“Terms of the deal are not being disclosed at the moment,” Piggyvest told TechCabal in an official statement confirming the deal.

Two sources with knowledge of the matter put the investment amount at $3 million. Until this investment, Piggyvest had only disclosed $1.1 million in venture funding.

The fintech giant said it had received $5 million in venture funding since 2016, a detail that has not been previously reported. 

The recent investment by Flutterwave comes amid PiggyVest’s broader push to raise external funding, which has been in the works for more than two years, according to people familiar with the situation. Disagreement over valuation terms and the global economic downturn have affected fundraising, those people said. Flutterwave’s investment allows the payments company to have a deeper relationship with PiggyVest while the latter forges ahead with its investment round.

Flutterwave did not immediately respond to a request for comments. 

PiggyVest’s last major venture funding round was in 2018, when it raised $1.1 million from a roll call of angel investors. In 2021, Nigerian investment firm VFD Group said it had acquired a 12% stake in the company and became a major partner in the rollout of Pocket and Patronize. VFD Group’s acquisition of 12% in PiggyVest was a mix of cash investment and a merger of a competing VFD Group product, people with knowledge of the matter told TechCabal.

PiggyVest has maintained decent growth while claiming to be profitable. The holding company posted annual revenue of around $25 million in 2021, while its 2022 revenue grew slightly to roughly $27 million, said people familiar with the company’s finances. Those figures have not been previously reported. 

Founded in 2016, PiggyVest is as old as Flutterwave and was created by four co-founders as a savings platform for young Nigerians looking for a better way to stash their money and learn financial discipline. The app allows people to keep funds in their savings accounts on the app and accrue interest on their deposits. 

Customers can only access their funds four times a year or incur a fee penalty for early withdrawal. Since its creation, the platform said it has paid out over ₦1.1 trillion ($1.37 billion*) to customers by the end of 2022 through fixed withdrawal timelines. The platform disbursed ₦400 billion ($497.3 million) last year alone and claims it now has over 4.5 million registered users on its wealth management service.

However, PiggyVest’s business model has evolved over the last few years. The platform originally started out as a deposit holding service that invests consumer funds in government assets, such as bonds and treasury bills. Until the end of 2022, PiggyVest’s website claimed the company had a partnership with AIICO Capital, a licensed Nigerian fund manager, where customer deposits were “warehoused” and managed. The partnership helped PiggyVest navigate Nigeria’s regulatory environment, although it’s unclear how this partnership is structured. 

In recent years, PiggyVest has been reconstituted as a holding company called PiggyTech Global Holdings Limited, incorporated in the UK and Nigeria, according to information on the company’s website and B2B Hints, a business registration directory. 

The company operates multiple services, including PiggyVest, the wealth management app; Pocket, a consumer payments app; and Patronize, a point-of-sales product that allows retail stores to accept payments offline. Since mid-2023, PiggyVest’s website shows the holding company now has a fund manager license from the Securities and Exchange Commission (SEC) through an affiliate company, PV Capital, allowing it to manage customer assets as a fund manager.

*Exchange rate used is $1 = N804.4

Since it launched in 2018, OPay has become one of the biggest mobile money services in Nigeria and has pursued an elaborate marketing campaign to win over new customers, particularly unbanked people who do not have a bank account. To draw in unbanked customers, the company joined other fintechs and commercial banks to simplify the registration process for new users, including removing strict requirements for identity verification for the most basic bank account type with limited features.

However, in recent months, these lax standards have drawn criticism following rising concerns over financial fraud in the country. Now, checks by TechCabal show that OPay continues to allow new users to sign up to its platform without proper verification.

After submitting basic personal information to the Chinese-owned fintech app, new customers can verify their identity using a phone number, a National Identification Number (NIN), a bank account number or a bank verification number (BVN). Users must also submit a real-time facial verification to confirm their identity. OPay uses a tiered verification process — ranging from tier 1 to 4 — allowing users to access a larger suite of services once they submit a BVN or an NIN.

However, multiple tests show that OPay’s basic account verification process for tier 1 is weak, and the facial identity system is porous, which could allow bad actors to register for the service and begin carrying out transactions within 60 seconds. In one test, OPay allowed a user to sign up on the service using basic personal information, name and birthday, about a celebrity to register. While OPay requires users to submit either a bank account or phone number for verification, the app did not proceed to verify the details.

Although OPay claims to require facial recognition to complete the registration process, perhaps to match the record to the bank account, the app merely took a picture and approved the user. A man completed the facial recognition while the newly created account was female. OPay’s system did not flag this anomaly, even days after creating the account.

The checks show the weaknesses in OPay’s account management processes, which could make it a haven for bad actors looking to impersonate and defraud unsuspecting victims.

“Face verification is not solving for anything if it does not match the BVN details,” said a KYC expert who asked not to be named so they could speak freely. The expert suggested that OPay should collect a user’s BVN before verifying their face.

OPay did not immediately respond to TechCabal’s request for comments.

