“It is one thing to be a financial services provider, and it is another thing to be a banking service provider. OurPass will start providing those banking services in weeks,” said Samuel Eze, the company’s CEO.

The company secured approval in principle (AIP) for a new MFB—OurPass MFB—in January 2024. It also undertook a recapitalisation and assumed the liabilities and assets of Fasildapo MFB, an existing microfinance banking entity, and submitted its new name to the Central Bank of Nigeria (CBN).

OurPass provides free business bank accounts, loans, and tools, including free invoice generators and team management tools, to help them manage their businesses.

An MFB licence will mean the startup has to ramp up its loan offering, which is currently restricted to invoice financing. The company said it would monitor those loans closely, acknowledging the difficulty of lending in the Nigerian market. 

And while it’s still early days, the company has already set its sights on becoming profitable quickly. 

“When we ventured into business banking in June/July 2022, we entered the field with zero funds. But before the end of the year, all things being equal, we should become profitable,” Eze shared.

Five days out of seven a week, most of the over 25 ATM locations are empty because the machines are out of service, out of network, or out of cash. It is the same experience many bank customers face with about 22,600 ATM locations, as Inlaks data show, spread across the country.

Nigeria requires about 60,000 ATMs to meet up with its growing population of 216 million people and a banking population of 106 million adults, according to Tope Dare, executive director of Inlaks, the largest ATM operator in the country, which controls over 50% of the market. 

In 2010, Nigeria had roughly about 7,100 ATMs and the number grew to over 11,000 in 2011 because the CBN mandated the removal of the offsite deployment by banks. This meant that banks would no longer invest in ATMs outside their branches. The CBN seeded the deployment to independent ATM deployers which couldn’t run the project due to the cost. The ban was eventually lifted, allowing banks to invest more in ATMs. The number of ATMs then grew from 11,000 in 2011 to 16,000 around 2016 and 21,000 in 2019. It grew to 22,600 in 2021, where it has remained as of December 2023, an indication that investment in the market has reduced. 

Seventy-six per cent of the total ATMs in Nigeria are deployed by eight banks. Access Bank has over 4,000 ATMs, First Bank has about 3,300, UBA has 2,150 ATMs, Zenith has 2,100 ATMs, GTBank has 1800 ATMs, FCMB has 1,350, Polaris has 1300, and Union has 1,200. A total of 17,200 are owned by these eight banks.

Consequently, there needs to be more ATMs in Nigeria to serve the needs of the banking population, and this has always been the case with Nigerian banking services. 

The estimated branch count of the 24 commercial banks is about 4,500, which is not enough for an estimated 106 million banking population reported by EFInA. The BVN accounts are currently at 60.1 million and active bank account holders are about 135 million. The annual growth rate of ATMs in Nigeria is about 3%-4%, but this has dropped to below %1 in the past two years, as the Inlaks data show. 

Nigeria’s ATM per capita (number of ATMs per 100,000 adults) has also dropped from 16.92 ATMs in 2018 to about 16.15 in 2021. The global standard should be 1,000 ATMs per 100,000 bankable adults. Hence, Nigeria should have about 60,000 ATMs when it is measured against the unique bank customers at 60.1 million. Given the 22,600 active ATMs, there is a deficit of about 37,400 ATMs. As the number of bankable adults keeps increasing and more cards are issued, it is expected that ATMs will decrease in number over time, since the banks are not deploying more ATMs. 

Growth factors for ATMs

In the past, some of the factors that have contributed to the growth of ATM deployment in the country include banks’ profitability. When banks are profitable, they undertake branch expansion and capital expenditure. Banks also deploy more ATMs when their customer base is growing because this means that more cards will be issued, and there will be a need to provide cash and additional ATMs for the customers. Banks that undertake digitalisation initiatives often need to deploy more ATMs. Financial inclusion initiatives also impact the growth of ATMs positively. Banks will also deploy ATMs in areas with improved power generation, this is because the cost of electricity is a major burden for ATM deployment. 

Why investors are looking away from ATMs

Dare says the ATM business in Nigeria is facing its most difficult times due to the high cost of maintenance, growing adoption of other banking channels, foreign exchange crisis, galloping inflation, insecurity, and uncertainty in the ATM policy environment, all of which are driving investors far away from the market.  

