That’s “good morning” in Yoruba
In his memoir “Africa Rise and Shine”, Jim Ovia wrote about the difficulty in getting Zenith Bank off the ground.
Nigeria’s banking sector was privatized in the late 1980s. And, by his own admission, he and his investors barely met the central bank’s steep requirements.
In the last decade or so, Ovia has become an investor himself. His company Quantum Capital Partners led the Series A funding round for TeamApt, a Lagos-based fintech.
TeamApt recently announced
a new funding round, alongside a plan to transition from consumer fintech to “digital banking”.
Quantum Capital didn’t participate in the round. Which, on a personal level, was disappointing. Because if ever Ovia released a second book, I’d have loved to know whether the assumption that a TeamApt Bank is easier to get off the ground than a Zenith Bank is truly the correct one.
The unbundling and re-bundling of fintech
In the original fintech playbook, a startup identifies a small number of financial services that may or may not already be offered by traditional banks, they then try to use digital technology to optimize them.
But in recent years, we’ve witnessed fintech startups rip up that playbook and increase the number of financial services they provide to the point where they morph into neobanks or challenger banks (What’s the difference?
One of the first startups to make this transition in Nigeria was Carbon.
When it was first founded in 2016, the company was called Paylater and, you guessed it, it focused on lending. But in 2019, its parent company, OneFi, acquired Nigerian payment solutions company, Amplify, and Paylater became Carbon.
Today, in addition to lending and payments, Carbon offers services such as money transfers, savings and investments. It is now, for all intents and purposes, a neobank.
A few other fintech startups, like FairMoney, Kudi and the aforementioned TeamApt, announced a similar neobank play this past week.
These companies will now compete with traditional banks, as well as neobanks and challenger banks who set out to be neobanks and challenger banks from Day 1.
Why is this happening?
There are many reasons why consumer fintechs that reach scale are all likely to make this pivot, here are two:
Fintech commands the lion’s share of startup investment in Africa, with some estimates from last year putting it at around 50%. With each investment round, the mandate is for the company to grow until it inevitably provides a similar breadth of financial services to a bank. FairMoney, for instance, raised $42 million in a Series B round led by Tiger Global, an investment that has been described as the VC’s “African comeback
”. With this, FairMoney is set to launch services such as P2P transfers, lending, debit cards and current accounts. This should allow them to access new revenue streams and keep investors happy.
Regulatory advantage: In many ways, fintech regulation lags fintech innovation. As part of the announcement, FairMoney also disclosed that it had acquired a microfinance banking license, which has significantly lower requirements than the commercial banking license that Ovia got in the 90s and the license that a traditional bank will need to get off the ground today.