The year was 2016 and Paylater – which would eventually become Carbon – was just getting started. At the time, Paylater was essentially a digital lender giving out small collateral-free loans in Nigeria via a mobile app.
Paylater was one of the creations of One Finance and Investments Limited Nigeria (OneFi), a company co-founded by the sibling pair, Chijioke and Ngozi Dozie in 2012.
And the quick loan service held its own such that, within 3 years of launch, the Paylater mobile app had been downloaded by over 1 million users and disbursed loans of over NGN 13 Bn (USD 36 Mn, at the time). But something changed in March of 2019.
It was during that period that OneFi acquired Nigerian payment solutions company, Amplify, and Paylater became Carbon. Basically, Carbon arrived as a neobank offering a suite of financial services – encompassing loans, payments, money transfer, savings, investments, debit cards, and even a buy-now-pay-later (BNPL) product at this point – via a digital wallet.
That is more or less the first known instance of an African fintech startup with a consumer-facing product morphing into something of a mobile-only digital bank offering a glut of valuable financial services that rival (or beat) the offerings of most traditional banks.
And maybe Carbon was ahead of its time and ahead of the curve, because now, some two years later, a number of fintech startups across Africa (and indeed the rest of the world) are coming to terms with the idea that a neobank pivot/evolution could shape their future.
Take, for instance, Chipper Cash, which recently raised USD 100 Mn Series C led by Ribbit Capital and Jeff Bezos’s fund, Bezos Expeditions. The startup had kicked off in 2018 with a bold play to simplify cross-border money transfer in Africa.
Today, the startup Ugandan Ham Serunjogi and Ghanaian Maijid Moujaled founded has extended beyond no-fee cross-border money transfer to include instant local peer-to-peer (P2P) payments, discounted airtime/data purchase, zero-fee bill payments, virtual cards, and the new icing on the cake – crypto trading and fractional stock investing. Get any whiff of the UK-based neobank, Revolut? Exactly!
Furthermore, the lending startup, Branch, has recently broken out of its ‘mobile loans shell.’ With the acquisition of a distressed microfinance bank (MFB) in Kenya and an MFB license in Nigeria, Branch has unveiled Branch 2.0 – it’s basically now a digital bank with footprints in lending, money transfer, payments, and most recently, savings.
How about Paga, FairMoney, and even OPay to some extent? They all seem to be recoupling various fragmented fintech segments back together and turning into some version of a neobank.
Well, it does seem like one extra thing to worry about for the likes of Kuda, Eversend, TymeBank who actually set out to build digital-only banks from the beginning and spar with traditional banks. Those ‘original’ African neobanks are now finding that there’s suddenly another competitor: potentially every B2C fintech startup on the continent.
A similar affair appears to be playing out in the west with CashApp, Venmo, and even Wise – B2C fintech products that look more and more like a neobank with every new license acquired and every vertical layered on top of the original service.
As it is, it’s almost as if every business-to-consumer (B2C) fintech would eventually become a challenger bank seeking to claim and retain customers from the incumbents, or original digital banks, while vying for a new generation of first-time account holders.
It’s somewhat ironic, slightly poetic even. At one point, it seemed like the entire case for fintech startups was built upon unbundling or decoupling the array of financial services that traditional banks have failed to properly deliver. Previously, fintech startups found a value proposition in splitting up individual financial services, and running with it. And many still do.
But it seems things have come full circle – the latest copy of the fintech playbook seems to highly recommend ‘re-bundling the unbundled products under a single digital ecosystem.’
Venture-backed fintech startups that have built for the consumer are increasingly seeking growth to scale up. And this has necessitated diversification and expansion. While some of the expansion has been geographical, most have been vertical.
Indeed, according to the Finnovating for Africa 2021 report by Disrupt Africa, nearly 25 percent of the 576 fintech startups studied are operating in multiple categories. This tops the 15 percent recorded in 2019 and 8 percent in 2017.
Fintech is the crown jewel of Africa’s evolving tech ecosystem, raking in record funding amounts and minting fresh unicorns every other year. As fintech startups chase continuous growth to keep up with the influx of capital and continue to validate the sector, it’s become imperative to reach for a bigger pie, AKA, become a one-stop-shop for financial services.
The view from Stone Atwine, Founder/CEO of Eversend, is that bundling multiple products – cards, transfers, savings, trading, crypto, and loans – is the natural progression as long as the goal is to increase average revenue per user (ARPU). “This makes the customer more valuable to the business and the platform more valuable to the customer,” he notes.
It’s hard to tell if this neobank maneuvre would prove the light at end of the unit economics tunnel for these startups at this time. In any case, as things stand, it really does seem like every fintech startup is a potential competitor to every fintech startup in African fintech.
May the best fintech win!
UPDATE: In the hours following the publication of this article;
-FairMoney, a Nigeria-based digital lending startup, announced a USD 42 Mn Series B led by Tiger Global to push its neobank play.
-TeamApt, a Nigerian fintech startup with much of its endeavour in mobile money services, has revealed its digital banking plans following the closure of a Series B round.
–Also, Kudi, a one-time chatbot-led payments service that turned into a key mobile money/agent banking provider, has unveiled a new lending product which portends a neobank-like effort in the works.
-Also, this article was updated at 12:07 WAT on 05/07/2021 with some data extracted from the Finnovating for Africa 2021 report by Disrupt Africa.
Featured Image Courtesy: DigiPay