Visa buying Interswitch would upturn Mastercard’s game

In December 2010, Helios Investment Partners led an acquisition of a majority interest in what is now Africa’s first fintech unicorn – Interswitch. A decade later, Visa’s $200M funding confirms the hope of every investor in the first 10-12 years of their investment, an exit – Initial Price Offering (IPO) in this instance. What is more interesting is that Visa has been strategically acquiring fintech assets over the last few years and now has investments in 3 of the top fintechs in  Nigeria – Flutterwave, Paystack, and Interswitch. 

However, this strategy could go in more interesting ways and not always how you expect. I promise I’m not a conspiracy theorist – stay with me. 

Interswitch’s market dominance in Nigeria is nearly impregnable. Visa on the other hand, despite being a global leader, continues to play third fiddle in Nigeria, Africa’s biggest market. A little bit of history; Visa allegedly used to own 40% of ValuCard, now Unified Payments Services Limited (UPSL) but exited the company in 2012. At the nascent age of card payments in Nigeria, Visa was the dominant Chip and PIN card and the Visa Electron, its flagship. Card payments were quite unstable and domiciliary accounts were non-negotiable if you wanted to shop abroad with your debit card. The credit card was unheard of and even when they called some credit cards, they were 100% cash-backed. Talk of absurdities.

Enter Mastercard. 

While Visa card users were struggling, Mastercard swept into Nigeria and partnered with GTBank and Interswitch to launch the Naira Mastercard. Before anyone could say Jack Robinson, other banks had jumped on the train and Mastercard was crowned the Nigerian King of Cards. Overnight, everyone could shop abroad without hustling for FX; the pain of online payments became a thing of the past; banks earned revenue like bandits. The Mastercard international game was so profitable it accounted for 75% or more of profits declared by digital banking teams. 

Fast forward to the present day. 

Of the 60m cards in Nigeria, Mastercard is about ~43% of the lot while  Verve accounts for ~45%. The rest are Visa cards. Interswitch is a big player in this space, I mean, you can’t be worth $1B if you are playing around. They drive 100% of Verve transactions, about 25% of Visa and 95% of Mastercard. 

But what would happen if the dynamics change? What if Visa’s $200M investment in Interswitch leads to further investments before or after the IPO that then makes Visa the majority equity holder in Interswitch? 

If and when that happens

A  number of things could significantly change the face of payments in Nigeria. For starters, Verve cards would be accepted globally on the Visa network, suddenly giving the brand the legs it has tried to have for the last 9 years. Visa would probably convert all Verve cards to Visa, immediately putting Mastercard and Visa percentages at par. 

Should this happen, Mastercard will not siddon look, after all, they did not come to Nigeria to count bridges. It would be extremely unstrategic to let your biggest global competitor carry 95% of your traffic in the largest market on the last frontier.

What then could Mastercard do? 

The folks at Mastercard are probably thinking about the same thing. At this stage, it’s best to rapidly de-risk transaction transport. The alternative would be to back another switch and/or processor in Nigeria. Unfortunately, Paystack and Flutterwave cannot help with this; as sexy as they are, they are just Payments Services Providers. The game to become switches isn’t for the faint-hearted and it takes a gazillion years to connect a switch to every bank. If Mastercard decides to hit the ground running, they could acquire an existing switch or processor that is connected to every bank and is able and certified to carry Mastercard traffic. That leaves just Network International (NI), Etranzact, and 23-year-old Unified Payments in play. 

Mastercard already owns 10% of NI, which processes most of the credit cards in Nigeria. Using NI remains a viable option to drive Mastercard traffic in Nigeria but I’m not sure that NI as a company has what it takes to play the Nigerian game; it has been struggling for a piece of the pie for years and Mastercard’s 10% isn’t enough to give it the teeth it needs to take a good bite out of the chunk. Etranzact, on the other hand, is listed with a public valuation which makes acquisition easier and more transparent. They also have about 5 licenses covering processing, mobile money, etc.

United Payments might be an old workhorse but has previously processed Mastercard for Access Bank. The company also has a rich set of licenses to play toe-to-toe with Interswitch (Visa) and is currently the largest processor of Visa transactions in Nigeria. 

Should this sequence of events occur, there is no telling how regulators will react; the Okada ban has taught us this. While they love competition, they have always supported local standards like NIP and Verve. Mastercard and Visa going toe to toe further solidify a duopoly of global card giants in Nigeria. This does not mean it won’t be approved however both companies will likely come under increased scrutiny.

Banks so far haven’t liked dominant players as they create imbalance and stifle innovation and pricing. Visa and Mastercard will be caught in the middle trying to please banks. I expect Mastercard to win this round as they already have a history of understanding bank needs and creating the right alignments with incentives and programs. Or how do you think they won the market?

