I’ve spent the past couple of weeks investing a disproportionate amount of my time studying partnership marketing and how it helps technology companies achieve scale and bolster revenues.
There’s a reason for this, one is the fact that partnership marketing always trumps direct sales knocking on doors, probably because a single partnership deal can give you the cumulative revenue of twenty sales deals.
The other reason which is the more pertinent one is that contrary to popular belief, fintech (at least in Nigeria) has little to do with tech. Fintech in Nigeria is probably 20% technology and 80% stakeholder management.
The most successful fintech companies in Nigeria today are not necessarily successful just because they have superior technology (even though a good number of them do), as much as they are successful because of the multiple stakeholders they have been able to strategically align to help them achieve their goals.
This goes beyond just partnerships for marketing and involves partnerships for product development, scaling, etc.
Partnership for Product Development
A good example of partnerships for product development in Nigeria today is NIP by NIBSS (Nigeria Interbank Settlement System). NIP (NIBSS Interbank Payment) is the most dominant interbank payment solution in Nigeria today and the sixth largest by payment volume globally.
To be fair, while NIP is a stable solution, NIP is not the only interbank transfer payment solution in Nigeria, several other fintechs have developed interbank transfer solutions capable of solving various problems in the Nigerian market, however, NIP is so dominant that the officially recognized dataset for evaluating total electronic funds transfer in Nigeria is NIP data, this is because while there may be multiple players in that space, NIP represents what is probably 80-90% of all interbank transfers in Nigeria.
The major reason NIP is so dominant is that NIBSS is partly owned by a conglomeration of Nigerian banks, and therefore the banks are incentivized to power fund disbursements via NIP. This means that almost all (if not all) Nigerian banks in Nigeria process their disbursements via NIP. Even dominant MMOs like OPay process disbursements via NIP and digital banks like Kuda MFB do likewise.
So while it is possible (however difficult) for a fintech in Nigeria today to build an interbank payment solution, and process transactions on it, it is almost impossible for such a fintech to convince a DMB (Deposit Money Bank) in Nigeria today to yank of NIP and process transactions via its platform.
A similar scenario is also what positions fintechs like Interswitch and UPSL to be dominant card switches in Nigeria and makes it difficult to yank them off in Nigeria (and also why I’m not bullish on a fintech acquiring a switching license if its main aim is to commercially switch card transactions).
When we think of partnerships for product development in Nigeria, the fintech 1.0 players as I shared in an earlier post have largely created the platform for other fintechs to ride on. Companies like Interswitch and UPSL somewhat pioneered card switching and made the adoption of cards for digital transactions possible in Nigeria, Remita created the first Account to Account switch making it possible for direct bank payments without a card or USSD token to occur in Nigeria and a couple of other fintechs have laid the groundwork and foundation for the growing digital economy and landscape we see today to exist.
Today, building an interbank switch to process direct bank payments is such an arduous task because it involves convincing multiple banks to give you access to their core banking (or a web service connected to their core banking) to process transactions.
Effective stakeholder management driven by a clear framework for partnership marketing can work wonders in the Nigerian fintech space. This is why funding founders who have some kind of leg-in amongst banks or influential players in this space is exceptionally key. Going through YCombinator or raising US$10m from a SoftBank or Tiger Global is great, but that may not hold so much value when you’re sitting in the office of the CEO of a leading DMB in Nigeria asking for access to sensitive APIs to power your product. These people want to work with people they can trust, and not just people who have raised capital, and this is why the Fintech 1.0 players continue to have some kind of advantage when these stakes are on the table because they have the legacy that builds trust.
This is also why leading fintechs in Nigeria today try to fill key positions with stakeholders they believe can make this play in their favor like Tunde Lemo (Former Deputy Governor of the CBN) who sits on Flutterwave’s board, to fintechs like Nomba hiring a veteran business executive from Interswitch to head its business unit, to Kippa hiring two executives from ITEX and NIBSS as Executive and Non-Executive Director respectively at its business.
