Hi Quartz Africa members,
Financial inclusion in many African countries depends on access to traditional bank and credit cards. This is even true for rising fintech platforms. But the need for more payment options will only increase with the popularity of digital services; better access to global supply chains, more e-commerce and more costs associated with bank-aligned cards could ultimately push people towards new forms of payment.
To capitalize on this momentum, a nascent set of startups are pushing what could be a significant decoupling of banks and payment options: generating their own credit and debit cards in virtual or physical form. While acquiring bank-linked physical cards is usually a time-consuming and expensive process, virtual cards are fast, cheap, and convenient and bypass the banking bottleneck.
For many financially excluded Africans, including those living outside urban centers, virtual credit cards may also be the only option available. This makes their development a win-win situation for startups and potential customers.
💡 The Opportunity: The rise of e-commerce on the continent, along with better access to global supply chains, has huge benefits for buyers and sellers. But taking advantage of this benefit still often requires access to bank-backed debit and credit cards.
🤔 The challenge: Credit and debit cards are only available to a minority of people on the continent. For example, only 10% of the adult population in Zambia uses a debit card.
🌍 The roadmap: Virtual credit cards offer fintech companies an opportunity to make cards easier to access by leveraging payment and mobile device penetration.
💰 The speakers: Mobile money providers, e-commerce companies, fintech companies, financial institutions, digital businesses and consumers.
By the numbers
40.3%: Fintech startups funded in 2019-2021 that were in payments and remittances
59%: African Payments and Remittance Startups in Nigeria, South Africa and Kenya
$543 million: Venture capital funding for payment and remittance startups from 2015 to 2021, out of approximately $900 million in funding for fintech startups
$2.2 billion: Venture capital invested in African startups in the first four months of 2022
The case study
Founders: Perseus Mlambo and Alessandra Martini
Last assessment: undisclosed
Union54, the first Zambian startup backed by Y-combinator, was founded in 2021 by Perseus Mlambo and Alessandra Martini – an entrepreneur couple – as a fintech spin-off from Zazu, a challenger bank they created around six years earlier. Challenger Banks are niche specialists that offer distinct technology-backed financial services not available at larger or older banks. The Union54 name is derived from the unification of Africa’s 54 member states and represents the company’s ambition to expand across the continent.
The couple’s original company, Zazu, relied on legacy banks to create debit cards for its users, and often faced lengthy delays and other challenges emblematic of the dominant legacy banks’ inability to expand financial inclusion. With only 10% of Zambians using debit cards, the market is still dominated by cash and card transactions are seen as unlikely to increase.
Union54 has found an easier way: software that allows other fintechs and businesses to generate their own cards in physical or virtual format. “Our approach is unique in that, for the very first time, all of these fintechs that have been very successful in their home countries can integrate with Union54; they can wake up and offer a debit card to their customers,” says Mlambo. “We are also able to process virtual debit cards for online and e-commerce payments. We are in a really unique position in that we allow all of these fintechs to be able to introduce debit cards.”
Union54, which raised $12 million in an extension round in April, says more than 100 fintech companies and more than 20 websites use its software. Mlambo says the latest funding will be used to expand beyond Zambia.
In conversation with
Perseus Mlambo is co-founder and CEO of Union54. He believes in unbundling banking services and access to debit and credit cards for all African consumers. Here are some selected quotes from our conversation:
🙌 On the Y-Combinator effect:
“The fact that we have become the first Zambian company to enter the Y-Combinator Accelerator program is yet another testament to our ambition, that we do not see Zambia as the only market for us. We see the whole continent as a potential market.
🔭 On other high potential customers:
“Money transfer companies also want to allow people who receive money from abroad to get physical credit cards, [which] they may link to their platforms to allow recipients to purchase groceries and other cards for their websites.
📜 On regulatory easing around fintech:
“The reception we have found so far with regulators on the African continent is that they now understand that fintechs are here to stay; they understand that business models are constantly changing due to the rapid pace of innovation and technological development. »
🛬 On fintech as a solution to the brain drain in Africa:
“What’s unique right now is that we have a lot of talent coming from Amazon, coming from Facebook, and these people in the diaspora are now saying, ‘Hey, I’ve seen what African startups like Flutterwave have done I really want to be able to join something like this and I’m willing to take a pay cut they obviously can’t move because they have families but they’re willing to work for something like this because that they’re really convinced that it’s going to work. So the brain drain that we’ve had, I think it’s slowly correcting itself because now we [also] have more companies raising funds, which means they can pay very well.
Fintech offers at 👀
CredPala Nigerian fintech startup, raised $1.5 million in 2020 to deploy credit cards nationwide before getting another one $15 million in 2022 to boost his Buy Now Pay Later (BNPL) business. CredPal says up to 85,000 customers have subscribed to its BNPL offering, which is available at 4,000 merchants.
pawaPaya fintech company that merges African mobile wallets into a single API, raised $9 million in 2021 in seed funding. It will use the funds to strengthen its talents in mobile payment solutions, expand its operations and enter new regional markets.
Ugandan fintech, Asak raised $30 million in January in a pre-Series A round to accelerate product development and geographic expansion” for its boda boda property finance business (mobility and e-commerce delivery motorcycles).
More from Quartz Africa
🔀 Why the digital payment landscape in Africa is still very fragmented
🤔 A new African payment is a push for independence from the dollar
💡 Fintech Startups Could Make or Break Africa’s New Free Trade Area
⛓️ Major African banks are using a blockchain-based payment processor
🎵 This brief was produced by listening Munyaradzi (Duvet) by Jah Prayzah (Zimbabwe)
Have a very motivated weekend,
—Tawanda Karombo, Quartz Africa contributor based in Harare
A 💳 thing
One of Africa’s largest telecommunications operators, Safaricom, recently announced the introduction of a virtual card in partnership with Visa. This virtual card will allow customers of M-Pesa, a joint venture of Safaricom, to send or receive payments from almost anywhere in the world. Safaricom is one of the leaders in mobile money in Africa, with more than 30 million customers and a network of 3.2 million businesses that accept M-Pesa. Virtual cards, which actually take M-Pesa globally, will be available in june.