Under OPay’s basic account type, tier 1, users can deposit up to N300,000 in their mobile money wallets, and make transactions of up to N50,000. While these transaction limits are restricted, the ease of creating dozens of fraudulent OPay accounts raises concerns about security practices at the company.

In the first week of December, the Central Bank of Nigeria (CBN) warned against such a weak verification process. The banking regulator tasked all financial services to implement stricter know-your-customer (KYC) processes and disable bank accounts or mobile money wallets that have not been verified with a BVN or a NIN. Financial services are expected to comply before the deadline in April 2024.

*Additional reporting by Faith Omoniyi

The memo affects companies that own superagents, payment solution service providers (PSSPs) or switching licenses. By regulation, financial services with only these licenses cannot directly accept consumer deposits, particularly through bank transfers. According to the Central Bank of Nigeria, over 100 entities currently hold these licenses in Nigeria.

Over the last few years, some of these companies have expanded to offer more financial services directly to consumers. They avoided regulatory enforcement by securing relevant licenses such as mobile money or microfinance banking licences, which allow them to accept deposits.

Nigerian fintechs such as OPay, PalmPay and PiggyVest’s Pocket App each operate with a mobile money license; while Moniepoint owns a microfinance bank, a switching and a superagent licenses, allowing it to operate a digital banking platform and a network of offline agents to provide cash-in and cash-out services across the country.

Other companies have partnered with banks to offer deposit services building on top of an open-banking architecture that has led to the rise of virtual accounts and the “pay with bank” feature for accepting consumer payments. This year, Paystack announced its partnership with Titan Trust Bank, a licensed commercial bank, to offer virtual accounts and terminals allowing merchants to accept payments with bank transfers for multi-person businesses.

Nevertheless, some companies with superagent, payment solution service providers (PSSPs) or switching licenses have styled themselves as deposit-taking institutions without an accompanying license or relevant bank partnership. The memo from NIBSS directly targets such companies, and it could lead to a purge of these services from the list of approved institutions when consumers make fund transfers.

New directives and misinformation 

The memo from NIBSS has triggered misinformation in Nigeria’s public space. One list circulating on social media caused a stir after it claimed that several approved mobile money services and payment companies would be affected by the NIBSS order.

“The recent NIBSS circular has zero impact on our services because we are not deposit-taking like a bank,” Flutterwave, a licensed payments service provider, explained in a tweet posted on Thursday.

“We wanted to reassure you that the recent NIBSS circular does not impact Paystack-Titan or any other Paystack services,” Paystack wrote on X, formerly Twitter. “We developed Paystack-Titan in partnership with Titan Trust Bank in a way that allows the service to operate compliantly, and it passed review from NIBSS,” the company added.

“Moniepoint MFB is a CBN-licensed Microfinance Bank, Moniepoint, which also holds a switching license, said. “As such, we are a deposit-taking financial institution.”

“Your funds are safe and secure,” Opay told customers on Thursday. “OPay is a Mobile Money Operator (MMO) licensed by the CBN and insured by the NDIC… the focus [of the NIBSS memo] is on Payment Service Solution Providers, Switches and Super Agents.”

Other Nigerian fintech companies, such as PalmPay and Nomba, the Y Combinator-backed startup providing financial services to small businesses, have also informed customers that the NIBSS memo has no impact on their services. PalmPay is licensed as a mobile money operator, allowing it to hold deposits. Nomba says it works with only licensed partners to facilitate consumer transactions.

The purge of unapproved deposit-taking institutions could happen over the next few days or weeks. However, it is unclear if NIBSS or the CBN will proceed with additional enforcement action.

In a memo to banks, fintechs and other payment providers, the Nigeria Inter-Bank Settlement System (NIBSS) warned that companies holding switching, payments processing, and superagent licenses are non-deposit-taking institutions and should not be listed as beneficiary institutions when customers attempt to make bank transfers. 

Superagents, payment solution service providers (PSSPs) and switches are three crucial players providing payment infrastructure and offline distribution that have accelerated financial inclusion over the last decade. The PSSP license category authorises companies such as Paystack, Flutterwave and eTranzact, to operate digital gateways for card payments and money transfers by everyday consumers and enterprise customers.

“Listing [these] institutions… as beneficiary institutions on your NIP funds transfer channels contravene the CBN Guidelines on Electronic Payments,” said Ngover Ihyembe-Nwankwo, executive director of business development at NIBSS, wrote in the memo sent Dec. 5.

NIBSS — which operates Nigeria’s ubiquitous instant payments system used by all financial services providers — ordered commercial banks, mobile money operators and microfinance institutions to disable outward fund transfers into wallets operated by these firms.

A switching license allows fintechs, such as Remita, HabariPay, Moniepoin and Interswitch, to quickly settle transactions without relying on the real-time infrastructure provided by NIBSS. And the superagent license, used by Y Combinator-backed Nomba and Interswitch Financial Inclusion Services Limited (also called Quickteller Paypoint), has been a pivotal category driving financial inclusion, authorising companies to build a network of retail agents armed with a point-of-sales device to provide payments services across the country.

