Payments - Page 2 of 13 - Adedeji Olowe

10 Predictions for Digital Payments in 2021

Now for the fourth year, here are my predictions for digital payments in 2021 with the hope that it offers a better time for everyone than 2020. You probably have heard it a thousand times; 2020 was a shitty year for almost everyone except for technology and especially payments.

Those worst hit by 2020, apart from the folks who lost their lives (may their soul rest in peace even if I don’t believe in the afterlife), are pundits like me whose predictions were thoroughly trashed.

But despite this, we all still look forward to these fintech predictions for 2021; who am I not to serve you a hot dose of fiction wrapped as facts?

Let’s do it!

#1 Visa buys Interswitch for $800m

Earlier last year, before Covid spanked everyone, I laid out an argument that Visa could buy Interswitch. Despite the global pandemic and its attendant economic fallouts in Nigeria, the thought has only become stronger in my head. The reason is that Interswitch has a knack for announcing its massive valuation, just as Naira wants to go bananas. Unlike what everyone believes, Mitchell Elegbe doesn’t own Interswitch; the real owners, knowing that the Switch is hooked to a downward sliding Naira, would be hitching for a payday. Visa, forever married to Nigerian transactions, already owns 20% of the Switch; Naira is now so cheap (if you earn in USD). Plus, the fundamentals of Interswitch are still pretty strong, while not buy it on promo?

#2 Mastercard buys Etranzact

Only a fool would let its most significant competitor decide its fate. If Visa bought Interswitch, and Interswitch runs nearly 100% of Mastercard’s transactions in Nigeria. You can be sure the not-so-foolish humans of Mastercard would probably take their traffic somewhere else. Only Etranzact fits the profile of a replacement due to its basket of licenses.

Disclosure: I own a bunch of Etranzact shares. If this pans out, I’m gonna buy a Maserati.

#3 CBN caves in as MTN gets a PSB license

I made this call last year and I will make it again as part of my predictions for digital payments in 2021. This is a carryover prediction from last year. With Karl Toriola running MTN from March 1, 2021, you can be sure as hell that he will do something as he has a track record of performance, and banking has a track record of minting cash. Marry performance to sashe, and you can be sure as hell that MTN won’t give up until they get this license.

#4 Agent locations surpass 1m

I made the right call last year that agency banking will explode. Despite the Covid pandemic, agency banking grew like wildfire. Opay, which ran into a brick wall with all the other tech services, finally hit paydirt with agency banking doing $1.4b worth of transactions a month. Teamapt is almost pivoting to this as well; fancy fintech be damned. Unofficial numbers of locations hit 530K last year;. At the same time, SANEF seems a bit quiet about a target; I’m sure the market will drag this over to 1m locations before the end of the year.

#5 Interbank transactions cross half a billion a month

I made the call for our Nigerian faster payments to hit 300m per month. I don’t yet know (as of this writing) the number for December, but sweet November saw the industry moving N17t worth of cash over 224m transactions. The pace will continue, and it will cross the 500m transactions per month around August 2021.

#6 Free interbank transfers go mainstream

Kuda made noise about this (and it seems to be working), and Sparkle is now leading the charge. But guess what, a major bank (think Access, GTBank, or Sterling but not UBA) will decide that, hey, let’s blow this sh*t out of the water and make interbank transfers below a certain amount, say N5K, free. Such a move has excellent optics, and most importantly, it’s the singularly free feature nobody can abuse. Think!

#7 Agency banking becomes the last mile for fintechs

Agency banking is messy as hell; you don’t even find them on Twitter or the ‘gram. But who cares? Once the boys of Opay, Capricorn Digital, Teamapt, and others found success, the next is for them to layer a patina of APIs on these connections, and it becomes the real last mile for digital payments. If agents are fully KYCed and have constant location-aware devices, then the physical can meet online for loans, KYC verification-as-a-service, e-commerce deliveries, transfers-to-cash from banks, etc.