In 2016, the exchange rate for the dollar was ₦250. It rose to ₦325 in 2017 and stabilised between ₦330 and ₦360 by 2019. Dare says buying at a rate of ₦380 in 2020 and ₦455 before the Muhammadu Buhari administration left office, impacted the unit cost of ATMs significantly. However, it went from bad to worse when the new government under Bola Ahmed Tinubu dramatically announced the unification of the FX rate, which pushed the official rate to ₦750. The black market price for the dollar is currently above ₦1,500. 

“A machine that we were selling at ‘x’ million naira this time last year, by today we are selling at 3.5x today. This is affecting the hire purchasing cost due to FX. The FX is also dependent on the customs duty and the OPEX. The cost of maintaining ATMs has gone up due to inflation, the cost of transportation, and the cost of spare parts because you have to import spare parts from abroad,” Dare said. 

ATMs are also seeing fewer investments because most investors are paying more attention to other growing electronic channels such as PoS terminals, mobile app transfers, USSD, and other alternative channels consumers use to make payments faster and more convenient. 

“The rapid adoption of digital payment methods is influencing consumer behaviour, leading to a shift away from traditional ATMs in favour of more convenient digital alternatives,” said Olaoluwa Awoojodu, CEO of E-Settlement Limited.

The non-profitability of ATMs is also a big factor for investors. The interchange fee also known as the surcharge fee, is one of the lowest in the world. Today, when a customer visits an ATM he/she is charged N35 after the third transaction. The fee is fixed by the CBN; hence banks cannot change it without approval from the regulator. For investors, fixing the fee does not make sense given that the unit cost for processing ATM notes in Nigeria is one of the highest in the world. Today, it takes a minimum of 150 notes to process the equivalent of $100, said a bank CEO who wanted to remain anonymous. 

According to Dare, to revive the ATM business, the government should consider offering a tax concession. Presently the customs duty on ATMs is over 25%, whereas the duty on solar products is 5%. ATM policymakers also need to de-emphasise cash availability in ATMs and champion the upgrade of the machines to provide cardless payment innovations such as Near Field Communication (NFC). NFC is a short-range wireless communication technology that allows devices to exchange data without a physical connection. Users can initiate a transaction by tapping their NFC-enabled smartphones in front of the contactless reader on the ATM. This connection facilitates secure data transfer between the user’s mobile banking app and the ATM, eliminating the need for a physical card. 

“You can also have a convergence of your mobile to the ATM where you can initiate a transaction in your phone, and you can go to the ATM to consummate it. ATMs should go beyond the regular functions of cash dispensing to more advanced and innovative solutions and contactless payment at minimal costs. ATMs will not die in any country as long as cash is king,” said Dare. 

“From a cost perspective, the masses are expensive to serve,” argues Uzoma Dozie, Sparkle’s CEO. “You have to think of how much it costs to acquire customers. What is the cost of servicing these customers? What’s the revenue per customer?” 

Sparkle is uninterested in metrics such as transaction value and number of customers but instead obsesses over value proposition. The digital bank wants to create long-term customer relationships and earn loyalty.

But some of those numbers matter anyway. Sparkle claims it processes 11,000 daily transactions for its 220,000 customers. Its app offers a mix of banking services for individuals and businesses. While individuals can use features like savings, bill payments, and money transfers, businesses can access inventory and invoice management, a payment gateway, tax advisory, and employee management. These offerings are because of partnerships with Visa, Microsoft, and PricewaterhouseCoopers (PwC) Nigeria.

Yet, the startup wants to do more and is keen to introduce insurance, securities, and investments on its platform. It will need more partnerships to provide these services.

There’s also Sparkle loans, a small-interest loan product with interest as low as 17% per annum. “We are going to lend at rates the banks do and at the speed of digital banks.”

For Sparkle, lending is based on willingness and ability to pay. The digital bank will rely on data points from transactions on its platform for loan decisions. 

Huge bet on affluent banking  

Sparkle, which raised $3.1 million from entirely Nigerian investors in 2021, is confident it can “handle affluent banking better than traditional banks” using artificial intelligence (AI). Dozie also believes his experience as a core banker is crucial.