However, some companies holding any of the three licences might also hold other banking licenses, allowing them to hold deposits. Companies like Moniepoint simultaneously hold a microfinance bank licence which ensures deposits are insured by the Nigeria Deposit Insurance Corporation (NDIC). Telecom companies like MTN and Airtel both hold a superagent licence and a payments service bank licence, allowing them to operate a wide range of services.

By regulation, superagent companies rely on banks to secure POS devices and digital wallets for consumers. According to the Central Bank of Nigeria (CBN), there are nearly 50 superagent companies in Nigeria, at least 75 PSSP license holders and a little over a dozen switching companies.

However, over the last few years, as fintechs expand, many of these companies now offer deposit-taking services. Excluding commercial banks, payments service banks and microfinance institutions, there are less than two dozen financial institutions, namely mobile money operators, licensed to accept and hold consumer deposits directly, according to the CBN. But on consumer payments apps, including bank apps, the list is much larger and includes dozens of unlicensed deposit-taking companies, such as superagents and switches.   

“Switches, PSSPs and [superagents] may process outward transfers [from wallets] as inflows to Banks but are not to receive inflows as their licenses do not permit them to hold customers’ funds,” NIBSS wrote in the memo 

The latest order could purge several fintechs away from consumer payments apps as banks and fintechs tighten scrutiny over illicit fund transfers and concerns over weak verification processes by other companies.

In October, TechCabal reported that Fidelity Bank, a major commercial bank, had temporarily restricted consumer fund transfers to neobanks, such as Moniepoint, Kuda, OPay, and PalmPay. While the bank declined to comment on the issue, industry insiders cited rising fraud and customer verification as precursors for the action. Financial services companies are also proposing other initiatives to strengthen security and anti-fraud measures in the industry.

BitMama, led by CEO Ruth Iselema, has reportedly offered PayDay investors $1 million worth of equity in the crypto company at a $30 million valuation.

“Favour reached out to me because we’re building products beyond crypto; one of those products is Changera, and it made sense to me,” said Iselema. While Bitmama started as a crypto exchange, it now focuses on global services, including remittance, Iselema shared.

For the potential acquirer, it will mean they don’t have to start Changera, Bitmama’s relatively new remittance service, from scratch. They’ll also not need to create a new software stack or spend on acquiring new users.

“The deal is a work in progress,” maintained Favour Ori, the CEO and founder of Payday. “If the deal goes through, the result will be a strong team with much more efficiency.”

Bitmama will take on Payday’s customer deposits and liabilities if the deal goes through, said one person close to the deal.

Publicity highs and lows

When Favour Ori started Payday, he gained positive publicity on Twitter with optimism for his version of the company’s future. The company also became a payment partner for Starlink, the Elon Musk-owned internet service provider.

Ori’s brash style also attracted praise, with one founder admiring Ori’s style of “slapping down overly demanding customers.” Yet Payday had real problems.

A wave of complaints claiming customer accounts had been blocked with no information was not disputed by the company, and discontent among employees soon revealed that Ori was earning a salary of $15,000 monthly before slashing it to control the company’s burn rate.

Editor’s note: An earlier version of this article said Bitmama offered Payday investors $10m of equity. New information suggests that the figure is instead $1 million.

“Last week, I made the difficult decision to end my tenure at the company,” he shared in a LinkedIn post on Tuesday. “Thank you to Flutterwave for a seat on its journey to scale payments across Africa… I wish everyone at Flutterwave the best, and I will be rooting for you.”

“Oneal Bhambani has decided to pursue new opportunities,” said Flutterwave in an email to TechCabal. “Israel Koledowo, Head of Finance for Africa, will lead the finance department on an interim basis as we embark on a global search for a new CFO.”

Bhambani joined Flutterwave in May 2022 as Africa’s most valuable startup contended with allegations of financial improprieties and employee bullying. He arrived at the payments company from American Express, where he was CFO of the US fintech’s small business lending arm, formerly called Kabbage, now American Express Business Blueprint. With two decades of experience working in finance, his arrival was expected to steady the ship, and he helped the company navigate fraud allegations in Kenya, East Africa’s largest economy, where Flutterwave didn’t have a license.

Bhambani joined Flutterwave alongside two other finance executives from Kabbage with experience in corporate audits and treasury work. Those executives, Rebecca Mendel and Oscar Lan. have also left the company. According to their LinkedIn pages, they both exited the company in October.

After Kenyan prosecutors withdrew their charges of financial impropriety against the company, Flutterwave has since returned to high growth territory and touted its plans to list on the stock market although it has declined to give a timeline for an IPO. The company launched a new currency swap product for the Nigerian market and released its redesigned international payments app called Send App. Flutterwave is also doubling down on consumer payments in addition to its primary business segment, which has fueled its growth for years.

Bhambani’s exit represents the most high-profile exit from Flutterwave since 2018, when its co-founder and then CEO, Iyin Aboyeji, left the company. The CFO’s departure, however, raises major questions about the fintech, which is backed by Tiger Global and valued at $3 billion, and its IPO plans.

