At the stroke of dawn on Sunday, May 30, Thompson Odeh hurriedly left his home in a suburb of Port Harcourt, Southern Nigeria, for a bus terminal inside of town. He had made it to the final stages of a recruitment programme organised by one of Nigeria’s top commercial banks and was to appear in a crucial interview the following Monday.
However, once he stood before the cashier to make payment for the trip, everything was suddenly in jeopardy.
“I wanted to pay with my card but the cashier said the POS device wasn’t working and I didn’t have any cash on me. They weren’t accepting transfers either. For a moment, I was lost,” Odeh recalls.
But Odeh was in luck. Just across the road, a small kiosk with “POS” emblazoned on the front was open. “It wasn’t even 6.30 am yet. I crossed the road and got to the shop, that’s where I withdrew the money with which I paid for the trip,” he says. Like millions of other Nigerians, Odeh had been bailed out by the increasingly ubiquitous agent banking shops scattered across Nigeria.
Thanks to the proliferation of these agent shops (commonly called “POS shops”), there’s technically a bank sitting next to (or within) every corner store, mom-and-pop shop, or street junction in most Nigerian cities and suburbs at the moment.
Although official records are not up-to-date, conservative estimates suggest there are close to a million such agents in Nigeria currently – doing a mix of things that include funding of wallets, deposits, transfers, withdrawals, cash-in/cash-out, bank account and cards transfers, airtime and data purchase, bill payments. And chances are one in five of those agent shops are tied to the Opera-incubated startup, OPay.
A unicorn in a hurry
Barely a week ago, OPay became Africa’s latest tech unicorn following a headline-grabbing USD 400 Mn Series C that valued the startup at USD 2 Bn, drawing in high-profile backers like SoftBank Vision Fund 2, Sequoia Capital China, and several others.
It’s quite the turnaround for a fledgling startup that found itself in a bit of a scrap a little over a year ago after suffering a regulatory pummeling that effectively tanked its e-hailing and food delivery business; its most-visible undertakings at the time.
Plus, it’s a remarkable feat for a company that started out its 500,000-strong offline agent network by initially resorting to “creative” tactics: depositing large sums of money in banks and then nudging account managers to get approval for a number of POS terminals, with the subtle threat of “OPay would move the money if those POS terminals aren’t delivered.”
That’s sort of how OPay got its hands on its first 500 POS terminals, way before the startup figured out how to acquire terminals in China at extremely low prices, after which OPay acquired a Payment Terminal Service Provider (PTSP) license in Nigeria and started building the entire stack in-house.
In any case, thanks to the unyielding focus with which it returned to its original payments business following the forced dismantling of its e-hailing project, as well as a pandemic no one saw coming, OPay has been reporting head-turning numbers since last year.
Its expanding agent network, it claims, became a job creation funnel for many Nigerians laid off due to the economic shocks of Covid-19, as well as many previously gripped by Nigeria’s out-of-control unemployment problem.
“Amidst the pandemic, lockdown, and global uncertainty, OPay had its most impactful and transformative year yet in 2020,” Joshua Yau, Managing VP for OPay in Nigeria, said in a briefing held in March.
“As a payment company, it grew its total gross transaction value 4.5 times to over USD 2 Bn in December. The point-of-sale (POS) terminals deployed in its mobile money agent and merchant network represented roughly 1/5 of offline payments in Nigeria by year-end. Its mobile wallets have more than 2 million wallets with balances totalling over USD 17 Mn,” he announced.
Similarly, Country Manager, Iniabasi Akpan, says OPay gives easy-to-access financial services to close to more than ten million Nigerians in all corners of the country.
“Our agents serve a population that is far from bank branches and ATMs, often in the outskirt of cities, suburban areas, or rural areas,” he notes. Currently, the company claims to be processing transactions worth USD 3 Bn monthly.
OPay also identifies as the leading non-bank mobile money operator (MMO) in what is becoming an increasingly competitive space featuring big commercial banks, telcos like MTN and 9mobile, and venture capital (VC)-backed startups like Paga, Kudi, TeamApt, PalmPay etc.