“I think the benefit that I have that everybody doesn’t have in this space is that I have done banking for 20 years. While I was at Diamond Bank, we worked with fintechs to provide digital solutions.”

The digital bank is developing an AI chatbot that will act like a personal advisor or lifestyle concierge to its customers. 

“The chatbot can process the data and give the customers an informed decision. It is more intelligent than any relationship officer you will have in any bank because you have access to global information, and it is available 24 hours a day.”

Dozie says Sparkle’s philosophy is to serve startups and small businesses that prefer digital banking. “We believe that digital is the future, and as infrastructure improves and people are pulled out of low-income, their only choice is digital. We are positioning ourselves for that,” he said.

Editor’s note: An earlier version of this article described Sparkle’s business model as private banking. It has now been corrected to affluent banking.

Per local media reports, Egyptian payments provider Fawry, will be turning its online payment portal—myFawry—into a digital bank to provide financial services including payments, consumer lending, savings, and investments, by the end of 2023.

However, the company’s head of investor relations, Hassan Abdelgelil clarified that the decision to launch a digital bank is yet to be finalised. “The management hasn’t taken the decision as well as the board. We are thinking of it. We will conclude by the end of the year or early next year. Contrary to the reports, we plan to convert myFawry into a neo-bank to include financial services,” he told TechCabal over a call.

Last month, the Central Bank of Egypt (CBE) issued rules for licensing, registering, monitoring, and supervising digital banks. Like Fawry, several companies such as eFinance and Opay have shown interest in applying for a digital banking license. The Egyptian fintech industry is projected to witness significant growth in the coming years, with its market volume hitting $10 billion by 2027. The number of fintechs in the North African country grew five-fold from 32 in 2017 to 177 in 2022.

Fawry—Egypt’s largest e-payment platform—is betting that a digital bank will further expand its serving offerings and diversify its revenue streams by tapping into different segments of the Egyptian market. Earlier in August, the company’s subsidiary, Fawry Microfinance got preliminary approvals from the Financial Regulatory Authority for the addition of SME financing to its portfolio, according to WeeTracker. To tap into Egypt’s growing remittances market, Fawry has partnered with UAE-based voice-calling app Botim to allow Egyptian workers residing in the UAE to pay bills and send home remittances. TechCabal recently reported that Flutterwave, the Nigerian fintech unicorn, is also hoping to capture a share of the Egyptian remittances market.

According to its H1 2023 financial report, Fawry reported a total revenue of EGP 1.4 billion ($45.3 million) in the first half of the year, representing a 42.4% increase from the previous year. Its adjusted net profit also rose 290.4% year-on-year to EGP 327.9 million ($10.6 million) with a net profit margin of 22.7%. The company also recorded 67.6 million transactions on its mobile wallet and EGP 80.5 million ($2.6 million) in transaction value, a rise of 73.9% and 107.7% year-on-year, respectively. 

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Despite the controversial nature of Nigeria’s recent currency redesign, it produced a few fintech winners like the Chinese-backed startups, OPay and Palmpay. OPay, for instance, now claims to have 30 million registered users. Moniepoint—formerly TeamApt—also saw its transactions rise. It claimed to have processed about $43 billion in transactions in the first three months of the year. Similarly, Kuda bank recorded an increase in its volume of transactions during this period, according to the company’s VP, Product Innovation & Strategy, Nosakhare Oyegun. 

“March was an outstanding month for us in terms of payments across cashless channels. We’ve seen significant growth that we can easily attribute to the cash scarcity, with observed consumer behaviour confirming a shift to cashless payments,” Oyegun said in an email response to TechCabal, although he declined to share transaction or user numbers. 

Kuda saw growth during the cash crunch, but so did Nigerian banks. The difference is that OPay and Palmpay are now at the last mile. The previously underserved or unbanked now use these platforms and trust them and all it comes down to the distribution that allowed this happen.

Distribution is everything

For Ibrahim Toyeeb Ibitade, CEO of Leatherback, a cross-border payments platform, both OPay and Palmpay have been intentional about building solutions that don’t rely on internet connectivity or online platforms like NIBSS Instant Payments (NIP). “What they [OPay and Palmpay] have been able to do is letting customers create banking portals with their mobile numbers and leveraging offline-based solutions that allow ease in carrying out transactions,” he told TechCabal over a call.

