooperatives in Cabo Delgado without having to go there, which obviously is an attractive thing for them,” she says.
“We’re in our third harvest there, we’re gathering all the data, we’re able to show that to buyers.”
A particular favourite of Blakstad are the area’s all-women cashew cooperatives: “Because women tend to work hard but not necessarily get the reward. It works on community bonds so there is a sort of authentication and handshake based on the community responsibilities that people have. That means that people who don’t have phones can still have an account and they still keep their assets and their wealth in their accounts without their husbands stealing it and drinking.”
The region is a massive untapped opportunity for banking agriculture, she says, “because everyone’s very poor and they can’t expand their farming practices. Some 70% of arable land is unfarmed and yet Africa is a net importer of food, which is completely insane. When your farmers grow in value and in capacity, then the communities do as well.
“In sub-Saharan Africa, that is the big problem. You’ve got 175 million smallholder farmers, nearly all of whom are trapped in generational poverty because they can’t manage their cash flow and they can’t get access to financial markets. The problem is difficult to solve, but it’s not a complex problem. Because, if you make markets a little bit more efficient and get access to credit and capital, they can triple their income in a season.”
Hive has also taken its systems into northeast Nigeria, which has been overwhelmed by Boko Haram. “We do get to places where people aren’t blowing each other up as well,” Blakstad says drily. “We are building financial infrastructure where there is none for people who don’t have access to the standard financial system. Once you’ve actually got the rails in place, it’s self-perpetuating improvements. The difficult bit is doing it in the first place.”
Blakstad says there is no one-size-fits-all model in Africa. She cites Niger, with a population density of just 14 people per square kilometre. “The unit economics is not there,” she says. “You’ve got a village that’s 500 kilometres away from everything. We have to work with the reality that people don’t get signal.
“That’s why we do this one device per community thing. Of course, if people do have their own devices, they can communicate with our app as well, but we have to work with the reality where people are not going to have mobile phones for a long time to come. Some of the people we work with are the authority figures who are using the apps but may have never used technology before. I think that the idea that Africa will get universal coverage is a long way off.”
You should never be in love with your own solution because then you don’t question it
Sofie Blakstad, HiveOnline
So what’s the payoff for Blakstad and her team at Hive? However noble-minded it seems, Hive isn’t operated as a charity.
“We make money,” she says. “Our business model is predicated on things like commission on lending and vouchers. We have a voucher scheme, which is cheaper than your standard voucher scheme for governments and NGOs. It’s based on blockchain so it’s much more secure as well. Then, if we switch on our mobile money, then we take some transaction fees on some of that.”
Is Hive the actualization of Blakstad’s career as “the only socialist” working for some of the world’s biggest banks?
“Put it this way, I didn’t plan for this, but I think I was in training all my career for this. I’ve been building technology since before the internet. I’ve been solving problems with technology that most people would regard as not fit for purpose these days. When someone says to me: ‘You can’t roll out blockchain cases without a signal.’ I think: ‘Well, actually, yes. It’s just, it’s an architecture problem.’ When I was at Citi, we developed the offline ATM, which could sit in the middle of nowhere in Russia. That was really cool. When you’re in places where there’s no infrastructure, you come up with solutions.
“I think that what you get with especially younger fintechies, they get very excited by the technology. It’s transformational, it’s amazing, but they think that technology is a service and that’s a big mistake. You should never be in love with your own solution, because then you don’t question it. You don’t expose the infrastructure to the customer, you expose the services to the customer.”
African neobanks build a model for the unbanked
Africa is a world leader in using new technology to foster financial inclusion in emerging markets. That’s largely thanks to mobile money services provided by telecoms companies, such as Safaricom’s Mpesa, in Kenya. However, these are primarily money transfer companies, rather than deposit takers and lenders.
Moreover, mass adoption of mobile money is limited to a small number of African countries.
Now a new generation of licensed African neobanks is going to the next level, using a low-cost approach to bring full-service bank accounts to the masses.
One of the foremost among these Africa neobanks is Nigeria-licensed Kuda. Its $55 million Series B funding round in August valued the firm at $500 million, not far off some of the big Nigerian incumbent banks. The continental ambitions of Kuda founder and chief executive Babs Ogundeyi go much further than Kuda’s 1.4 million customers in Nigeria today.
Ogundeyi says digital banks are especially well suited to emerging markets such as Nigeria, where more than half the population is still unbanked, because most consumers there cannot afford the cost associated with legacy branch-based banks – and because those branches are, in any case, often less accessible than in more developed countries.
“Africans want bank accounts,” says Ogundeyi. “The question is how do you make it easy, accessible and affordable. It’s not enough to say you can transfer and receive money. It’s about how you build a complete financial services offering so all Africans can open accounts, get credit and shop easily, without having to carry cash around all the time.”
Kuda is launching an account service using text messages, although smartphones are spreading in Africa (approaching half of all connections now, according to global telecoms industry body GSMA).
But any neobank in Nigeria will be partly reliant on physical channels, as local regulation requires people to open their first bank account in person. As a result, about 90% of Kuda customers have had a bank account before. In addition, Kuda partners with big Nigeria lenders Access Bank, GTBank and Zenith Bank to allow deposits in cash, which remains by far the most common form of payment in Nigeria, as in most other emerging markets.
It’s in recognition of this dominance of cash in Africa and other emerging markets that South Africa’s biggest neobank, Tyme (now launching in the Philippines), has a model based on deploying self-service kiosks in supermarket chains, which allow both cash withdrawals and deposits. It’s opened about 3.5 million accounts in South Africa, mostly through these kiosks, which are often manned by staff it calls ambassadors.
“We take people from the physical environment into the digital environment,” says Coenraad Jonker, Tyme’s founder and executive chairman. “It emulates the benefits of a branch infrastructure at a fraction of the cost.”
Cash acceptance and distribution
Alongside the sales-and-service benefit of the kiosks, co-opting the cash-handling capability of check-outs at Pick n Pay allowed Tyme to have the most ubiquitous cash acceptance and distribution network in South Africa when it launched as a bank three years ago, according to Jonker. “These are very strongly cash-based economies, so it’s critical to find a solution that very easily allows customers to turn physical cash into digital cash and the other way around.”
Although Tyme started out as a mobile money project for South African mobile phone group MTN, Jonker notes supermarkets can handle much more cash than the small informal stores mobile money firms typically use. Outside South Africa, supermarkets are less established in sub-Saharan Africa. Egypt also has the alternative disincentive of an unfavourable regulatory environment for cloud-based banks processing data offshore, according to Jonker.
Tyme picked the Philippines because of its supermarket infrastructure, regulatory environment and identity card system. It is launching there in partnership with Lance Gokongwei’s JG Summit Holdings, which owns Philippine supermarket chain Robinsons. JG Summit is now a shareholder of Tyme, alongside majority owner African Rainbow Capital, an investment firm controlled by South African billionaire Patrice Motsepe.
Unlike the Philippines, most South Africans have bank accounts. But Jonker says the mass market in South Africa is overcharged and underserved by the big banks. “Branches are inaccessible and the products are complicated and designed for a different market segment.” At the mainstream banks, says Jonker, withdrawals can cost as much as R10 (66 cents) – encouraging people who are paid electronically to withdraw all their cash immediately. Tyme withdrawals are free.
“The easier you make it for customers to take money out of their account, the less likely they are to want to withdraw everything and live in cash, and the more comfortable they are keeping money in their account,” argues Jonker.
Dominic O’Neill
