“Interswitch: unfortunately now takes too long to innovate, when you look at history: you will discover that the likes of Flutterwave, Paystack and basically all fintech have ridden on the infrastructure including market systems created by INTERSWITCH,…By the way both Flutterwave and Opay are more valuable by billions of dollars than interswitch which is the father and mother of them all” – a member commented on this piece on Interswitch Verve. 

My Response: It is beyond innovation. In this world, where you operate is more important, in most cases, than your efforts and innovation capacities. I will use this curve – the Smiling Curve – to explain. (see image).

When you receive $100 in your US bank account, the bank does not take any fee. But when you receive the same in your PayPal wallet, as payment, you will be off by at last $3. While someone can argue that the money kept in the bank can be used by the bank to do lending, we can also posit that the funds in the PayPal wallet can also be deployed by PayPal into many other profit-making activities. My point is clear: the banks do not capture a lot of value while PayPal and others like it do.

You can explain what is happening in a curve: the smiling curve. The companies which are at the center capture least value, and most times, there are the ones which support the ecosystem the most.  But those at the edges capture the most value even though they do not provide a lot of catalytic support in the ecosystem.

PayPal and Apple Pay operate at the edges and extract tons of value while the US banks remain lost in the center capturing just a small value. Indeed, where you operate on that curve determines the value you can create and capture, well more than the efforts you are putting in. You can be working really hard as a bank by handling the delivery and centralization of customer assets while those firms at the origination/creation and discovery/ aggregation positions smile. Interswitch is a big part of the center, but the Verve is at the edges especially if the credit era should begin …watch this my video

Lesson: seek and desire that your innovation will put you in the appropriate positions on the curve! Otherwise, you can be working for others!

Interswitch has a rare opportunity to make Verve an absolute dominant card brand in Nigeria. Yes, the inflation, forex paralysis, etc provide a huge equilibrium shift in the nation that I do not think makes sense for banks and fintechs to continue the issuance of Mastercard and Visa cards at scale.

Simply, why do you need a Visa or Mastercard card when you do not have a Nigerian passport to travel outside the country? And if you do, that card is not likely going to work outside Nigeria due to many controls. So, practically, for a bank or a fintech to be paying Visa and Mastercard hefty fees, shows lack of cost management. I do not see any strategic value in issuing Visa and Mastercard cards in Nigeria right now. You’re just wasting money for really nothing when Verve is there.

Interswitch Verve in my model will gain market share and if the economy continues the way it is, it can reach 70% of market share by 2025 (we hope Nigeria returns to real growth and opportunity of course).

And the last word: Interswith can use this window to go IPO because I expect the Verve growth to accelerate, and if that is the case, it can solidify its position by partnering with companies like Evea to offer Verve credit cards.  This is the Verve decade and it must take it!

(And if Interswitch does not want to IPO, it can unbundle and IPO Verve alone. That business is a category king. Of course, I do see a softening on the card business in Nigeria due to fees. Merchants do not like those fees. That said, the best part of card business is a credit era which is just around the corner with the CrediCorp. It is easier to use a card to issue those credits than using bank accounts; Verve has a promise there).

The Nigeria Consumer Credit Corporation (CrediCorp) is a company owned by the Federal Government of Nigeria. CrediCorp has one mission: to accelerate consumer credit access to 50% of working Nigerians by 2030. CrediCorp achieves this mission by:

A) fixing the structural barriers to accessing consumer credit in Nigeria.

B) catalysing the market with capital, guarantees, and policy.

CrediCorp including its consumer credit guarantee fund, works closely with the Central Bank of Nigeria, the financial sector, identity management, credit registries, fintechs, consumer protection, and policy makers on this mission.

The CrediCorp business is focused on the following:

1. Strengthening Nigeria’s credit reporting systems, ensuring every economically active citizen has a dependable credit score. This score becomes personal equity they build, facilitating access to consumer credit.

2. Offering credit guarantees and wholesale lending to financial institutions dedicated to broadening consumer credit access today.

3. Promoting responsible consumer credit as a pathway to an improved quality of life, fostering a cultural shift towards growth and financial responsibility.

The pillars of the empires of the future. Dominant, category-king companies with impenetrable moats, protecting the castles of profits and market shares. Will expand all the components as we examine the winning Business Models of the 21st century in the program.

Tekedia Mini-MBA >> our product is KNOWLEDGE.

In a stark illustration of the economic challenges gripping Nigeria, PZ Cussons Nigeria has reported a net loss of N96.4 billion for the fiscal year ending May 31, 2024.

This daunting figure was revealed in the company’s latest unaudited financial statements, underscoring the severity of the macroeconomic headwinds it faces.

PZ Cussons Nigeria’s financial woes are a reflection of the broader economic landscape. The company has been grappling with high interest rates, a depreciating exchange rate, and rampant inflation—factors that have collectively eroded its profit margins. Despite these challenges, the company managed to post a revenue of N152.2 billion, marking a 33.5% increase from the N114 billion recorded in the previous fiscal year. This revenue growth, however, was not enough to offset the substantial financial losses incurred.

Revenue Growth Amidst Mounting Losses

The company’s gross profit soared to N60.6 billion, an impressive 84% increase from the N32.95 billion reported in the previous year. Achieving a 40% gross margin is noteworthy, yet it was overshadowed by a colossal exchange loss of N158 billion. This loss turned what could have been a profitable year into one marked by a negative operating margin and a subsequent operating loss of N111.5 billion.

A closer look at the financial figures reveals the depth of the crisis. PZ Cussons Nigeria’s net loss eradicated its retained earnings of N34.5 billion, resulting in retained losses of N53.6 billion by the end of the fiscal year. Consequently, the company reported a negative equity of N47.2 billion. The group’s net cash also dwindled to N32.7 billion, a steep 68% decline from N101.6 billion at the close of the previous fiscal year, driven primarily by an N87.3 billion negative cash flow from operating activities.

The financial strain led PZ Cussons Nigeria to increase its borrowings from its parent company, PZ Cussons (Holding) Limited, to N59.8 billion by the end of the fiscal year, up from N18.7 billion the previous year. This surge was largely due to a $40.26 million non-interest loan facility extended by the parent company in June 2022, with an FX revaluation adjustment adding N41.1 billion to the original amount borrowed.

Delisting Controversy

In September 2023, PZ Cussons’ parent company announced plans to buy out the remaining 26.73% shareholding of its Nigerian subsidiary and delist from the Nigerian Exchange Group (NGX). The initial offer of N21 per unit was rejected by minority shareholders, prompting an increase to N23 per unit in November. However, the Securities and Exchange Commission (SEC) declined the delisting request in March 2024, a decision that received support from some minority shareholders.

In response, PZ Cussons (Holding) Limited announced a strategic review of its Nigerian operations to mitigate risks and maximize shareholder value.

Nigeria’s growing economic headwinds

PZ Cussons Nigeria’s financial troubles mirror the broader economic difficulties faced by many businesses and individuals in the country. Firms across various sectors are grappling with similar challenges, including high operational costs, volatile exchange rates, and inflationary pressures. These conditions have led to reduced profit margins, increased borrowing costs, and operational inefficiencies.

For instance, companies in the consumer goods, telecommunications, and oil sectors have reported declining profits and increased financial strain. The economic instability has forced many businesses to scale back investments, lay off employees, and in some cases, exit the Nigerian market entirely.

The uncertainty surrounding the economic environment has also deterred new foreign investments, further impacting the growth and development of the Nigerian economy.

Business leaders say the economic trajectory has created an urgent need for the government to address the underlying economic issues affecting businesses and citizens.