Are African Fintech Monopolies Guaranteed To Be Unicorns?

‘Competition is for losers.’

This prescriptive pronouncement of looming failure for companies without an apparent monopoly was made by Peter Thiel, Paypal & Palantir Founder, in his 2014 book, ‘Zero to One’. In an attempt to generalize the trajectories of various African financial technology companies (popularly called ‘Fintechs’) to Peter Thiel’s monopolistic thesis for success, it begs the question as to whether growing in singular ways that are hard to compete with is the only way to attain sufficient escape velocity into coveted unicorn territory as a startup (achieving a valuation of at least USD 1 billion as a startup). What does being an African startup mean for this supposed rule? Can seizing critical market share in a unique customer segment, innovating a profitable monetization and distribution strategy then scaling rapidly be identified as defining paths to optimal profitability for African Fintechs? This will be the subject of exploration through the cross-examination of the journeys of successful companies including Interswitch, Paystack, Safaricom’s M-pesa & Mono as well as the subsequent emergence of distinct theories of change across these fintech startups today. Will the losers and winners in this competition for the African, billion-node user base depend on the establishment of monopolies?

Interswitch Payments is arguably the foundation of financial technology infrastructure in Africa for the establishment of crucial bank ‘switching’ technology. Founded in 2002 hot off the heels of the March 2000 dotcom bubble burst; Interswitch was the earliest known establishment that sought to disseminate the means to participate in digital commerce for Africans by Africans; at a time when having dialup broadband internet was the reserve of government offices and big-name foreign company offices. At a time when ATMs were unheard of in Nigeria, with customers queueing for long hours in banking halls to withdraw their money. The dire need for inter-bank connectivity within a secure, end-to-end infrastructure was a real problem with big numbers attached to it: connect 10 nationally licensed banks serving 120 million people. This asymmetrical risk clearly paid off for Interswitch, whose timely execution of a valid solution paved the way for brick and mortar payments infrastructure like ATM machines that could be used regardless of the bank that held the customers’ money. This solution was the basis of all of their subsequent ventures, like the Card Issuing technology, Interswitch Verve, which was licensed to banks for use in their ATM machines and later, Point of Sale payment solutions for small and medium enterprises to leverage growth off of.

Handling USD 2.5 billion monthly through their 190,000 transactions daily count, Interswitch’s first-mover advantage clearly paid off. Their 90 percent market share of all electronic payments in Nigeria is a clear monopoly that can be attributed to, in part, existing early on in the market and solving a problem well enough for it not to need any future iteration. It is no wonder then, that global payments processing behemoth Visa moved to acquire a 20 percent stake in Interswitch for USD 200 Million at a USD 1 Billion valuation in November 2019. Interswitch’s monopoly status very much guaranteed that it would one day be a unicorn and in hindsight, it was never a question of if, but rather, when.

Paystack enables the integration of payment gateways into mobile and web applications where users can make payments using either debit, credit or mobile money transfer. Founded in 2016, Paystack made waves in October 2020 after being acquired by Stripe for USD 200 million after just 5 years of being in operation. Paystack’s creation and accumulation of value in the African continent stems from being the lifeblood of entrepreneurial African ventures based on online operations by powering the customer-to-business payments through their robust application programming interfaces (APIs). With over 60,000 live merchants transacting online using Paystack’s technology, the early makings of a monopolistic system based off of technological prowess are present. They certainly have the resources, manpower and intent to accomplish continental prominence now more than ever with the backing of Stripe, global payments processor. Paystack still conforms to Peter Thiel’s competition-averse philosophy through their hyperfocus on a single market segment; payment APIs, and repeatedly iterating within this segment until optimal earnings are achieved. This strategy has worked remarkably well so far, with their 2000 percent return on investment, comparing their USD 10 million seed funding as reported by Crunchbase, to their USD 200 million Stripe acquisition windfall. With their best-in-class focus on technological advancements as a moat for monopoly, Paystack lives up to their claim as ‘Stripe for Africa’.

Mpesa is marshalling its resources, product development and expansion strategies towards becoming Africa’s fintech ‘super-app’. Mpesa is a Kenyan peer to peer mobile money transfer service owned by Safaricom, a Kenyan mobile network operator. Mpesa was publicly launched in 2007 by Safaricom and has since become synonymous with mobile money in Kenya, enjoying a comfortable 95 percent brand recognition rate as reported by a Worldbank study in 2014 (Mas, Radcliffe, 2014). The Kenyan government’s 35 percent stake in Safaricom has enabled Mpesa to smoothly navigate the tenuous challenges of bureaucracy when it comes to accessing customers’ biometric data held in government sanctioned repositories such as identification records. Safaricom has further bankrolled aggressive marketing campaigns disclosed in their public financial records (as they are publicly traded in the Nairobi Securities Exchange) to amount to as high as USD 6 million as of the 2019/2020 financial year.