#8 Virtual accounts come of age

Some people I know have been cooking virtual accounts for years, but Teamapt, ever the innovation and executioner, quickly brought Providus to the limelight. Now others like Rubies, Zenith, Sterling, Wema, and our Woven + Sparkle are now on the game. Virtual account (vNUBAN) is a little clunky but significantly superior and a more inclusive payment within the Nigerian context than cards. It’s the only payment method that works across all channels. I expect this to blow cards out of the water, although I said the same thing last year, and it didn’t happen.🙈

Disclosure: My company, Trium, owns Woven and a significant investor in Sparkle.

#9 Local investors step to the plate

With practically everyone I know beating themselves up for missing out on the Paystack investment train when it came calling years ago, those with some cash are now seeking out future Shola Akinlades to invests in. The percentage of investment by local investors will grow to be at least 30% this year. But please be warned, dear investor, angel investment is not for the impatient and the weak of heart. Dear founder, not every cash you see is good for your cap table.

Disclosure: I’m a director at Paystack, and nope, my call last year wasn’t a piece of insider information; and thanks, Shola, for making a good example of Nigerians

#10 WhatsApp makes a payment play in Nigeria

With Stripe leading the charge to dip a toe in Nigeria, and it counts Facebook as part of its customers, WhatsApp could expedite its move into payments in Nigeria. All it needs to do is slap a virtual account behind every WhatsApp profile, and the rest is history.

#11 The one prediction 100% to come true

I always say this, and I would say it again: All of these predictions for digital payments in 2021, are at best, educated guesses at what could happen, which isn’t better than a bunch of bananas trying to eat a monkey.

Wondering what happened the previous years and the predictions? Read about my takes for 2018, 2019, and 2020.

Simple ways to prevent banks from taking your money

Navigating Nigerian banking can feel like a high-stakes game, but with a few strategic moves, you can outmaneuver the banks and keep more of your hard-earned cash. Explore the some of the simplest methods to hold your 2k tight.

Hardly a day goes by without someone screaming on Twitter about their bank taking their money even while doing little or no transactions. Trust me, Nigerian banks are optimized for money making but hey, who said you can’t beat them at their games?

Here are simple steps you can take to take control of your money and minimize how nicely you get shaved by our Sashe bankers.

Get yourself a savings account because current accounts are for dummies

Banks can charge an account maintenance fee of up to N1 for every N1,000 that danced across your accounts. If you are the type doing well on your Instagram side hustle, banks will quickly strip you bare.

On the flip side, the ordinary savings account with any Nigerian bank is so optimized that it can do practically everything a current account will do save for getting an overdraft and being able to write cheques. Even then, these two features ain’t that important because banks don’t give loans that easy to start with; and nobody writes cheques again.

It really makes no sense to keep a current account except you are some form of dinosaur.

Cancel your debit cards 💳

Yes, you heard me. Debit cards are so yesterday. But hold up, I assume you are a typical Nigerian that has bank accounts with three different banks. So, cancel all your debit cards everywhere save the most reliable of them all (I wish you good luck deciding which that is). This saves you from the bank digging holes every other month to take card maintenance charges. And on top of that, they could charge you for the SMS sent to inform you that they just charged your sorry ass. Savage people!

Interestingly, card maintenance is free for current accounts, but the account maintenance will/could wipe you out.

Cancel your SMS alert

Yes, again, you can cancel your SMS alert. Any banker who said you must have an SMS is either dumb or lying. Either way, they ain’t supposed to be a banker. The Central Bank said if you are the type that hates the ding-dong of SMS notifications, you can cancel it if you have an email alert and sign an indemnity (Section 10.10 of The Guide to Charges by Banks, Other Financial and Non-Bank Financial Institutions, January 1, 2020). It’s right there in the regulation but hey, this is Nigeria, who reads when you can spread rumors?