While some may think this doesn’t matter, in my personal experience I’ve seen projects that had clear use cases and market needs, where technical resources had been deployed completely halted because one key stakeholder (sometimes a regulator) refused to grant access to APIs to power a part of the product that would make it truly end to end. The result of this is either a product that isn’t end to end, product engineers having to look for other innovative ways around those problems, or in some cases a complete shelving of the entire project itself. The importance of strategic partnerships for product development cannot be over-emphasized.
Scaling via native distribution channels
Some weeks back, I was in a conversation with an early investor at TeamApt that shared some insights on the startup space in Nigeria especially the inability of startups to achieve scale and how lack of distribution is literally killing the feasibility of multiple startups in Nigeria.
Beyond product development, partnerships can also empower firms to scale, and scale massively. Especially when firms leverage their native distribution to push new product lines.
Nigerian banks are gradually making inroads into the fintech space in Nigeria, acquiring payment licenses, and giving their fintech businesses questionable but gangster names. I partly understand why GTCo named their fintech business Squad (with an Onion logo) after watching this video, but why Access Bank named its payments business Hydrogen is still a mystery to me.
I generally do not fear banks. While banks have massive levels of distribution and are probably well positioned to play dominantly in the payments space, the culture of banking which is usually highly cautious and compliant may limit them from making giant strides in the space, because while strategy influences plans, culture influences execution, and we know that all planning and no execution makes jack a dull boy.
A good example of a large firm taking advantage of distribution to win markets is Microsoft. While Slack somewhat pioneered the idea of workplace collaboration tools, Microsoft via Teams literally took that market by simply cross-selling Teams to millions of corporate customers on its platforms using Office tools. The fear of big tech is usually the beginning of wisdom, and funding a startup with a proposition that somewhat competes with any proposition big tech offers especially in a market they operate in (and one that a local presence doesn’t give some kind of competitive advantage) is exceptionally risky.
MTN is also a good example of this. The famous South African firm with a presence in 17 African markets, and a Nigerian Market cap of more than US$9 billion (N4trn) at the time of writing this is worth almost 2x the market cap of the 5 largest Nigerian banks (FUGAZ) combined.
MTN with 65 million customers in Nigeria takes its everywhere you go catchphrase seriously. In fact, they take their catchphrase so seriously that they acquired land in the Metaverse, so they can be literally everywhere you go.
Very few companies have the kind of distribution MTN has access to, when MTN received its final approval to run its PSB (Payment Service Bank) in April 2022, a couple of industry watchers were concerned. MTN MoMo which is active in 15 African countries and has more than 51 million customers entered the Nigerian market via MoMo PSB with a bang. Literally. System issues saw them lose N22 billion (US$50.2million) in their first month of operations and still stay strong (my colleague rightly remarked that very few companies can take a hit of that magnitude and still remain in business).
As of October 2022 when MTN released its quarterly report for the nine months ended September 2022, five months after launch, MoMo PSB had about 1.8 million active customers, signaling the scale of its native distribution.
Transsion Holdings (parent company of Tecno, Infinix, and iTel) is a smartphone manufacturer in Nigeria that had a unique opportunity to take advantage of this play but probably didn’t identify the opportunity on time. To be clear, Transsion is a great organization, with a market cap of US$7.3bn, they are probably one of the most successful technology firms operating out of Africa. I’ve also written extensively about them in the past.
According to data from NIBSS, more than 66.7million transactions occurred on mobile devices in August 2022. Spooling data from the NIBSS data dashboard signifies more than 438million transactions have occurred on mobile devices in Nigeria between January to September 2022. According to data from Statista, Transsion holds a 56% market share in the Nigerian mobile device space. May not be too far-fetched to assume that 40% of those mobile payment transactions occurred on a Transsion device.
The existence of low-budget and affordable smartphone options from firms like Transsion Holdings is a key factor that influenced the growth of the instant payments space by allowing more people access to smartphone devices.
The opportunity in the early days would have been for Transsion to acquire an MMO (Mobile Money Operator) license from the CBN, build wallet infrastructure onboard its smartphone devices from Day 1, and propel its users to use it.
Transsion would have had at least 30% of its users transacting via its native wallet and generating significant revenue for the business. Transsion recently launched its Infinix wallet product embedded on all Infinix devices.