*Editor’s note: This article has been updated with a statement from Flutterwave

In 2022, the mobility company doubled its revenue to $51.5 million, up from $25.6 million in the previous year. Swvl posted its first group gross profit, $2.75 million, largely because its revenue grew faster than its basic cost of operating its fleet of buses. The company’s cost of sales rose 55% to $48.7 million compared to the previous year.

The report represents a major turnaround for Swvl, which has endured a turbulent life as a publicly traded company. The company made its stock market debut in March 2022 when it merged with Queen’s Gambit Growth Capital, a special purpose acquisition company (SPAC), trading at $10 per share at a $1.5 billion valuation. But its stock collapsed afterwards, trading below $1 for an extended period as NASDAQ threatened to delist the company if its share price didn’t exit penny stock levels. Swvl completed a reverse stock split, which effectively consolidated its shares, converting 25 units into 1. That action offered some relief, but its share price has never returned to its SPAC listing amount.

By late 2022, Swvl began making major changes to its business, including layoffs of 450 employees and shutting down operations in several countries, which radically impacted its financial information compared to details it reported by June 2022. Between mid-2021 and April 2022, the company announced at least four acquisitions as it expanded to new markets in Europe and Latin America. It acquired Shotl, a mass transit platform that operates on three continents; it also bought a controlling stake in Viapool which served Argentina and Chile; in June 2022, Swvl took over German-based Blitz B22-203 GmbH; and in April 2022, it took a controlling stake in Volt Lines, a Turkish company. And in August 2022, it acquired Latin American company Urbvan in an all-share deal. Following, these acquisitions, by mid-2022, Swvl posted half-year revenue of $40.7 million across 20 countries, nearly three times its income for the same period in 2021.

But by the end of 2022, Swvl had successfully reversed most of its acquisitions and shut down Blitz B22-203 GmbH. And in September, it sold Urbvan for $12 million. Unwinding these deals significantly changed the company’s situation, causing it to reformulate its financial statements and change previous business projections. The reversals also helped it reduce liability exposure related to some of these acquisitions, including payments to their suppliers.

As a company, Swvl reported strong growth thanks to its fast-growing bus-hailing services to business customers. In 2022, it raked in $37.9 million from business customers, a 132% jump from the previous year, compared to its mass transit services which reported $13.6 million. Overall, Swvl booked 45.7 million rides across both businesses last year, up from 25.9 million in 2021.

The company claimed it processed $56.5 million worth of ride tickets in 2022, compared to $38.4 million the year before. Swvl said its buses were full 96% of the time last year, with an average ticket per seat of $1.23.

Despite its rising revenue and financial changes from reversing previous acquisitions, Swvl, whose CEO, Mostafa Kandil, earns a basic salary of $650,000 a year, remains a loss-making enterprise. Swvl is yet to turn a profit and in 2022 it posted operating losses of $82.4 million, a 6.5% decline compared to the previous year. The company attributed much of its operating expenses to salaries and fees related to one-time activities, namely its acquisition reversals and fees from its SPAC listing in March last year.

The biggest takeaway from Swvl’s 2022 annual report is the company’s financial health. Before making drastic changes to its business last year, Swvl reported total liabilities of $149 million in 2021, including $118 million in short-term convertible debt. By the end of 2022, it had successfully converted much of its debt obligations into equity, shaving liabilities worth more than $124 million. Swvl also raked in $20 million in equity financing after it successfully sold 12.1 million shares at $1.65 per share in August 2022.

These changes have significantly improved Swvl’s financial situation and it alleviates much of its business pressures until it becomes a stable and profitable enterprise. However, high-profile exits including the replacement of its chief financial officer and resignations of two board members over the last few months might raise some eyebrows as Swvl’s CEO stabilizes the company’s operations.

With millions of customers across digital apps and offline payment channels, these four neobanks have become customer favourites and have entrenched themselves in the financial system in the past four years. But to win over customers, they have relied on flexible account verification processes while emphasising their push to improve financial inclusion in the country. These verification processes are at the heart of a clash between these neobanks and some of Nigeria’s biggest legacy banks. 

Last week, Fidelity Bank blocked transfers to neobanks over lax anti-fraud and customer verification standards, sources with knowledge of the matter told TechCabal. The restrictions remained for two weeks, those sources said. News of the restrictions polarised users on social media with speculation that the bank was trying to slow down competition. The restrictions have since been removed by Friday, October 27, bank customers said.

Fidelity Bank did not respond to TechCabal’s request for comments regarding these actions.

Key Takeaways

• Fraud is a growing problem in Nigeria’s financial system. Nigerian financial institutions have reported ₦159 billion ($201.5 million) lost to fraud since 2020.

• Relaxed transaction rules and flexible customer verification standards are making it easier for scammers to target victims.

• Nigeria’s financial system struggles with information sharing and lacks coordination on financial fraud investigations by local law enforcement agencies.

But Fidelity is not the only bank concerned about fraud related to neobanks. At least two other major Nigerian banks have had internal conversations about blocking these upstarts from their list of financial services for consumer fund transfers, two financial services insiders, who asked for anonymity so they could speak freely, told TechCabal. 