Is there a downside to this? Not that I know of. Are emails very secure? F* nope! But then SMS messages are worse than emails. Why? Because they sit unencrypted and open all the telcos that they passed through. So that fancy OTP of yours is waiting and begging to be read.

One last thing on SMS, beware of banks that send you multiple SMS for a single transaction. The scam works this way; you want to transfer N50,000 to some random dude; you get an SMS for the amount you have sent, and another SMS for the N52.5 transfer charge as well.

Stamp duties

Too bad, nobody can help you out with this; every account gets charged once the transaction is over N10,000. At least, turn the SMS off so that they don’t make potholes in your bank accounts.

Open another savings account

Are you aware that your dead-ass savings account pays about a 3.75% interest rate? Never seen it before, I guess because you rock your account like a Twitter DM. And when banks are now offering 1.8% on fixed deposits, it’s mad not to rock this baby.

By a quirk of Nigerian banking regulation, bankers must give you 30% of the MPR, which is 12.5% as of May 28, 2020. But but but, if you make more than four withdrawals on your savings account within a month, irrespective of your balance, just kiss the interest on it goodbye (Section 1.2 of The Guide to Charges by Banks, Other Financial and Non-Bank Financial Institutions, January 1, 2020).

A simple way around it, open another savings account, which your bank would gladly oblige, put your excess funds in there, and spend the tashere in the main one. And don’t let the devil tempt you to go there more four times in a month.

Disclosures 🙊🙊

I still have three current accounts with Access, UBA, and Fidelity banks. I’m nowhere practicing what I just preached. But then I didn’t complain of banks taking charges off me because the money they make gets paid as bonus to my friends, and I force them to take me out for drinks where I ruin them by drinking more than all the charges they have taken from me for the year. Sweet revenge.

I used to be a banker where I made a truckload of cash from these same charges I just complained about for the banks I worked for; they paid my bonuses, and my friends who paid for SMS alerts, dragged me to different clubs to ruin me. Karma goes round.

Why QR code payment would never succeed in Africa

QR code payments, hailed for simplicity, might thrive in other countries but struggle in Africa due to factors like sparse smartphone ownership, poor network infrastructure, and usability issues in payment apps.

Paying with QR code is so cool. All you need to do is bring out your smartphone, take a snapshot, and voila, payment is made. The simplicity and versatility are simply unparalleled. QR code payments have been adapted from in-store shopping; to online payments; to even paying for cable subscription on TV.

As much as you would love QR code, it’s not really a global phenomenon. While QR code is in use almost everywhere in the world, it’s more prevalent in China. It’s so popular in China that is regarded as a currency — it’s practically the only way to pay for anything. This is even more evident in that kids as young as four years may never have seen cash. Remember, if you carry cash around in China, people will probably think you have lost your mind.

QR, which means Quick Response, code has a fascinating background. It was invented by a Japanese company called Denso Wave in 1994 as a means of tracking vehicles during manufacturing. Just imagine robots bringing out their smartphones to snap pictures of cars. That may not have been how it worked, but you get the drift. After a while, people figured that if QR codes could be used to identify car parts then it could also be used to identify things to be paid for. Before long, it was adapted to various situations. Considering that QR code is similar to a fancy barcode, it could now be put or printed on practically any surface with a display.

However, Tencent popularized the use of QR code for payments when it started embedding it into its WeChat platform. The accessibility and ease of use made for a viral adoption and the rest, as they say, is history.

So, if QR code is versatile, cheap, and cheerful, why hasn’t it been used to transform payments in Africa? I guess it’s easier said than done.

Seeing how successful QR code has been in Asia, many attempts have been made to bring this magic to Africa. But practically each of these has failed woefully. I recall a meeting I had with one of the global payments giants in Tanzania in 2016; they wanted to use QR code to make payments in the country but failed to read the tea leaves; the Telco they were pitching put them on the next plane out of Darussalam.