With the GSMA reporting that more than 160 million active mobile money users in Africa generated over USD 495 Bn in transaction value in 2020, it’s no surprise that the competition is heating up.
A false start and a deft swerve
OPay’s roots can be traced back to May 2017 when the Norwegian internet company, Opera, announced a USD 100 Mn fund to invest in digital businesses in Africa. This was a year after Opera was acquired by a consortium of Chinese investors led by Beijing Kunlun Tech Co. Yahui Zhou, the Chinese billionaire entrepreneur who is currently OPay’s CEO, orchestrated that deal.
With USD 40 Mn dedicated to the market alone, Opera incubated OPay until it officially launched. When it quietly entered the scene in 2018 following the acquisition of PayCom Nigeria Limited (a licensed MMO), OPay was little more than a little-known fintech on the fringes of agency banking. Its agents were few and far between, and outside of key hubs. Thus, the company was largely unknown.
That changed dramatically after the startup announced a USD 50 Mn funding round in July 2019 and began to aggressively pursue a super-app play in an effort to boost user adoption.
At one point, the OPay app was a portal for e-hailing, food delivery, classifieds, payments, savings, and digital lending. But it was the ridiculously cheap promos on the e-hailing arm (ORide) and the food delivery business (OFood) that caught the eye and catapulted the startup to popularity.
The visible brand of ORide – including its conspicuous green helmets and bikes – and its frequent everyday use, saw customers generally label OPay as a ride-hailing company. The payments business and agent network, which was being built simultaneously, took the back burner. But that mobile money business would prove crucial once bike-hailing was proscribed in Lagos; OPay’s key location.
Since then, OPay’s offline agent business which, at the moment, accounts for 80 percent of transactions on the platform, has taken off, so much so that OPay launched the same agent business in Egypt in January while seeking to enter Pakistan next. However, beyond flooding various storefronts in various locations with a glut of bespoke POS terminals, OPay plots a tricky path.
Big strides made offline – Now, what else?
If the developments observed in the last 12 or so months is anything to go by, then it’s almost certain that OPay is spoiling for something more than being known as the company behind most POS shops in Nigeria.
With an extra USD 400 Mn in the coffers (which brings its total funding to date to USD 570 Mn), there’s got to be something more to OPay other than transplanting the business that took off in Nigeria in the Middle East and North Africa (MENA) region.
So, what exactly is OPay trying to be?
Well, at the moment, OPay seems to be angling towards pushing up online transactions on its app which serves individuals through a mobile wallet. Currently, only 20 percent of OPay’s business comes directly from customers through the app.
“We are trying to not just focus on the agent or merchant side of the business and put more focus on the app side. And we’re working on a lot of new products,” said an OPay spokesperson.
Although OPay’s move for remittances was abandoned following yet another regulatory directive issued by the increasingly unpredictable Central Bank of Nigeria (CBN), the startup remains keen on its savings product (OWealth) while promoting its overdraft offering (CreditMe) which launched earlier this year. Both serve competitive terms and rates.
Also, the fintech is keen on growing the volume of online payments done on its app. “Surprisingly, bill payment is one of the things that is doing very well on the app,” a spokesperson said.
In addition, OPay launched its Debit Card in May this year to further facilitate payments in Nigeria. “For a product that just launched, we have scaled tremendously in 3 months,” the company spokesperson said.
Questioned as to whether OPay has considered acquiring a microfinance bank (MFB) license in Nigeria with a view to rolling out some sort of neobank knockoff, the spokesperson maintained that the issue of the banking license has not been considered but it can’t be ruled out in thinking of the future.
Nonetheless, it’s hard to miss the signs that there may be a digital bank in OPay’s future, probably. And this would add to a growing list of African fintechs that have taken this path.
In terms of what new products are in the pipeline, the company spokesperson said OPay wants to keep it under the wraps for now. But there are strong indications from legitimate sources that OPay’s next moves have something to do with any or all of the buy-now-pay-later economy and launching a payment gateway that offers a portal through which merchants can receive online payments.
The latter would put OPay in the crosshairs of other prominent Nigerian fintech startups like Paystack and fellow unicorn, Flutterwave, as the race to digitise payments enters another chapter.