The fintech ecosystem will develop as both Visa and Mastercard would bend over backward to win players over. As usual, they will naturally be drawn to the card network with the more receptive team and better terms of engagement and Mastercard must remain this. 

While the Interswitch play looks interesting, and a Mastercard could buy either of UPSL or Etranzact, the three targets lack a good API play which is dominated by the duo of Flutterwave and Paystack. Knowing that API is the next big thing in payments and banking, the next contention would be to shore up the traditional ISO play by acquiring any of these as an icing on the cake. How this would play out would be an interesting game to watch. Pass me the popcorn. Visa and Mastercard are both investors in Flutterwave while the former has a stake in Paystack as well. Knowing how VIsa throws cash around, I wouldn’t be surprised if it buys both of them, mash them together, and layer them like fondants on Interswitch. 

But then, for all we know, nothing may happen beyond this investment.

10 predictions for digital payments in 2019

2018 was an exciting year for payments in Nigeria. Tons of cash came in as international investments; interbank transfer crossed 700 million transactions, even mCash had a little showing. Of course, the bitcoin bubble made a loud burst with many licking their wounds.

As usual, the following are my 10 predictions for 2019. They are mostly influenced by my understanding of the industry, discussion with various stakeholders, and my penchant for foolery. While these 10 predictions could be a guide for you, rely on them at your own risk.

#1 Interbank transfers overtake ATM cash transactions
Come April 2019, for the first time ever and every month forever after, Nigerians will do more interbank transfers (using USSD, mobile, and online banking) than they collect money from ATM machines. Interbank has seen a steady 100% annual growth over the last few years and is poised to eclipse other payment methods as more bank customers gravitate towards USSD or can afford smartphones.

#2 Payment Service Banking flops
The euphoria around Payment Service Banks (PSB) is unfounded as it is more about financial inclusion than fancy mobile or digital banking. Nevertheless, the poison pill of 22% CRR and 75% deposit with CBN as Treasury Bills is marking this as dead-on-departure. While a lot have applied, only a few will launch. MTN will find that it’s a different kettle of fish and would struggle significantly.

#3 SANEF becomes a surprising success
Shared Agency Network Expansion Facility is a massive N32B undertaking by banks and NIBSS to haul in 30 million financially excluded Nigerians into the financial ecosystem. While it has been on for months with little to show apart from daily adverts by NIBSS, there appear to be unseen moves to make it a success. For example, the adoption of a common API standard for account opening would help the super agents get to the market faster. The appointment of Ronke Kuye, a veteran of payments and a co-founder of CeBIH, to run SANEF is a significant step in the right direction.

#4 A massive data breach or fraud hits some fintechs
Some months ago, someone found exposed data about Arik customers which included card details, phones, and emails. This discovery underscores how pervasive the security lapses have been for technology companies worldwide. When you hear about likes of Google, Facebook, and Yahoo having breaches, you know it’s a matter of time that a Nigerian bank, a fintech, or government agency is walloped. This time around, it would be a hit so hard they cannot sweep the stories under the carpet. By the way, some of these frauds would be done by internal teams.

#5 CBN clamps down on errant fintechs
After the embarrassing frauds and data breaches, CBN will go into a knee-jerk reaction and go after banks and/or fintechs who do not have licenses. A lot of apps will disappear with many investors dollars following the pipe into the drain.

#6 Interbank transfer becomes N20
CBN will update its rules to force banks to reduce their interbank transfer payments to N20 a pop. Bill payments and others will not change though.

#7 Micropayments become free
Part of the CBN rule would say that transfers below N1,000 should not be charged subject to a maximum of N2,000 per day to engender financial inclusion and cashless payments. Customers will rejoice, and I will throw a party (just make sure you RSVP). Before you think I am mad, just remember that CBN made ATM withdrawal free in 2013 and only put a cap of 3 free transactions when banks went begging with their grandmothers. With the cost of interbank transfer down to N20 or even zero for transactions of N1,000 and below, micropayments will explode. Now you can pay for Agege bread with N50, and you won’t get charged.

#8 International players go big
WhatsApp finally figures out how to connect your bank account (for some banks) to your app so you can now transfer funds instantly to anyone. And guess what, they will do it so well and so seamlessly that you wonder if our banks have been playing.

#9 CBN does an about-turn on the new licensing regime
The Central Bank of Nigeria recently threw some gasoline into the fintech fire when it proposed to create 3 licensing bands of up to N5B capital requirements. Since then, everyone has been snipping at CBN’s heels.