It’s not rocket science to figure out why QR codes schemes never work in Africa. Some are obvious while others require seeing beyond technology into the realities of the African space.

The lack of network effect is one of the major killers of payment schemes in Africa, QR code included. Quite a number of supposedly smart fintechs naively believe their innovative products can be scaled without leveraging on others; instead of establishing a common standard, they go at it alone. And usually, watch the product die alone as well. Companies like Tencent and Alibaba who can define new ecosystems are a rarity. Majority of successful companies rely on common standards and collaborate actively with others to thrive. By the way, there is now an EMV standard for QR code, it’s too little too late.

While the sale and adoption of smartphones have been impressive for years, the reality is that Africa is still an impoverished continent where 41% of us live below the poverty line. Being poor means only 33% of Africans can afford a smartphone even if they barely made it through getting a feature phone. QR code payments depend 100% on smartphones, and where the majority can’t afford smartphones, the chance of QR scaling is zero.

The beauty and elegance of QR code payments come alive when you use it, but needs a working Internet. Unfortunately, telecoms services in Africa are shitty because of many reasons; poor investment, dilapidated infrastructure, fibre cables getting sabotaged, sometimes thieves making away with batteries and other telecoms equipment. With a patchy network, payments get stalled, and after a few failed attempts that must have taken many minutes into completing a transaction, little wonder QR codes get abandoned

And even for the few that have smartphones, they hardly leave the mobile data on. Also, though most Africans get their internet from their mobile phones, data is still costly in most parts of the continent. Consequently, savvy users turn off their data; the chore of turning it on for just payment is significant friction that has made QR code payments not habit-forming.

Lastly, payments apps in Africa have poor usability, which doesn’t exclude even the largest pan-African banks. In fact, you could almost say that app usability is inversely proportional to the size of the bank; the smaller fintechs have snazzier designs and more responsive interfaces. Poor customer experience means it takes just a little too long to bring out a smartphone, unlock it, spend minute logging in, finding the QR menu, and getting payments done. Imagine a scenario at a retail checkout where a paying customer is spending minutes fumbling with her phone when cash and cards are faster. Here comes the death of QR.

While QR has stumbled across Sub-Saharan Africa, other payment methods, which are aware of the African realities, such as USSD and STK, have made significant progress. M-Pesa processes billions of transactions each year over STK. 35% of the over 700 million interbank transfers in Nigeria in 2018 were made on USSD.

Would QR code ever catch on in Africa as the infrastructure gets better and smartphones cheaper? Maybe. Maybe not. But for the time being, it has been certified dead on arrival, needing no post-mortem inquiry

Originally written for Trium Networks in August 2019

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 2020

2019 was an interesting year for payments globally, and our dear Nigeria wasn’t left out of the parte. But 2020 would be even much more exciting as many of the payments food that got on the fire last year would be served piping hot at the start of the new decade. 2020 would be lit!

As usual, I would be trying out my hands in seeing the future even if I desperately need a pair of glasses to see the tip of my pointy nose in the real world.

So, here’s the third annual prediction of the payments ecosystem in Nigeria. My predictions are always on point: most of them would never happen, and I’m no better than a new age Babalawo. But then who cares?

Let’s dive right in!

#1 Despite CBN’s push, commercial banks won’t crack retail credit

If you didn’t skip Economics 101, you would know that retail credit drives consumption within an economy. Our Nigerian bankers know as well, but maybe they just don’t give two flying horse legs. The CBN has been pushing them with stringent regulatory measures but you can’t give what you don’t have. Our bankers are mostly of the Shashe type and there isn’t a shred of retail DNA in their body. Come December 2020, the drive for retail credit would only have been marginal with banks turning their backside to collect the cane that the CBN would be using to whoop them for not expanding credits

#2 Account-based payments explode. Rapidly overtakes card payments online

Card payments suck in Nigeria, and it isn’t a secret and using accounts to make payments for services have been the mainstay of Instagram and Whatsapp commerce in Nigeria for almost 5 years. But automating and wrapping this around with some beautiful APIs would go mainstream this year. It would touch at least 50% of all card payments. How we will confirm if this prediction is accurate or not is anyone’s guess.