Media reports have highlighted the scale of fraud challenges in the country. This week, BusinessDay reported that Fidelity Bank lost ₦2 billion ($2.5 million) in three attacks. Court documents posted on social media and verified by TechCabal showed that Access Bank, Nigeria’s largest bank by customer deposits, filed a lawsuit in June to recover ₦3 billion ($3.8 million) that was fraudulently withdrawn. In July, the bank filed a separate lawsuit to recover an additional ₦5 billion ($6.3 million) illegally transferred from its coffers by scammers. 

Fintech startups have also been impacted. In March, Flutterwave, Africa’s most valuable startup, reportedly lost ₦2.9 billion ($3.7 million) to a cyber attack — the fintech continues to deny the incident. The mobile money service of Nigerian telecoms company MTN also lost over ₦10.5 billion ($13.3 million) in 2022 to unauthorised transfers caused by a glitch one month after it re-launched as a payment service bank.

Overall, Nigerian financial institutions have reported ₦159 billion ($201.5 million) lost to fraud cases since 2020, according to the Financial Institutions Training Centre (FITC), a financial research and advocacy organisation operated by the Central Bank of Nigeria (CBN). During this period, the industry lost around 15.4% or ₦24.4 billion ($30.9 million) to grafts, including fraudulent activity across point of sales devices, internet banking, ATMs, mobile apps, and malicious digital loan activities.

Fraud has long been a concern in Nigeria, Africa’s largest economy. Currency devaluations and large transaction volumes in developed markets like the US have meant that Nigerian-based scammers have historically targeted foreign companies, but that’s changing. 

As the value of electronic payments in Nigeria has grown to ₦387.1 trillion ($490.7 billion) in 2022, up from ₦38.2 trillion ($48.4 billion) in 2016, scammers have increased their focus on the local market. That local market is mostly a mix of fintech startups and banking industry players working to improve financial inclusion. As part of the financial inclusion drive, transaction rules have been relaxed, and customer verification standards are now more flexible. Industry experts worry that this trend exposes customers and the industry to higher risks. 

Phishing has become widespread, with fake social media handles posing as verified handles of local banks to collect customer information and fraudulently move monies from their accounts. It has forced GTBank, Nigeria’s most profitable bank, to fix a banner at the top of its website warning customers to “be mindful” of sites impersonating its brand.

Two sources at traditional banks suggested that the verification and identity management process at banks and digital challengers was inadequate, making them susceptible to bad actors. Between April and June 2023, scammers created and operated several bank accounts, which defrauded the industry ₦5.5 billion ($6.9 million) in fraudulent loans, according to a FITC report. 

A 2022 KPMG Nigeria study found that only 30% of local banks have fully implemented KYC and anti-fraud measures. “Banks do not investigate sudden inflows or outflows against accounts without prior notice. When issues become frauds, the banks claim not to be able to reach customers,” a KYC expert told TechCabal.

The country’s financial system continues to struggle with issues around information sharing, international collaborations and lack of coordination on financial fraud investigations by local law enforcement agencies, said the Financial Action Task Force (FATF), the Paris-based global anti-fraud watchdog group. In February, FATF placed Nigeria on its grey list over “identified strategic deficiencies.”

Although the country has moved swiftly to fix some of these deficiencies, Muhammed Jiya, a director at the Nigerian Financial Intelligence Unit (NFIU), warned that Nigeria could be placed on the FATF blacklist by January 2025. The black list risks cutting Nigeria from the global financial system, making it difficult for the West African country to do business with other economies or access international financing, Jiya explained on an industry webinar in March.

Policing fraud continues to face obstacles due to the uncooperative nature of several companies, industry sources explained. Traditional banks tend to work closely with one another to curtail illicit fund transfers and suspected accounts while fund recovery processes proceed. Startups are yet to catch up with such arrangements, the people claimed. 

Companies have also historically been hesitant to share data on fraud activity and cyber breaches with other companies and the government despite a 2015 cybersecurity law mandating that they do so. Deposit-taking institutions are concerned about their reputation and how such timely disclosure could impact their business in Nigeria’s low-trust environment. 

In March, fintech startups began talks to create a fraud database, codenamed Project Radar, to share data and other information on individuals and groups that had attempted or made fraudulent transactions. But these talks have stalled, said a source involved in those conversations.

As financial fraud increases, urgency is building for Nigerian financial services to move beyond various gaps and collaborate on a robust anti-fraud framework to protect the industry and customers.

Editor’s note: The exchange rate used in this article is $1 = ₦788.9.

Paystack’s virtual terminal is a digital-only alternative to physical point-of-sale (POS) devices that have seen wide adoption in the country over the last few years. These physical POS devices are limited in circulation and cause transaction delays in high-volume situations such as restaurant checkout, where several customers might require payment confirmation simultaneously. Similar delays have plagued direct bank transfer alternatives as sales representatives at various businesses require verbal confirmation from their managers that a payment was successful — an inefficient process in a high turnover environment.