While there is always an opportunity for growth, I think the Infinix wallet product came a little too late especially since users are a lot more comfortable using their bank mobile applications than most third-party providers. Plus in my personal opinion (probably because of how they are marketed) except for Boomplay and a handful of other applications, most native Transsion applications feel like bloatware to me.
Scaling via Partnerships
Partnerships are also a key strategic imperative for companies exploring expansion initiatives. A good example of this is Flutterwave’s partnership with Uber.
While Uber originally came on board Flutterwave’s platform as a merchant (or in clearer terms a super merchant processing transactions for other sub-merchants (drivers on their platforms)), Uber has played a key role in driving Flutterwave’s expansion to other African markets including Ghana, Kenya, South Africa, etc. by choosing Flutterwave as its payments processing partner, Flutterwave was giving automatic access to Uber’s more than 700,000 drivers on the continent processing transactions via its platform.
Moove Africa, a leading African vehicle financing platform has a business strategy built largely on its partnership with Uber (where it provides vehicle financing for drivers willing to come on its platform), Suzuki who provides a good number of the vehicles used in that agreement is another beneficiary of that partnership.
Moove Africa has raised US$200 million+ so far in debt and equity funding, since its 2019 founding till date. Moove recently announced its partnership with Uber as its vehicle financing partner for drivers in the United Kingdom.
Beyond the popular digital payment fintechs like Remita, Paystack, Interswitch, and Flutterwave that we know today, there are other payment companies in the offline acquiring space making serious headway.
A good example of this is Global Accelerex. Global Accelerex is amongst other things a licensed PTSP (payment terminal service provider) in Nigeria. Global Accelerex plays a key role in the Nigerian payments space because along with ITEX, they are responsible for white-labeling and issuing a good number of payment terminals issued by the banks today for agency banking and to merchants for offline acquiring in Nigeria.
They recently announced a N20billion (US$45.6 million) capital raise which probably because it wasn’t conventional venture capital inflow went largely unnoticed.
Payment Businesses and Expansion
I believe strongly that every payments business in Nigeria today offering payment solutions to SMEs, is sitting on either a potential lending business or a potential lending enablement business (providing tools and APIs to power the credit cycle from loan origination to disbursement) due to access to transaction data of the SMEs on their platforms. I’ve written extensively about lending in an earlier piece, but just to add to that is that while lending to consumers is still a risky business (unless you can somewhat guarantee repayments), lending to MSMEs is a goldmine opportunity due to the size of the market (39.65 million SMEs in Nigeria) and the relative lack of enough players solving that problem.
While we both know that Mike doesn’t need a N1,250,000 (US$2,850) loan to buy the latest iPhone 14 Pro (regardless of how much he thinks he does), Luke definitely needs that N800,000(US$1,825) loan to expand his poultry business, a loan he’d be more than willing to pay back based on the value it brings to his business and to continue to secure access to similar funding opportunities.
Lack of clear consequences for credit defaults also means that consumers can refuse to pay back loans and suffer no consequences (beyond harassment from loan sharks, who may or may not be able to blacklist the customer), which is what empowers people to boldly tweet things like this.
Flutterwave already offers SME lending to merchants on its platform via a partnership with PayHippo, Remita offers lending enablement solutions to multiple lenders to empower them to give out what is almost risk-free credit, along with other players like Interswitch and TeamApt, which according to an insider, reportedly gives out almost US$200m in credit to SMEs on its platform monthly at a 99.4% default rate (I was shocked too).
SMEs also tend to have lowers default rates compared to consumers with the CEO of PayHippo reportedly tweeting his firm had a 97% default rate as of February 2022, and other SME lenders sharing similar default rates.
While this article isn’t necessarily about lending, the opportunity for payment businesses serving SMEs to leverage their scale and distribution to branch into SME lending continues to remain enticing.
CONCLUSION
Partnerships continue to be at the heart of every successful business, and companies who are able to properly manage stakeholder relationships, capitalize on the scale of other successful firms and also leverage their own native distribution to extend their user bases and acquire more customers to scale their businesses are well positioned for growth in the future.
Inspired By The Holy Spirit
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