#3 MTN gets a PSB license. Trouble ensures for bankers

MTN has been dancing around financial services for as long as chicken lacked teeth. Last year they got the super agents license and they are already doing something with it but it seems their PSB license application has more dust on it than all the sands at Eleko Beach. But give it to MTN, they don’t give up easily, so expect that somewhere and somehow, they would meet the requirements and get their PSB license. Then trouble ensures for all bankers.

#4 Monthly interbank transfer hits 300m/month and it would be fueled by cheap low-value transfers

Last year, I predicted that interbank pricing would crash; the CBN didn’t disappoint. Now that you can now do transfers as low as N10 a pop, start seeing crazy emergent behavior where it’s now way cheaper to use your app or USSD to send N250 for bread and moin-moin than taking Keke Marwa to the nearest ATM.

#5 Opay will be one of the top ten banks in Nigeria

Everyone seems to be screaming about how the Chinese African juggernaut has ridden roughshod over GoKada and Max.NG. What they haven’t paid attention to has been the massive growth of the payment infrastructure backing it. In 2017, the first thing Opay did was buy the derelict Paycom mobile money which has now grown from nothing to becoming the seventh-largest player on the interbank market. In 2020, Opay will push massive retail credit, offer better rates for investments, and their size means money stays within their ecosystem than move out. Expect them to get a seat at the Banker’s Committee soon. And if they ain’t invited, they would buy one of the commercial banks.

#6 CBN kickstarts Open Banking

APIs rule the world and the last walls erected by banks against the onslaught customers integrating their bank services into other apps are crashing down with open banking APIs. Nigeria has been slugging it since 2017 but this year, CBN will back it with a directive and possibly adopt the standards being done by Open Banking Nigeria (disclosure, I’m a trustee at Open Banking so this is as much as a prayer and as a prediction)

#7 Agency banking becomes successful as the number of agents hits 600K

My good friends at SANEF had an amazing 2019; they did multiples of what they started the year with. The growth of adoption would see agency banking exploding to over a million agent touchpoints. The vast agent banking network would drive the emergence of new payment products and business models from fintechs. But but but, don’t dance too fast, this would be dominated by MTN as they are pushing more infrastructure and agent recruitment spend that all other super agents, combined. Those guys don’t play around!

#8 A heavy hitter launches a digital bank, eclipses all the struggling existing small players

Many players have tried to crack the digital bank nuts, but it has been mostly eggs thrown at walls just to pull it down. If you call yourself a digital bank in Nigeria today, you are probably too small to be just a little over insignificant. But come this year, someone (probably not a Nigerian entity) puts money down to end this argument and launches the Monzo of Nigeria. But it wouldn’t be any of the players we have now.

#9 A prominent international player buys a major fintech (think Flutterwave, Paystack and not Interswitch)

Visa just plopped $200m to get 20% of Interswitch but doesn’t own it and would have to share the crumbs and strategies with other institutional investors. This year, however, a big hitter would come for any of Flutterwave, Paystack, or even some of the lesser-known but kicking-it fintechs.

#10 Whatsapp decides to launch the next payment play in Nigeria using Facebook Pay, trouble starts for all fintechs

Whatsapp would land forcefully in Nigeria as it’s first foray to own payments within the African ecosystem. After all, if the only massive growth potential left in the world is in the SSA, why not start from the palace of the king of Africa?

#11 The one prediction 100% to come true

Most of these predictions are at best an educated guess at what could happen, which isn’t better than a bunch of bananas trying to eat a monkey.

Wondering what happened the previous years and the predictions? Read about my takes for 2018 and 2019.