Ayoola Kosoko, a fintech expert, also attributed Opay and Palmpay’s win to their solid agent networks— which he likened to brick-and-mortar buildings of traditional banks—who were physically present to aid financial services for their customers. “The agents were already in existence, it was just more like increased banking transactions for them, as it were,” he said. “Some of the other neobanks don’t even have an agent network, no physical presence.”

Opportunity meets preparedness

“There would never be a better time for you to be ready,” Kosoko says as he attributes OPay and Palmpay’s win to their preparedness before the cash crunch began. “OPay was able to optimise its infrastructure to accommodate as much traffic.”

He believes that other neobanks’ infrastructure had not really been put to the test until people started turning to them as alternatives. He adds that the neobanks should be able to handle the punches thrown at them during tough periods of increased demand. “They [neobanks] need to ensure that their infrastructure and platforms are optimised enough to take as many hits as possible when it comes to an increased volume of transactions. So they don’t have a situation where transactions are failing, transactions are hanging, reversals are happening for some people and not happening for others,” he said.

Charles Odogwu, a digital payment expert, shares a similar view, citing that OPpay and Palmpay’s payment solutions being excellent and transactions carried out on these platforms were “almost instant”. He added that other neobanks should “try not to be a traditional bank in the digital space”.

What does this mean for financial inclusion in Nigeria?

Per KPMG’s financial inclusion report [pdf], more than one in three  Nigerian adults are financially excluded – with no access to useful, relevant, and affordable formal financial services such as payment, savings, and credit. According to a World Bank report, Nigeria is among the seven countries in the world with half of the world’s unbanked.

For Odogwu, the cash crunch has had a positive impact on financial inclusion in Nigeria. “Before the cash crunch, a lot of vendors and merchants don’t want to hear anything about transfers, it’s either POS or cash. The number of transfers now is even more than POS transactions, because the vendors trust the transfers. And a lot of these transfers come from OPay and Palmpay,” he said.

Ibitade, however, argues that there is still a long way to go in achieving financial inclusion in Nigeria, albeit it comes with a good side. “This situation means a lot of opportunities for other startups to come up with unique solutions that can make payments easier for everyone. Reorientating people and building trust are most important. The question is, “How do people know that their money won’t be stolen from that solution you’ve created?” he quipped. 

Post-cash crunch, who are Nigerians trusting with their transactions?

Now that cash is back in circulation, who are Nigerians turning to for transactions? Misturat Arike, a trader in the Ikorodu area of Lagos, says she has become accustomed to receiving payments from customers via her OPay account—which she primarily uses for her business. But like the other traders who spoke to TechCabal, she expressed concerns about the digital bank’s lack of physical branches. 

“While it [OPay] is good for us traders because it is fast, my problem is that we don’t know where to go if any issue arises. I heard they have an office in Ikeja but I don’t even know where the place is, unlike regular banks that have branches everywhere,” she said. 

Alabi Balogun, who manages a grocery shop in Surulere, echoes the same sentiment, adding that he now uses his OPay and traditional bank accounts at the same time. “Trust is the main thing here. As someone who was once duped by a fake digital platform, I have been struggling to trust them again,” he told TechCabal. 

Digital identity is a key enabler of financial inclusion and economic development. It can help to verify the identity of individuals, making it easier for them to access banking services, government benefits, and other digital services without having to visit a physical location. The digital revolution has brought numerous benefits to Africa, including access to internet services and online shopping. But the adoption and use of digital identity in Africa have been slow, hindering progress towards fully embracing the digital economy. The factors hindering this progress include:

1. High cost

The cost of implementing and maintaining a digital identity system can be high, especially for governments and small businesses. Developing the system, collecting and storing data, and providing access to users can raise significant costs. Financial difficulties can be a major barrier for governments and businesses that are already struggling to pay other monthly expenses.

2. Lack of awareness and digital literacy

Many people in Africa are not aware of the benefits of digital identity or how to use it and as such do not demand digital identity systems from their governments or businesses. And without demand, there is no pressure on governments and businesses to invest in digital systems and eschew paper-based documentation such as voter registration cards. Furthermore, many Africans lack the technical skills required to use digital identity tools effectively. As such, education and training programs are needed to ensure that people are equipped with the skills they need to properly utilise these tools.