#10 Someone hacks AI for banking
A smart bank finally figures out what to do with the mess that WhatsApp banking. Instead of the rubbish flow, you will now be able to chat using natural language. I mean, if you can talk to Alexa in Ijesha accent with all the glory of “H factor” and it recognizes your voice, why can’t you chat with your bank WhatsApp and say “transfer N15,000 to Silifa” and it gets done?

Wondering what happened the previous years and the predictions? Read about my takes for 2018.

I didn't do too bad predicting digital payments for 2018

Last year, I wrote about 10 predictions for digital payments in 2018 (better to read this first). Looking back, I can assure you, my career as a seer hasn’t been as illustrious as I planned it to be. So how bad am I? Let’s take a look at how I scored myself.

Alat gets a (bigger) challenger (Score = 1)
Every bank looked at Alat and moved on. Not a single initiative came out to challenge the dominant digital bank which continues to garner critical acclaims world-wide. Likes of dot.bank and Wallet.ng are snipping at its heels though.

PSD2 instigates Open Banking (Score = 5)
Open Banking is no longer a swear word in the UK, and it has been primarily replaced by enthusiasm. Quite some countries are now on the open API bandwagon. Bahrain is a new country that published specific guidelines. Despite the excitement, the fire is like a table-warmer and not a bonfire.

Maturity comes to Fintech (Score = 8)
The Nigerian fintech ecosystem has grown significantly over the last 12 months. The growth is best represented by about 5 international fintech conferences done in Lagos to showcase opportunities. Additionally, some odd 5 Nigerian fintechs firms got into YC over the year. Likes of Paystack attracted top international investors like Stripe, Visa, and Tencent. Mines.io and Cellulant raised a ton of cash. What else can we ask for?

Smaller Fintechs instigates price war (Score = 0)
No price war happened. Prices are same. Everyone is cranky.

Bitcoins bubble explodes, killing many (Score = 10)
Last year, BTC was dancing around $20K with investors (real and Babalawos) predicting $100K per coin. Of course, the bubble made a loud splat with values dropping 80% over the last 1 year. Many of my friends who were coin fanatics then have lost their voices. Can’t gloat but don’t equate greed with tech

International players come to lunch (Score = 7)
Opera made a serious inroad into Nigeria with the launch of Opera news that now has 28m active users. The company will also start to lend to all my cousins soon.  Stripe and Tencent are also putting a tiny toe via Paystack. Please come! We will take care of you.

Android supports pay with Paga (Score = 0)
Nothing happened. Sorry, come back later.

Fraudsters get a beating (Score = 0)
Nothing changed. Stop Fraud Africa floundered and never launched. People are still getting scalped day-in-day-out.

Retail digital lending become prevalent (Score = 7)
Digital lending is on a tear with likes of Mines.io getting $13m to play. But with just 0.77% of all loans going to individuals, the journey is still very far!

AI to the customer service’ rescue (Score = 0)
You would have thought that the opening of Whatsapp APIs for banking would bring decent AIs to help customers? Fat chance. Practically every implementation has been sub-par. Just someone copying and pasting USSD menu into a chat. Disappointing.

I scored a measly 38 out of 100; which is even less impressive when you considered that I marked myself. Next year, take my predictions with a pinch of salt, but then 38% accuracy about the future is better than most prophets can handle. Maybe I am not so bad after all.

Read the original predictions here: https://dejiolowe.com/2017/12/10-predictions-for-digital-payments-in-2018/ and subscribe to my blog to get other posts whenever I can summon enough energy to write them.

Finding data in Africa shouldn't be a problem. Let's solve it

Data is the fuel of decision making, anywhere and everywhere; and Africa is not excluded. Regrettably, getting simple information to make intelligent decisions in Africa is so hard you are better off just reading the stars. No wonder most African businesses are based on “divine inspirations.”
The African economy is vast with different sectoral opportunities. Yet, the lord helps you finding accessible information to help you bring your nice ideas to the market. In the end, unfortunately, most of us depend on foreign data or information to make our business decisions. Some of these data are so old the web pages have gray hairs.
Many of my friends (I have so many, want some?) complain about the paucity of data and love to compare how easy it is to get data about other countries. But hey, angels didn’t create the data for them, they did. What we lack is a deliberate attempt to do research, surface insights and share data with the world, for free.
The exciting thing is, if you push data out, you end up becoming a reference or an authority even if some or all of what you published is rubbish. Remember, never believe everything you see on the internet.
The irony is that some data exist but in forms that are not discoverable. For example, I was recently looking for a list of approved mobile money operators in Nigeria. While I know it must be somewhere, hiding and eating popcorn on the CBN website, it wasn’t coming up on Google search.
And when you see some of these data, they are also not easy to understand forms. Data from National Bureau of Statistics (a rich source of good quality data) come in formats so ugly it wouldn’t find a girlfriend if it were a man.
My specialties have always been technology, banking, and payments, so, over the next few weeks, time permitting, I will be prettifying some of the easy information about Nigerian payments space which can then be found by anyone sleuthing around and hopefully Google and Bing can easily surface them as well.

