African Fintech Unicorns Succeed with Local Focus

Africa’s digital economy has received a boost of attention, with South Africa’s TymeBank and Nigeria’s Moniepoint collecting financing in recent weeks at valuations of more than $1 billion and joining the coveted unicorn pantheon and these are the two technological giants making wave in the African economy at large.

However, these valuations represent more than just investor optimism. They demonstrate their effectiveness in scaling innovative fintech concepts designed for mature economies and customizing them to function in a region where over half of the population remains unbanked.

Both organizations’ principal goal has been to make banking simpler for individuals and businesses in two of Africa’s greatest economies.

TymeBank started offering individual consumer bank’s products like low-cost bank accounts and savings products then expanded into business banking, providing working capital to small enterprises in South Africa. TymeBank also Provides a personalized Visa debit card that may be obtained at a TymeBank kiosk. To open an account, you will need to provide your SA ID number, thumbprint, and mobile. A kiosk also allows you to check your balance, modify details, and improve your profile. TymeBank offers no monthly banking fees, and transaction expenses are generally lower than other local banks. However, Moniepoint began in Nigeria, providing small businesses with payments solutions, accounts, loans, and expense tools, and has recently expanded into retail banking business for the individuals willing to bank. Moniepoint cards are literally accepted at ATMs, POS terminals, and on local websites. However, they do not function on overseas websites.

Importantly, the two fintechs giants take a hybrid approach to banking, combining the convenience of internet banking with in-person, physical connections.

“In Africa, it’s a catch-22: You can’t have one thing without the other,” Lexi Novitske, general partner at Norrsken22, an investor in TymeBank, told TechCrunch. “Many tech companies must build customer acquisition and engagement through highly analog or physical efforts.”

The highly informal marketplaces demand a diversified strategy. Their strategy differs with challenger banks in the United States and other developed markets. Revolut, Monzo, and Chime work just as their names suggest: digitally. Even some emerging market platforms, such as Nubank and JPMorgan’s C6 in Brazil, or small businesses like Open in India, have relied on digital-only channels to establish regional category leadership. 

However, a solely digital approach is not optimal in Africa. There are exceptions, such as Valar-backed fintech Kuda, but there is a limit to the amount of users such a platform can serve. Thus, as Stephen Deng, co-founder of DFS Lab, an Africa-focused early-stage investor, puts it, they will encounter (domestic) revenue ceilings.

Furthermore, it is a region where cash reigns supreme, internet connectivity is unpredictable, and faith in completely online institutions remains low. Cash remains the most popular payment method in Africa, accounting for more than 90% of all transactions, according to a McKinsey analysis. Meanwhile, the GSMA reports that 43% of Sub-Saharan Africa has internet connection.

TymeBank and Moniepoint have developed a middle path that focuses on meeting retail and business clients where they are. TymeBank presently claims 15 million users in South Africa and the Philippines, while Moniepoint claims over 10 million individuals and organizations use its services. (Kuda, which is worth about $500 million, isn’t far behind, with approximately 7 million subscribers.

“When venture capital was ample you could pay people to endorse your digital-only product, but there isn’t enough average revenue per user (ARPU) out there to justify the costs longer-term,” Deng told me. “Moniepoint, Tyme, and others have discovered that you must create physical touchpoints that engage with the mass market while yet retaining the capacity to push your technology through those interfaces. We call this a “cybernetic” strategy because it improves informal — frequently in-person — connections with technology while avoiding the costly trap of totally digitizing such channels.

Looking at the Outlook outside of Fintech, which In all of this, maybe the most appealing aspect of the hybrid model is what it reaffirms for African fintech, as TymeBank and Moniepoint aren’t the first to use the model on their road to unicorn status.

And this is reflected in their scale. The initial generation of billion-dollar African fintechs, including Interswitch and Flutterwave, offered infrastructure and payment solutions to local and global merchants across the continent. Subsequent fintech unicorns, such as SoftBank-backed OPay, Stripe-backed Wave, and Chimera Investments-backed MNT-Halan (and even Transsion-backed PalmPay, a soonicorn), offer financial services to tens of millions of customers across Africa via a combination of digital apps and in-person touchpoints.

Fintech is perhaps the most successful startup area right now, accounting for eight of the region’s nine businesses worth more than $1 billion. As it continues to attract investor attention both locally and globally, such a model could serve as a blueprint and best hope for achieving venture-level profits while also driving financial inclusion.

However, there is enormous potential for applying the hybrid approach in areas other than fintech, particularly in Africa’s informal marketplaces. According to Novitske, telemedicine, which relies heavily on trust, might use local, in-person touchpoints to onboard patients while streamlining operations via digital platforms. E-commerce and group insurance models are two more areas she mentions.

“We think most successful startups in Africa will master a hybrid approach,” Deng told me. “Innovation frequently occurs at the digital-physical interface, as pooling informal markets necessitates tangible touchpoints. In B2B markets, procurement is frequently informal. Domestic payouts are frequently informal when making cross-border payments, including with stablecoins. In local shopping, payment and delivery are frequently casual.