3. Privacy concerns

Some people are concerned about the privacy implications of digital identity. Due to the worry that their personal information could be used for identity theft or other crimes, they are hesitant to share their personal details online. There is also a lack of trust in governments and private entities to protect personal information adequately. Addressing these concerns will require robust data protection legislation, as well as transparency and accountability mechanisms to ensure that personal information is stored and used appropriately.

4. Technology challenges

Some areas in Africa have limited access to electricity and the internet, making it difficult to implement and use digital identity systems, which usually require a reliable power supply and an internet connection.

Despite these challenges, there is a growing need for the adoption of digital identity in Africa. Addressing these challenges will require collaboration between governments, the private sector, and the general public to develop a comprehensive strategy that promotes the benefits of digital identity while protecting individual rights and privacy.

Growing the banking industry and advancing financial inclusion in Africa require these obstacles to be addressed as a priority because digital identity will become increasingly important for banks to provide the best possible service to their customers. By providing a secure and reliable way to verify the identity of customers, digital identity can help banks to reduce fraud, increase customer satisfaction, and expand their reach to new markets.

In conclusion, while digital identity has the potential to transform the way people in Africa access services and participate in the digital economy, several challenges must be addressed to ensure widespread adoption. High costs, low levels of digital literacy, and privacy concerns are all significant obstacles that must be overcome.

Traditionally, digital banking operators need to build products from scratch, get regulatory approvals, and examine credit risk, amongst others, before piloting their offerings. But with Credable, they can avoid these processes by plugging into Credable’s underlying structure and launch financial services faster.

Credable focuses on emerging markets like Africa and will use its latest funding to roll out its product pipeline—including loans, savings, and asset financing products—across Tanzania, Uganda, and Kenya. The company also plans to expand into new markets across markets in MENAP and West Africa, with Pakistan and Nigeria at the top of the list. 

Founded two years ago by Nadeem Juma (CEO), Jad Abbas (CFO), and Michael Tarimo (CTO), Credable has grown in its vision to become the “Unit for emerging markets”, with some of its products recording significant traction post-launch. In May 2022, Credable rolled out its loan product with Vodacom M-Pesa in Tanzania. Since then the company claims “over 1.2 million customers have opted in for an account, over 200,000 users have either borrowed or saved via the platform, over USD 5 million in loans were disbursed, and USD 2.5 million of savings deposits were received from customers”.

“The problem we’re trying to solve is that a huge population of underbanked customers need banking services to improve their livelihoods. They are in different channels that they use every day, like telco-led mobile money, e-commerce platforms and gig economy apps. Rather than try to create a new channel to bank these customers, we aim to enable these channels through a B2B2C offering that provides the customers with the banking services they need in the channels they’re already in,” CEO Juma said in a TechCrunch interview, 

In a statement sent to TechCabal,  Acasia Ventures, a participating investor, expressed confidence in Credable’s product and team’s expertise. “Credable has had promising traction demand for its platform which demonstrates a need in the market…. The team at Credable is a mix of seasoned entrepreneurs with a deep understanding of the institutional challenge that plagues the underbanked in Africa, this aligns with our mission at Acasia to back founders solving everyday challenges at the bottom of the pyramid,” Biola Alabi, Acasia Venture’s general partner said. 

Dr Dotun Olowoporoku, general partner at Ventures Platform, maintained that Credable’s business model positions it as a flywheel that powers economic growth in emerging markets. “In line with our thesis, Credable is helping businesses create and capture value by expanding their addressable market to provide financial services to previously excluded market segments/communities, and we believe that this will become a flywheel that powers economic growth in emerging markets,” he said in a statement sent to TechCabal.

This interview has been edited for length.

Why did you leave microbiology?

There weren’t many research institutes in Nigeria when I worked in the field. I didn’t want to end up in some lab just mixing reagents and doing basic malaria tests. I studied it because I really love it; I still do. But I couldn’t practise it in that kind of way. Maybe if I’d gotten some research opportunities, I would have stayed on. 

I’m familiar with risk assessment for credit and insurance services, but not for product development. Can you help me out here?