Paystack, which operates in four African countries, believes its new virtual terminals can cut the wait time for payment confirmation and ensure a seamless customer checkout experience. The feature supports QR code payments, foreign bank cards and Apple Pay. Business owners can also assign virtual accounts to sales agents who can monitor and verify transactions without contacting their manager or having access to the business’ bank accounts.

“Bank transfers are fast becoming the go-to payment method for a growing number of consumers in Nigeria,” says Shola Akinlade, Paystack CEO. “With Virtual Terminal, we’re making it effortless for businesses to accept in-person bank transfers quickly, while providing a dignified customer experience.”

Virtual terminal is part of Paystack’s broader strategy to expand beyond web-only payment collection. The company launched in 2015 with a modern payments gateway that was cheaper and faster than existing business solutions developed by market leader Interswitch. Since then, the Nigerian payments market has flourished, with dozens of fintech providing digital fund collection and settlement services. By the end of 2022, electronic payments in Nigeria topped 5.1 billion transactions worth ₦387.1 trillion, a jump from the 154 million transactions valued at ₦38.2 trillion recorded in 2016, a year after Paystack launched. Paystack has also tried to capture a larger market share. Since 2020, it has developed a few products, including a digital storefront for social commerce, to win over more small businesses looking to sell online.

But over the last three years, offline payments — a catch-all term loosely referring to agency banking and POS-based payments — have become a key segment driving the growth of electronic payments in Nigeria, Paystack’s primary market. Newer fintechs, such as GTCO’s Squad, OPay, PalmPay and Moniepoint, have cornered the offline market using a network of in-person payment agents and POS devices to offer cash transaction services to individual customers and business owners nationwide. In 2022, POS transactions represented around a fifth of electronic payments volume in Nigeria although industry insiders believe the figure is higher since several companies do not share their transaction data with NIBSS, which operates the national real-time payments infrastructure.

Paystack, which is owned by U.S. fintech Stripe, made its re-entry into the offline payments market late last year with the launch of the Paystack Terminal, a point-of-sale device. Now, the fintech is doubling down on this market with virtual terminals and bank transfers.

The company first introduced the bank transfer payment method in 2017, which supported seven financial institutions. In 2021, bank transfers represented around 12% of transactions on Paystack, the company told TechCabal. A year later, this figure has more than doubled to 28%. And since the start of 2023, the bank transfer method is surging, accounting for 34% of Paystack payments in Nigeria. The company has since doubled down on this market with new infrastructure and the new Paystack-Titan virtual accounts, a partnership between Paystack and Nigerian financial service Titan Trust Bank which cut the latency of bank transfers to less than 8 seconds.

Customers are increasingly adopting the bank transfer method because of its convenience and control, Mohini Ufeli, a Paystack spokesperson, told TechCabal. In a low-trust environment where buyers and sellers want payment confirmation before completing a sale, both parties can conveniently track the status of a transaction. And unlike POS devices where sales agents pace several customers to collect payments, virtual terminals designate a Paystack-Titan bank account to which shoppers can conveniently send funds.

The product is launching following a challenging start to the year for the Nigerian payments industry after an ill-timed central bank currency redesign effort triggered the scarcity of the physical naira ahead of general elections. The cash scarcity exposed several weaknesses in existing offline payment solutions which unraveled as the economy declined in the first quarter of 2023.

Although Paystack declined to comment on its overall offline payments strategy, the fintech believes its faster bank transfer channel could help it win over more in-person businesses in Nigeria with instant payments confirmation.

More than a decade after it set up shop, the online retailer Jumia is still hemorrhaging money with no timeline for profitability. In its most recent earnings report, Jumia lost $167 for every $100 it earned. While its revenue from the first six months of 2023 stood at $94.8 million, it lost $63.7 million. Although its losses have reduced compared to previous years, it’s still too high for comfort. Old claims of being the “Amazon of Africa” no longer hold much value as it struggles to stay relevant in its key markets.

“Our economics was not sustainable as they may have been,” Dufay told TechCabal, referring to Jumia’s operating model over the last ten years. “The priorities needed to change.”

Dufay has risen through the ranks at Jumia over the last decade after joining the company from McKinsey, the global consulting firm. Before being named CEO in November 2022, he oversaw Jumia’s business in nine countries while reporting to former co-CEOs Jeremy Hodara and Sacha Poignonnec. Both executives resigned late last year, walking away with severance packages worth $850,000 each, according to Jumia’s financial report.

“Today, I’m managing 11 countries [and] I get to deal with a few more topics now, but it [my promotion] was not groundbreaking [or] a major transformation of my role because I was already overseeing the majority of the business at Jumia,” Dufay said. “So that helped me to make a relatively smooth transition and quickly get into the role. And I was able to make the right decisions extremely fast.”

As chief executive, Dufay inherited a struggling business that is no longer growing, putting it at risk of running out of money in a little over a year. Dufay declined to speak about his predecessors’ performance and management decisions.

