Founder of a Nigerian mobile money startup is first denied [Book extract]

The following is an excerpt from Africa 2.0 – Inside a Continent’s Communications Revolution by Russell Southwood, an ambitious 35-year history of the impact of mobile and the internet on sub-Saharan Africa.

Southwood is a long-time industry analyst of sub-Saharan African communications markets and founded his consultancy and research firm Balancing Act 22 years ago.

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In 2011, Paga, one of the first non-mobile money transfer services, raised funds and cleared regulatory hurdles to provide the most widely available service in Nigeria, a country that still has a love affair almost unbreakable with silver.

Paga founder Tayo Oviosu showed up at venture capital fund CEO Tokunboh Ishmael’s office and asked for $20 million for marketing. Both had backgrounds in investing, technology, and startups, but somehow the pitch didn’t click. Oviosu recalls how badly the meeting went: “She literally chased us out of her office.” She had just raised a fund and was focusing on microfinance. Oviosu, as an entrepreneur, had misjudged him: “In my mind, as I walked into the meeting, I thought we were achieving the goal, but not in [the micro finance]Category”. The two did not have a common opinion: “He was looking for marketing and I said that it could perhaps be a story of financial inclusion”.

A few weeks later, Oviosu met Ishmael at Lagos airport as she was boarding a flight to London with her son and, after exchanging pleasantries, Oviosu asked if they could talk again. In the second meeting, they focused on how Paga’s plans could meet Ishmael’s investment fund mandate. She had to have her investment mandate changed to invest, but Paga became her first fintech investment. At this stage, highly localized microfinance institutions were seen as the best way to create financial inclusion among the unbanked.

As Ishmael recalled, his fund investor, Wim van der Beek, who started Goodwell Investments, was dubious: “You’re not serious, are you? “It was a complete unlicensed mobile money startup. ‘That’s not what we were given money for. We were given money to help financial inclusion’. Finally , I convinced him.Recently we made our fourth investment in Paga and it took us 5 minutes to approve.

Oviosu came up with the idea for Paga by methodically putting together a list of potential proposals: “I forgot which was number one on my list, but the idea for Paga was number ten. How to get the unbanked on a digital platform? You open stores in your local communities. They trust the local guy. He sells them on credit. You use them to create a network of local agents.

The first thing the 33-year-old had to do, in a continent that pays more attention to the old than the young, was to get a banking license:

“The Central Bank of Nigeria [CBN] had just published a regulatory framework. I went to the CBN website and found a contact in payments and called him. In three transfers, I spoke to the gentleman of the team responsible for the regulatory framework. We had a good conversation. We had a meeting and he told me to apply and the responsible department.

Oviosu flew to Nigeria’s administrative capital, Abuja, with a suitcase containing 10 copies of the two-hundred-page request and eagerly awaited a response. Three months later, he had no news:

“I then started to network and we were able to meet the governor of the CBN to make a presentation. He said I had never heard of anything like it. He called the payments team and told them to come to the meeting. He said we needed a licensing process. Thanks for being helpful to them. What would have happened if we never had this meeting? »

Shortly after, a request for proposals was issued and Paga was selected as one of seventeen licensees: “Of these, we are the only one still standing”. Paga obtained its full license in August 2011. Just under a year later, in July 2012, it had raised investment funds from Acumen Fund, Adlevo Capital, Capricorn Investment Group, Goodwell West Africa and Omidyar Network. Additionally, it had “angel investment” from renowned Silicon Valley investor Tim Draper of Draper Fisher Jurvetson.

Nigeria was unusual in the way it licensed the mobile money market:

“The CBN went through a long process to figure this out… If you allow mobile operators to enter the market, you will put the banking operations of the 80% of the unbanked in the hands of a few companies who also control telecommunications, which are crucial for the country.

(CBN later changed its mind in 2019 and granted two licenses to mobile operators, MTN and 9Mobile.)

“We had no relationship with the cellphone carriers and they weren’t okay with us trying to get into space. MTN tried to refuse to connect us to SMS for two years. He said he didn’t have the pricing structure for this category. In the end, he was forced by the CBN and the NCC [the Nigerian Communications Commission, telecoms regulator]and then it took half a day to connect.”

Mobile operators who had previously challenged the status quo were on their way to becoming its incumbents.

Paga’s transactions have grown from millions to billions, processing US$2.3 billion in 2019, up from US$61 million in 2012. As of April 2021, it had 17,942,375 registered accounts. Based on this growth, he plans to expand into Ethiopia and Mexico. Paga founder Oviosu describes Ethiopia as “a long game” but sees Mexico as fundamentally similar to Nigeria: “I have a lot of Mexican friends and it’s the second largest country in Latin America . Sixty-five percent are unbanked and 90% do not save in formal financial institutions.

The stories of Paga and M-Pesa show two contrasting ways to start mobile money commerce in sub-Saharan Africa. Both embraced business goals and social goals from the start. On the surface, M-Pesa was initially a corporate social responsibility activity launched with the encouragement of donor funding. It was only later that it became a very successful commercial stream for Safaricom. In contrast, Paga, launched a few years later, was a privately funded startup, but one of its early investors was funded to focus on financial inclusion through microfinance. Like many mobile money services, it has received support from donors to enable it to provide specific services.