Because Sparkle is a digital bank, things that a traditional bank would consider to be a service—receiving funds, making transfers, etc—we look at them, holistically, as products. My role as a risk manager in product development starts with conceptualisation of what the product should be. As a risk manager, I like to ensure that we’re asking the right sort of questions. What does this product do for the customer? How does it add value to them? How do we deliver that value? These are some of the practical ways that could help you in delivering your products, if you have risk management involvement. My job even goes as far as product launching: after you’ve launched the product, you come back to review and ask the right questions. How do you determine when to tweak the product because it’s not really meeting the purpose for which it was designed? And so on.

How did you get into risk management? 

I’m a curious person. Once something doesn’t add up, you can trust that I’d want to look into it to find out what I don’t know. I started my career in Guaranty Trust Bank. I was in sales; and many times, when my customers wanted to purchase treasury bills or bonds, those conversations were a bit difficult for me to have because while at training school, treasury was not my forte. I lived in Northern Nigeria at the time. I had a conversation with my divisional director at the time about doing something I felt would challenge me. The bank was just setting up its enterprise risk team. In enterprise risk, you’re not only doing credit risk, you’re doing operational risk, market risk, all the risk areas. I thought this might be a good time to join that team. I took a gamble on it. The more I got into it, the more I loved it. I started out with interest rate risk management, within the financial market risk team. I’d later get redeployed from market risk to credit risk. I didn’t like it at the time, because, you know, I’d been practising in financial risk management for about four years and was actually considering a career in just financial risk management. But a mentor told me my redeployment would broaden my horizon. He encouraged me to give it a try, and that’s what I did. I ended up loving it because credit is the engine room of banking.

After a while, in line with the conversation my mentor had with me, I wanted to be a holistic risk manager. It wasn’t something that was common at the time; a lot of my peers and senior colleagues were experts in one area but didn’t know so much about another area; even organisations were looking for risk managers who were experts in one area or another, not so much open enterprise. And I thought to myself that because I wanted to have a holistic view, I should take a gamble. And so I requested to move to operational risk, where I also got the opportunity to do things like environmental and social risk management or sustainability and business continuity. And that’s kind of how I got to experience various areas of risk management.

Was the sustainability risk aspect anything to do with climate change? 

Exactly, yes. It was something that my manager sort of threw at me, and I took it up because I was curious. At the time, the Central Bank of Nigeria had just started to drive the conversations around sustainability, and it was a great opportunity to delve into it.

Why did you decide to move from traditional to digital banking at a time when traditional banks are increasingly  shipping digital-heavy services? 

Part of risk management is waking up and smelling the coffee. What I’m referring to is change. Like you said, even the traditional banks are going digital. Risk management is about  recognising change. Another reason, for me, was my sense of purpose and vision. All the organisations I’ve worked with, I believed in their vision. When I worked with Guaranty Trust Bank it wasn’t just about making revenue from customers; it was about offering transparent services that helped customers build their businesses, from small and medium businesses (SMEs) to multimillion naira businesses. When I worked with AXA, it was about helping people live better lives. Here at Sparkle, the mission is financial inclusion. I am definitely connected with that vision and that’s why I decided to move to Sparkle. 

As someone from a traditional background, banking and insurance, what do you think fintech can learn from the more established legacy institutions? 

I’d say issues around governance: definitely risk management, compliance with risk,  information security risk, and data privacy. I think traditional environments are more conscious around governance topics whereas in the fintech space, you want to be nimble. But you also want to build to last.  I mean, look at what’s happening in the crypto market today. I’m pretty sure there are some people saying, “I told you so!” because there’s nothing new under the sun. Life is a cycle; if you apply certain principles, you get certain results. There are a lot of gains to be made from having the right level of governance, the right level of risk management, and even the right level of compliance in the digital space.

Speaking of crypto, Sparkle doesn’t facilitate crypto transactions. Why? 

We are a licensed bank in Nigeria; that means we have to comply with the regulations and laws of the country. It goes back to finding that right balance, in terms of governance.

Let’s talk about your time in insurance. Why did you go into insurance, all the way from banking?

I was driven by a desire to gain more technical competency in risk management. I had been approached by a recruiter and asked if I was interested in the opportunity to work with AXA. AXA had just bought a majority stake in Mansard.