Jumia’s biggest challenge at the moment is cutting costs. With a liquidity position of $166.3 million per its Q2 2023 reports, Jumia’s runway is not unlimited. It has also lost nearly a third of shoppers on its platform over the last year as the business takes drastic changes to survive. 

“In the past, the focus has been fully on growth, but in a very different context where funding across the world was abundant for growth companies, which enabled many companies not to worry too much about some of the aspects of the business,” Dufay shared.

Jumia benefitted from this old reality, raising over $700 million as a startup. On two occasions, it extended its runway by selling equity on the capital market as a publicly traded company. These lifelines no longer exist because of rising interest rates in the US and an unfriendly stock market. Jumia has to adjust to this reality on its path to sustainability. “We are working hard to get the right cash utilization and cost structure so we do not need to go and beg the market for new capital,” Dufay explained.

Since his appointment, Dufay has implemented painful cuts across the company, including laying off 900 or 20% of employees. He is also reining in some profligacy, including forcing 60% of its top management team to work from the African continent instead of an office in the United Arab Emirates to save costs. The move to Africa will also remind executives of the operational realities in the markets they serve. The cuts have also hit executive compensation, and Dufay is likely to earn much less than his predecessors, according to the company’s annual report.

In 2021, former co-CEOs Hodara and Poignonnec each collected annual base salaries of nearly $480,000 and stock option incentives worth $4 million each. However, the new CEO’s base compensation is lower, hovering around $350,000 according to his annualized pay from December 2022. At least two of Jumia’s non-executive board members have also waived all or part of their hefty compensation packages in the last two years to help the company conserve cash. Last year, the company’s board members collectively earned $1.5 million in cash and stock compensation despite the company’s staggering losses.

“Of course, I’m interested in my salary,” Dufay told TechCabal about his compensation. “What matters to me is that we get back on track on growth.”

Promising early days

Launched in 2012, Jumia started operations on the continent from Nigeria as the West African country’s economy was on the verge of a restart. Government reforms from a decade earlier laid the groundwork for economic growth. As commodities prices, such as crude oil, soared during the Arab Spring, international economists expected an economic boom to usher in a new and larger middle class in Nigeria and across the continent. Nigeria, Jumia’s single biggest market today, was poised to benefit significantly from the new prosperity.

Thanks to a fast-growing population and deepening broadband connectivity, the country’s consumer internet market grew even before the first 4G internet services rolled out in 2016. McKinsey predicted these upward economic trends would widen the middle-class population to 35 million by 2030. The phrase “Africa Rising” captured this optimism while skeptics, like Standard Bank, who questioned the lofty projections about a middle-class expansion, were ignored.

Startup investors wanted to get in on the coming prosperity. Tiger Global made its entry, backing Jobberman and IrokoTV. Other investors wanted someone to guide them as they explored the unfamiliar Nigerian market. Along came the Samwer brothers, founders of Rocket Internet, a German venture studio that copied proven American business models and applied them in other markets. Rocket Internet hired the team of co-founders that built Jumia ‘s retail operations, while the Samwer trio attracted major financiers who drooled at the digital economy possibilities in the region.

Jumia took off but so did Konga, an e-commerce rival that raised over $100 million during its heyday. Jumia operated as a group of separate businesses — retail, ride-hailing, food delivery, travel booking — before consolidating in 2016. This was the early days of “startup mania” in Nigeria, and e-commerce was all the rage.

Konga and Jumia went to war, blowing millions of dollars on hiring and marketing, including promos and discounts that helped Transsion’s Tecno and Infinix smartphones grow faster. Konga folded first. It unceremoniously sold for almost nothing in 2018. Jumia remained as Nigeria grew to become its biggest market —shoppers now account for a third of all items the retailer sells.

With its triumph, the startup was listed on the New York Stock Exchange (NYSE). Jumia had successfully completed the startup lifecycle: from ideation, MVP, venture funding, product-market fit (?), scale, and finally, maturity via a stock market exit.

The struggle begins

But life as a public company has exposed the weaknesses in Jumia’s model. The firm is still a cash-burning entity that’s unable to sell a single product without losing money. Jumia’s problem is threefold. 

First, the architecture for e-commerce — addressing systems, security, and fulfillment — within Africa remains fragmented a decade after Jumia launched. Historically, this has made it challenging to ship products from manufacturers and other retailers to the final consumer. This is not a new problem, but not something that Jumia can solve alone, Dufay said. Also, the proportion of households in these markets with medium and low income puts pressure on the platform to lower the prices of goods sold.

Second, economic growth in Jumia’s key market, Nigeria, slowed after 2015, and an unstable currency exchange system has cut deep into the health of several businesses. Under the Buhari government, the West African country squandered gains built over the previous decade. Excluding banks, every sector of the economy has suffered a depression. The middle class has primarily shrunk, and earlier growth projections have disappeared as inflation and devaluation put pressure on household incomes and a new wave of brain drain accelerates.

