Aidi — PSB and FIntechs

In this issue, we’ll look into the global decline in funding, MTN PSB and its implications for fintech startups and commercial banks and then, discuss the newly approved StarLink ISP. 

1. Will the global decline in funding affect African founders?:

First Netflix stock plummets and next, there are conversations about the global decline of funding and its implications on startups. Following this, YCombinator issued a memo on the 20th of May offering some thoughts on actions founders can take to stay afloat in the midst of this recent change. Amongst the points noted, YC advised that ‘things don’t look good’ and the chances of raising money in the next 6-12 months are low even if the business is doing well. 

The US, Asia and Latin America are already experiencing this decline in startup funding, as investors and venture capital firms have shifted investment efforts from growth-stage companies to that of early stage. This has been interpreted to mean that growth stage companies may experience more difficulty raising funding right now compared to before. Additionally, late stage companies are advised to focus more on revenue than growth, as the chances of raising funding quickly compared to the previous year are slim. 

Techcabal in a blog post explains that while the decline may show at a later time for African startups, there will eventually be a need to adjust to the new venture funding reality at the end of the day. This shift from investing in late-stage startups to early-stage startups is due to a fall in the shares of publicly listed tech companies, and the poor performance of startups that went public recently. In lieu of this, it is estimated that this will reduce valuations and repel IPOs. 

In spite of this, there are still controversies about its effect on Africa as some investors believe that the present situation will even provide bigger opportunities for startups both at the later and early stages as more investors are realizing that investing in African startups provides the ‘greatest growth’ opportunity of the 21st century. 

So, what then are founders advised to do in the face of the current situation and ongoing debate? In a conversation with Gaston Bilder, an angel partner at Aidi Ventures, he advised that founders should not panic but pause to think carefully and prepare for the worst. He mentioned that this is the time to focus on innovating; startups that will survive and thrive are those that are adaptable. Furthermore, he pointed out that the focus should shift from growth to revenue and earnings. 

2. On MTN’s PSB, banks and Fintechs:

On April 11, 2022, MTN received approval from the Central Bank of Nigeria to run a payment service bank. MTN through its fintech service MoMo can now provide almost all of the services offered by commercial banks, except for foreign exchange transactions and granting credit. The license obtained will enable them; 

• Set up operations in the rural and unbanked areas, enabling them to reach the financially excluded
• Build partnerships with card scheme operations, although cards issued will not allow for foreign currency transactions
• Establish ATM machine points within and around the location
• Run POS and agent banking services
• Build on e-channels to offer services to their customers. 

What then is MoMo PSB and what can users do with it? The MTN mobile money service is a service that allows users to store, send and receive money using their phones. Perhaps the interesting part of this is that users do not need to have a bank account, a smartphone or an MTN customer to use it; all transactions can be made by simply using a phone number. Services offered include; sending and receiving money from other MoMo customers, cashout from ATMs, payment of utility bills, purchase of airtime, and products and services from registered agents amongst others. 

Although payment service banks are not relatively new in Nigeria (Etisalat and Globacom had PSBs that were operational until November 2021), MTN’s announcement is causing quite a stir and excitement and is said to be the ‘gamechanger’ for payment and financial inclusion. For one, reports show that MTN is ahead of the competition with a volume of mobile money transfers of over $99 billion, surpassing cheque and cash transactions capped at $29 billion in Ghana. It also dominates the mobile money market in Ghana accounting for 85% market share. Currently, it has superseded Safaricom’s MPesa and is now the largest mobile money service in Africa.  

The Nigerian market seems to be the biggest market for MTN’s PSB in Africa. The reasons are that Nigeria is one of the top three unbanked countries in the world and MTN is the largest telecom service provider in the country. These reasons point to the possibility of the sway and hold the PSB will have on the banking system. However, certain regulations like the NIN-sim linkage can pose threats to the success of the mobile banking system as all of its transactions are carried out using just mobile numbers; what are the chances of succeeding if 72.7 million lines, which are a huge chunk of your business, remain temporarily disconnected? Additionally, Nigeria is said to have one of the best banking infrastructures in Africa, controlling over 90% of assets in the banking sector. Commercial banks have also built their digital reach through the popular USSD and banking apps enabling customers, to make and receive payments, obtain ATM cards and more through these. With these strides, MoMo might still not match nor overturn cheque and cash transfers as it did in Ghana. 

Financial Technology startups (Fintechs as they are commonly called) are also to be taken into consideration. Most fintech startups like Opay have invested massively in offline services through agent banking. Moreso, non-banks make up about 50% of the top 10 agency banking providers, giving users access to varying services like credits, insurance, savings, payments, etc. There are conversations on the effect of PSB on financial technology businesses as it is believed that it will take over the market share from fintech while others see it as an avenue for collaboration and partnership. For the users, this presents an opportunity to have cheaper and better services as both parties are likely to invest in differentiation; offering better customer experience and cheaper and better service. 

Although MoMo cannot provide some services like lending which financial services offer, we’re looking to see how fintechs will either collaborate with MTN PSB to access even a wider customer base or add services to its existing ones to meet the competition. 

3. Elon Musk’s Starlink

Elon Musk on Friday, 27th May announced via his Twitter handle, the approval of Starlink in Nigeria and Mozambique. 

As stated by Nairametrics, the Nigeria Communications Commission (NCC) also corroborated the announcement. The company will receive two licenses- The international Gateway License and the Internet Service Provider License. The International Gateway Access permits ‘A switching system that routes international traffic between international networks and the domestic network’. This has a 10-year tenure while the ISP has a 5-year tenure and both are renewable after expiration. 

Starlink will provide high-speed, low-latency broadband internet which will enable video calls, online gaming, streaming and other high data rate activities that have been nearly impossible with Satellite Internet. This also means that people residing in low-internet penetration locations will now be able to access faster and better internet connections. Compared to other ISPs, Starlink is more pricey costing $599 for the full kit (Terminal, mounting tripod, and Wi-Fi router), and  $110 for preorder and a monthly subscription. Additionally, Its premium service is priced at $2,500 for the full kit and a $500 monthly subscription. 

This pricing seems to be expensive for the Nigerian market and is quite expensive compared to the other available options. We are looking to see how this plays out in the nearest future - if there will be a price deduction or if demand will rise, in spite of the price.

4. Opportunities

• Apply for the MEET African Entrepreneurship programme 2022 for diaspora Africans. The deadline is June 15th, 2022
• The Google for Startups Black Founders Fund African Programme 2022 is open and technology startups are encouraged to apply before the deadline
• The KPMG Private Enterprise Tech Innovator competition is open and startups of less than 5 years are strongly encouraged to apply. The deadline is May 31st
• Apply for the MEST Express Accelerator Program for Ghanaian startups before 10th July 2022. 
• Female entrepreneurs can apply to the Cartier Women Initiative Awards before 30th June 2022