Risk management in insurance is, in my humble opinion, more technical. In the context of the Nigerian environment, you are dealing with a lot more. If I pick the average banking product, for example, loans, and I wanted to give you a loan and I have certain information about you, there is a certain constant that I can put on top of those variables to have a certain level of confidence to know that I’m pricing correctly to improve the chances of the client repaying the loan. In banking, both as a relationship manager and also as a credit manager, there were various controls that we could put in place to ensure that if funds were disbursed to a client, they would utilise those funds for the stated purpose and, therefore, the purpose of the credit would be achieved. 

In insurance, you’re dealing with so many other variables. If I sold car insurance to a client, for example, it’s difficult to price the client adequately as low-risk because there’s the state of Nigerian roads, traffic, and road-raged drivers who could bump into their car. 

And in the context of the Nigerian market, I also felt very strongly that because of the business model AXA was operating, I was going to be able to leverage on that to learn risk management in a much more technical way—and that was my experience.

Let’s talk about Sparkle Business. That’s something you’re promoting now…

One of the things Sparkle Business is passionate about is financial inclusion, and when you look at the financially under-included businesses, you’re talking about SMEs and individual entrepreneurs. With traditional banking, it is time-consuming and challenging for folks like this to have to go and spend so much time in the bank. And so, we are offering a solution like Sparkle Business, where we have features such as inventory and invoice management and we also offer solutions like a payment link.  If I buy a product from a vendor on Instagram, she can send me a payment link, which is tied into her bank account; and that is building her records and financial history, which is going to make it a lot easier for her to get credit and even grants.

We have a solution that allows our Sparkle Business users to do inventory management, take advantage of tax advisory services, and manage their payroll. So what you’re getting is not just a traditional banking app, but really a solution that takes care of the customer’s needs in one total package.

My Life in Tech (MLIT) is a biweekly column that profiles innovators, leaders, and shapers in the African tech ecosystem, with the intention of putting a human face to the startups and innovations they build. A new episode drops every other Wednesday at 3 PM (WAT). If you think your story will interest MLIT readers, please fill out this form.

As the digital revolution sweeps across financial markets globally, more central banks are creating frameworks and licences that ensure market optimisation and enable proper regulatory control of the digital banks within their country’s borders. In December 2020, Nigeria’s apex bank released a new categorisation of licences for the payments system, setting a six-month observation period between the issuance of an approval-in-principle and the licence to operate as a payment solutions service provider.

In January 2022, Pakistan’s central bank followed suit, launching its new licensing and regulatory framework for digital banks. According to the SBP, the new licences will spur financial inclusion and pilot with only five licences. This limited number of licences seemed to make them a collector’s item of some sort, with mega digital banking players like the Sequoia-backed Dbank, South Africa’s Tyme Bank, and homegrown fintechs such as Finja losing out on the race. 

Kuda Bank, however, moved strategically in its bid. The UK-headquartered fintech partnered with two leading Pakistani institutions in June last year—Fatima Group and The City School Group—to apply for the SBP’s licence. The City School Group is one of the largest private school networks in the region, while Fatima Group is a conglomerate of companies with subsidiaries that offer a range of high-scale solutions ranging from energy to agricultural manufacturing and trading. 

“The company’s [Kuda’s] partnership with Fatima Group and The City School Group leverages each partner’s unique reach and capabilities to create a powerful proposition with enormous potential to increase financial access and affordability in Pakistan, and most notably, with a focus on the agriculture and education sectors.” Kuda’s Chief Expansion Officer, Mr. Ryan Laubscher said about the partnership, maintaining that Kuda’s priority is to provide affordable banking that will scale its partners’ inclusion-focused initiatives in Pakistan.

According to local Pakistani sources, all applicants were assessed on various parameters that included fitness and propriety, experience and financial strength; business plan; implementation plan; funding and capital plan; IT and cybersecurity strategy, and outsourcing arrangements. Now, each of the selected five will incorporate a public limited company with the Securities and Exchange Commission of Pakistan, after which they will get an approval-in-principle to pilot their solutions.

The SBP expects that these digital banks will provide digital financial services, including credit services and low-cost movement of money to all Pakistanis, thereby promoting financial inclusion and serving the unbanked or underserved—exactly what Kuda has been able to do in its home market, Nigeria. 