Mobile Money in Nigeria: Operators, Opportunities and Trends

Recently I started seeing a spike in the number of inquiries made by friends, fintechs, and random other people about Mobile Money in Nigeria. And it’s not because they are suddenly having altruistic ideas for financial inclusion. Something must be cooking!

Let’s get the basics right
Mobile money is a form of banking where your account number is your mobile number. It’s as simple as that. Any other definition is an oversabi.
After the successful debut of mPesa in Kenya, many countries tried to launch their copycat mobile money system.

Unfortunately, it has been a mostly miserable failure. Some stats said less than 3% of all mobile money implementation has been successful. In Nigeria, the number is worse: 0%.

At the start of the mobile money madness, CBN gave out 23 licenses, 10 of which were by banks.

After a flurry of activities, things chilled. Banks subsequently developed acute amnesia about their licenses went back to their bread and butter: Commercial Banking.

Why and how mobile money failed will always be contentious. I have written about it, others have different opinions. The one thing we ain’t arguing about though is the fact that mobile money failed to hit the sweet spot.

New interests in Mobile Money
The emergence of fintechs has thrown open new possibilities of what can be done with moribund mobile money licenses. Most fintechs within the payment space are having a lorry load of challenges connecting to banks.
For example, a common request would be funding of payment transactions from bank accounts for which banks haven’t provided any simple APIs to work with. Those doing savings and personal financial management want to keep money in a legal way and also allow topping off investments from bank accounts. That is another problem.

Just like the way banks repurposed USSD codes meant for mobile money in 2014, fintechs are circling around banks to see how mobile money can be repurposed for better things.
 
Now, the list
Getting the actual list of licensed mobile money operators in Nigeria should be simple, right? Nope! You can’t even find it on CBN website if you search for it but here’s the direct link.
So, I put together the list of those I know to aid anyone.

OperatorOwnerWebsite
*909# Mobile MoneyStanbic IBTC Plchttp://www.stanbicibtc.com/
Access mobile moneyAccess Bank Plchttps://www.accessbankplc.com/
TinggCellulant Limitedhttps://tingg.com.ng/
Diamond mobileDiamond Bank Plchttp://www.diamondbank.com/
EazyMoneyZenith Bankhttp://www.eazymoney.com.ng
Ecobank Mobile MoneyEcobankhttps://ecobank.com/
FETSFunds and Electronics Transfer Solution Limitedhttp://www.mywallet.fets.com.ng
Fidelity Mobile MoneyFidelity Bank Plchttps://www.fidelitybank.ng
FirstMonieFirst Bank Nigeria Plchttp://www.firstbankplc.com/
Fortis Mobile MoneyFortis MFBhttp://www.fortismobilemoney.com/
GTMobileMoneyGTBank Plchttps://www.gtbank.com/
Mimo
*Part of Vanso. Bought over by Interswitch in 2016
Interswitch Limited (formerly mKudi, a subsidiary of Vanso)https://www.mimo.com.ng/
Monitize
*Not operational. Site redirects to Fiserv
Monitizehttp://monitise.com/nigeria
NowNowContec Global Infotech Limitedhttp://nownow.ng/
PagaPagaTech Limitedhttp://www.pagatech.com/
PayAttitudeUnified Payments Services Limitedhttps://payattitude.com/
PIDO
*Bought by Opera from Telnet in 2017
Opera Softwarehttp://www.paycom-ng.com/
PocketMonieTranzact Plchttp://www.pocketmoni.com/
QikQik
*Inactive
Eartholeum Networks Limitedhttp://www.eartholeum.com
ReadyCashParkway Projects Limitedhttp://www.readycash.com.ng/
Sterling mobile moneySterling Bank Plchttps://www.sterlingbankng.com/
Teasy MobileTeasy Mobile Limitedhttp://teasymobile.com
U-Mo
*Shut down. License allegedly returned to CBN
Afripay Limited/United Bank for Africa Plchttp://www.umo.net/
Virtual Terminal NetworkVTNetwork Limitedhttps://www.virtualterminalnetwork.com/
Wari
*Senegalese company. Acquired license in 2016
Warihttps://www.wari.com/
Zoto
*Zoto app shut down
Hedonmarks Management Serviceshttps://zoto.com.ng

 
Other documents
The following are also critical documents for mobile money in Nigeria, especially from the regulatory perspective: