Payhippo, a Nigerian lending startup, has raised $3 million in a seed round to expand its talent base and network across more West African countries.
The startup focuses on credit delivery for small and medium-sized enterprises (SMEs), and needs to optimize its technology to accommodate its fast-paced growth.
The company’s co-founder and chief operations officer, Chioma Okotcha, said they are looking to hire more engineers and data scientists.
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“We capture our data from the loans we issue, and more talent in the team would allow us to optimize our technology to serve our customers better,” she said.
The round was led by an array of angel investors, including Ham Serunjogi and Maijid Moujaled, the co-founders of the African cross-border payments company Chipper Cash; Olugbenga Agboola of the San-Francisco based payments firm Flutterwave; Bolaji Balogun, the CEO of investment banking firm Chapel Hill Denham; and Hakeem Belo-Osagie, the founder of Metis Capital Partners.
Payhippo has become a force in the Nigerian loan space in such a short time by being fast at it, eliminating the bottlenecks that have characterized banks’ loan process.
“We really focus on keeping this under three hours, and making sure that businesses can get the money they need when they need it. Ours is also a product that works for the SMEs in terms of a flexible repayment structure,” Okotcha said.
This is the largest amount Payhippo has raised to date after receiving $1 million in pre-seed funding earlier this year, according to TechCrunch.
The startup has focused on SMEs due to the size of its market. SMEs account for 96% of businesses and 84% of employment in Nigeria, and it’s seen as the backbone of the economy. However, it has come with a huge credit vacuum that has stalled the growth potential of the micro businesses.
Founded in 2019 by Okotcha, Zach Bijesse, now the chief executive officer, and Uche Nnadi, the chief technical officer, Payhippo was part of the 2021 Y Combinator summer cohort, and has shown its capability in filling the credit vacuum for SMEs.
“We had seen that traditional banks and lenders wouldn’t loan small businesses mainly because there were no credit scores, or the collateral requirements were too high. We decided to come into the market and create an instant financing option, where we create a credit score that allows small businesses to get the liquidity they need to buy inventory for business continuity,” Okotcha told TechCrunch.
“We use data from historical records that borrowers have built with us, but we also check their banking history to see the actual performance of their businesses,” said Okotcha.
But Payhippo is not the only digital lender in Nigeria offering short-term loans to SMEs. The startup is competing with others, including Carbon and FairMoney. Per TechCrunch, FairMoney disbursed a total loan volume of $93 million last year, representing a 128 percentage point increase from 2019, while Carbon said it had hit 659,000 customers last year and had disbursed $63 million in loans, an increase of 9.1 percentage points from the 2019 financial year.
Putting up a challenge to these rivals, Payhippo says it made $64,000 in revenue from around 5,000 it has so far disbursed. The startup says the repayment rate is 97% and that the total transaction is valued at $1 million. It added that the demand for credit is high, fueling its current 25% month-on-month growth.
Payhippo applies its own credit scoring formula that uses different SME data to determine the value of loans to give out. The loans are disbursed through mobile phones. The average loan disbursed by Payhippo is about $1,300, with the minimum loan being about $200.
The company says it is counting on its swift turnover in loan applications to grow its customer base within Nigeria before expanding to other countries.
Okotcha said going forward, Payhippo will ride on the untapped credit needs of the nearly 40 million SMEs in Nigeria to grow its business.
“We know that just 1% of the Nigerian market is about 40,000 businesses, and we want to be in a position where we disburse 40,000 loans in a day,” she said.