Kuda was founded in 2019 by Babs Ogundeyi and Musty Mustapha, and has, in its three-year run, raised more than $90 million while expanding its customer base to over five million users. The neobank boasts of easy and free to low-cost transactions, instant lending, debit card services, and more recently, international remittances from the UK. Tagged “the bank of the free”, Kuda demonstrates a new era of banking to Nigerians: free, easy, and completely digital. And the neobank is poised to replay the script in its latest South Asian market.

In 2021, when Kuda closed its $55 million Series B round, CEO Ogundeyi hinted that Kuda would use the funding to prepare for continental expansion as it seeks to provide banking services for “every African on the planet”. While those continental expansion plans are yet to materialise, we did see Kuda expand its offerings to the African diaspora in the UK, the second largest sender of remittances to Nigeria behind the US. Now, Africa might have to wait as Kuda focuses on penetrating the Pakistani market, its newest foray where it must compete with existing players—such as Easypaisa DB—to achieve market share.

From a business perspective, it’s easy to draw a connection between the Pakistani market and the Nigerian one. The two countries are densely populated with the potential for huge volumes of transactions when Kuda is adopted at scale. If Nigeria, Africa’s most populous country could deliver Kuda its $500 million valuation, there’s no reason why the fifth most populous country in the world can’t decorate Kuda with a horn. For context, Kuda was spotlighted by TechCrunch as one of the African startups in the soon-to-be-unicorn pipeline.

In a recent piece, TechCabal asked a critical question: Can African fintech startups build global solutions?  With news like this, Kuda is joining startups like Paga and Moniepoint to say:  “yes, we can.” 

While some startups found out on Monday night that they’ve been shut out of the platform and thought it was a glitch, choosing to wait it out till Tuesday, others found out on Tuesday when people started tweeting about it.

Later on Tuesday, Mercury responded by sending out an email that vaguely indicated that the accounts were blocked due to some compliance issues.

In the later hours of the same day, after more bigwigs African founders have directly tweeted at Immad Akhund, cofounder and CEO of the startup, he sent out a personal email to the affected startups. In the email, he apologised and hinted that the restriction of the accounts was as a result of Mercury’s partner bank noticing an “unusual activity and asked us to lock and investigate a large set of accounts with linked activity.”

This measure, however, has thrown a couple of businesses into chaos as they can’t fulfill international transactions. 

“There’s no concrete reason why we’re blocked. The last payment we made via the account was our Delaware Franchise Tax and we did that last week,” said Charles Dairo, co-founder and CEO of Beezop, one of many startups whose accounts were temporarily blocked.

While Beezop was lucky to have sent out their own tax payment prior to the event, some founders have not yet filed theirs, and failure to do so may lead to them being fined as the deadline was on Tuesday. Other founders who used the bank for more frequent transactions complained that the pending transactions they sent out are getting bounced and this is affecting their fiscal operation.

The implications of this incident are bad for the affected startups but it has also put a terrible dent on Mercury’s reputation on the continent. 

Many African founders and ecosystem players have come out to suggest a boycott and others have suggested a home-built alternative that only either serves African founders or black owned businesses.

Notably, even a home-built alternative will need partnership with foreign banks to fly. Digital business bank account providers like Mercury need to collaborate with, oftentimes, traditional banks who can choose to pull the plug anytime. Like in this case.

This situation is similar to instances on Wise, Paypal, and other international cross-border payment networks that often lock individual African users out of their accounts. Could this be the beginning of an extension to African businesses?

TechCabal reached out to Mercury for comments and their response was similar to what the CEO had already said. 

“We are aware that one of our backend banks has suspended the accounts of a number of Mercury customers in Africa. While the bank was acting in compliance with its internal procedures, the suspension has adversely affected some customers and we are working with the bank to resolve this matter as quickly as possible. We’re reaching out to the customers impacted directly, and apologize for the disruption this event has caused,” Mercury said in the email to TechCabal.

As the situation unfolds, the questions that are yet to be answered are: what unusual activity occurred, who is the partner that pulled the plug, why did this affect only African startups, and why didn’t Mercury notify its users before restricting their accounts after it got a nudge from its partner?