The customized use-cases on offer for every segment of the market, from informal traders who can only use feature phones, to the country’s employed bourgeoisie who in lieu of expensive, bank-enabled transaction methods, highlight Mpesa’s preferred versatility for instances ranging widely from point of sale payments to online purchases. This is in no small part thanks to Safaricom’s dominance in the mobile network scene where their 63.6 percent market share according to the Communications Authority of Kenya bankrolls their advances. Mpesa’s recently released mobile application offers their users a mobile wallet in addition to its already robust mobile money ecosystem in a bid to claim ubiquitous presence in their users’ lives and in so doing, become a super application. At the close of the 2020 financial year, Mpesa marked 5 years of undeterred, year on year growth, closing with a USD 748.36 million turnover. Mpesa’s success can only get bigger as operations spread across the neighbouring East African countries. Mpesa’s success is a true testament to Peter Thiel’s rule of monopolies, being a monopoly within a monopoly.

Mono is a fledgling African fintech whose approach to expansion into the African continent is based on streamlining access to aggregated African customer data as opposed to the monopolization of a set of unique value offerings. Founded in August 2020, Mono heralds the most recent stirrings of the global financial technology scene: Open Banking within Neobank-like financial frameworks as opposed to closely guarded technologies that shepherd transactions within legacy financial frameworks. Open banking is poised to be the key to consolidating the African continent’s billion-user strong user base fragmented across as many as 171 variant offerings in mobile money alone, not accounting for other customer segments like virtual cards and payment gateway integrations. Through aggregating the financial information of African customer data into a singular, secure dataset; Mono’s success will come from their datasets being used by as many African (and non-African) fintechs as a base to build better abstractions of best practices for the African customer to transact on a global scale. This method is clearly getting traction within the African scene, since fragmentation is a real problem whose potential to ease the pain points of the problem solving process has translated into Mono processing 5 million datasets per hour as of February 2021, according to company reports in a TechCrunch interview.

Mono’s vision to carry forward the ideas of success through collaboration within the financial technology scene in Africa fly in the face of Peter Thiel’s competition-averse rule, having garnered USD 2.6 million so far after completing their series C round in March 2021 by joining the famed startup accelerator, Y Combinator, in their Winter 2021 batch and securing a USD 125,000 investment for the standard 7 percent equity. Mono’s eventual success pursuing this ideal of open collaboration as opposed to the monopolization of a technical advantage remains to be seen but objectively modelling their future based on their current condition ends up with their APIs being an integral part of the aggregation of the African market into a more accessible, streamlined user base. There is a case to be made as to whether Mono’s ‘one API to rule them all’ approach touting their hyper-optimized application programming interface as the last word in access to customer financial data in Africa has been a monopoly all along. This claim, however, fails to take into account the simple fact that even if Mono’s success will depend on singular use of their API widely within the African fintech space, the flipside of this mass adoption is a symbiotic collaboration between Mono and each one of their adopters to tailor data as is suited for each of their use cases. In this way, Mono is not a monopoly in all the ways that matter for them to scale up with little marginal cost and possibly evolve into the next African unicorn. This will inevitably lead to more startups being created collaboratively around this unfettered access to data and as such, even more success for Mono. Mono’s success is collaborative, and it will make all the difference, both for them and the African fintech scene.

Monopolizing whatever advantages a startup possesses, be they technological, having been first movers or unique governmental access is a nearly straightforward path to outsized success in the African fintech space. This has been seen in the case of Interswitch, who became the first African unicorn startup leveraging their value as unassailable leaders of electronic payments infrastructure with monopolies of time and technology. From Paystack, the rewards of seizing critical market share in a neglected market segment with technology that is promising enough to garner interest for acquisitions by global giants like Stripe have been exemplified. Mpesa’s unique predisposition as a monopoly mobile payments venture owned by a monopoly mobile network operator is a clear example of how isolated market segments like an entire country can be dominated by a single product offering when a (double) monopoly is duly leveraged. In the face of all these vindications of billionaire investor Peter Thiel’s competitor-averse rule for startup success, Mono’s massive adoption and USD 2.6 million venture capital gain despite being 10 months old is a contrarian example of success through collaboration. Taking all the available information into account, it is clear that monopolies are powerful multipliers of growth for fintech startups in Africa, helping them gain enough users to not petter out while at the same time offering them the chance to attempt varied monetization models on such massive swathes of the population, earning massive returns when the formula is tweaked just right. Even then, monopolies are not always the answer, and as such, they should only be pursued where the opportunity cost to collaborate does not exceed what the startups stand to gain by building moats around their singular advantages. So are African fintechs who compete losers? Well yes, but not all the time.