This problem isn’t unique to Jumia. Multiple companies launched in Nigeria between 2005 and 2012 have struggled after 2015. Etisalat Nigeria, the local subsidiary of the Emirati telecom company, fell apart after its dollar debt became unsustainable. South African retailer Shoprite quit the Nigerian market in 2021, 16 years after opening its first store. And in recent years, the contagion has spread, with several consumer goods companies, including those that sell on Jumia, reporting severe distress and scaling back their domestic operations. Jumia’s Dufay said Jumia Group lost $38 million in the second quarter–approximately $13 million of this loss was due to the Naira devaluation in June 2023.

But Jumia’s third problem is entirely its fault. The company played the valuation game. Rocket Internet cashed out early, leaving later-stage investors holding an overvalued company. While Jumia couldn’t do much about the economic disarray in its key markets, its operating model only worsened things.

The online retailer is available in nearly a dozen markets. But there is no good reason why. To sweeten its valuation and sell the “Amazon of Africa” narrative, it needed to show “geographical scale” — that it could operate in multiple countries even when there was no clear value proposition.

Jumia’s South African rival, Takealot, is a much smaller business by geographical spread. It operates in just that country. But its annual revenue of $808 million is nearly four times larger than Jumia’s $221.9 million. Takealot sold $1.5 billion worth of items last year; the Amazon of Africa only grossed $1.05 billion. The South African retailer is healthier, reporting losses of just $22 million, more than ten times smaller than its pan-African peer.

So when Jumia touched the coveted $1 billion valuation in early 2016, it was an outlier compared to its digital economy peers. Konga, its closest rival, was worth just $35 million then. Payments company Interswitch was worth roughly $160 million from a previous equity deal. And MainOne, whose infrastructure launched in 2010 and was pivotal to the broadband boom, didn’t even notch more than $300 million. Tiger Global’s bets — Jobberman and IrokoTV — and other startups were quite far from the unicorn mark too.

Today, Jumia is no longer a billion-dollar company. Its share price trades below $3 at the time of this report, bringing its market value to just under $270 million after Wall Street chopped it down to size.

“In Africa, anyone can build a business at burning billions,” Dufay believes. “But building a real sustainable business that adds value for customers, shareholders and employees across Africa in a new sector like e-commerce is a challenge. And I think it’s much more challenging and interesting to do that in the current context.”

Jumia’s biggest challenge in the short term is cutting costs, said Dufay, whose leadership is packed with former management consultants. This starts with shrinking the retailer’s bloated workforce expenses and management costs.

Jumia now spends over $130 million annually on its workforce and offices, more than half its total revenue. But it has costs, including deliveries ($100 million), marketing ($76 million), and technology expenses ($55 million). Throw all that in and it’s no surprise the retailer’s net losses stood at $227 million last year.

Jumia’s high workforce expenses partly stem from its complicated corporate structure. While it is active in 11 markets, its 4,318 employees as of December 2022 are scattered across 17 countries. Its headquarters is in Germany, where it sells nothing. Senior management also worked out of Dubai, UAE.

Its technology and data team is based in Porto, Portugal, because Jumia’s former co-CEOs, ex-McKinsey consultants, worried the continent lacked quality developer talent. 

Jumia’s reformation begins

So far, Dufay’s changes seem to be working. Jumia’s operating losses are down 60% this year, especially advertising spend, which declined 71.7%, compared to 2022. But revenue has also dipped and the platform has lost 1 million shoppers in the last twelve months.

To bring costs to a bearable minimum, Jumia would need to close shop or limit its operations in certain geographies to classifieds rather than full-service e-commerce. Of course, this would hurt its narrative, but it’s the right thing to do.

After containing costs, Dufay’s focus should shift to platform growth, especially in Nigeria and Egypt. A few years ago, Jumia successfully increased the percentage of sales from third-party merchants — marketplace revenue. At the end of last year, 61% of its revenue came from third-party vendors, saving the company the hassle of managing inventory. Instead, it operates warehouses and deliveries for a price and also earns a commission for every successful third-party sale.

High platform activity also improves network effects and potential revenue. For example, Jumia gets 1 billion page views annually. It sells advertising to external companies looking to reach people and third-party sellers to attract more buyers to the Jumia stores. Last year, marketplace ads brought in revenue of $18 million, up 67% from the previous year.

If the platform only sold its own inventory, its advertising income would have been much less. Jumia’s goal should be to re-emphasize to online vendors and customers that its platform is still the best way to shop on the domestic internet.

This would involve significant marketing and awareness campaigns to shrug off its nasty reputation for inefficiency and poor quality control. From my previous conversations with Jumia executives, they seem to underestimate the outsized impact of this negative brand perception.

However, Jumia has an advantage in the medium and long term. E-commerce is not going away, and few companies in the last decade are influential enough to boast $130 million in markets like Nigeria and Egypt. 

“The demand is there and it’s up to us to serve the demand; so we’re coming back to life we building the right fundamentals,” Dufay explained. “What people need to be aware of is that this company is coming back.”

Editor’s note: This article has been corrected to reflect Jumia’s liquidity position as $166.3 million and to show that the amount lost to Naira devaluation was $13 million.

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