The following is an extract from Africa 2.0 – Inside a Continent’s Communications Revolution by Russell Southwood, an ambitious 35-year history of the impact of mobile and internet on Sub-Saharan Africa.
Southwood is a long-standing industry analyst of Sub-Saharan African communications markets and founded his consultancy and research company Balancing Act 22 years ago.
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In 2011, Paga, one of the first non-mobile operator money transfer services, raised money and got through the regulatory hurdles to provide the most widely available service in Nigeria, a country that still enjoys an almost unbreakable love affair with cash.
Paga founder Tayo Oviosu showed up in venture fund CEO Tokunboh Ishmael’s office and asked for US$20 million for marketing. Both had experiences in investment, tech and startups but somehow the presentation didn’t click. Oviosu remembered how badly the meeting went: “She literally kicked us out of her office”. She had just raised a fund and was focused on micro finance. Oviosu, as the entrepreneur, had misjudged it: “In my mind as I went into the meeting I thought we’re achieving the goal but not in [the micro finance]category”. The two did not have a meeting of minds: “He was looking for marketing and I said maybe it could be a financial inclusion story”.
A few weeks later Oviosu bumped into Ishmael at Lagos airport as she was boarding a flight to London with her son and, after exchanging pleasantries, Oviosu asked if they might talk again. At the second meeting they focused on how Paga’s plans might meet the mandate of Ishmael’s investment fund. She had to get her investment mandate changed to invest, but Paga became her first fintech investment. At that point, highly localised micro finance institutions were considered to be the best way of creating financial inclusion among the unbanked.
As Ishmael remembered it, her fund investor, Wim van der Beek, who had established Goodwell Investments, was doubtful: “You’re not serious, are you?” “It was a complete startup with no licence for mobile money. “This is not why we’ve been given money. We’ve been given money to drive financial inclusion”. Eventually I convinced him. Recently we made our fourth investment in Paga and it took 5 minutes to approve.”
Oviosu got the idea for Paga by methodically drawing up a list of potential proposals: “I’ve forgotten what number one on my list was but the Paga idea was number ten. How do you get the unbanked on a digital platform? You open in stores in your local communities. They trust the guy down the street. He sells to them on credit. You use them to create a network of local agents.”
The first thing that this 33-year old had to do, in a continent that pays more attention to the old than the young, was to get a banking licence:
“The Central Bank of Nigeria [CBN] had just published a regulatory frame- work. I went to the CBN website and found a contact in payments and called them. Within three transfers, I was talking to the gentleman in the team responsible for the regulatory framework. We had a good chat. We had a meeting and he told me to apply and the department responsible.”
Oviosu flew to Nigeria’s administrative capital Abuja with a suitcase with 10 copies of the two-hundred-page application and waited eagerly for a reply. Three months later he had heard nothing back:
“I then started networking and we were able to meet the CBN governor to do a presentation. He said I’ve never heard anything like this. He called the payments team and told them to come to the meeting. He said we need a process to licence. Please be helpful to them. What would have happened if we’d never had that meeting?”
Not long afterwards, a Request for Proposals was advertised and Paga was selected as one of seventeen licensees: “Of these, we’re the only one still standing”. Paga got its full licence 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. In addition, it had “business angel investment” from high-profile Silicon Valley investor Tim Draper of Draper Fisher Jurvetson.
Nigeria was unusual in the way it had licensed the mobile money market:
“The CBN went through a long process to figure this out … If you allow the mobile operators to come into the market, you’ll be putting the banking of the 80 per cent of the unbanked into the hands of a few companies who also control telecommunications, which is crucial to the country.”
(CBN subsequently changed its mind in 2019 and gave two licences to mobile operators, MTN and 9Mobile.)
“We didn’t have any relationships with mobile operators and they were not supportive of us trying to get into the space. MTN tried to refuse to connect us to SMS for two years. It said it didn’t have the pricing structure for this category. In the end it was forced to by the CBN and NCC [the Nigerian Communications Commission, telecoms regulator]and it then took half a day to connect us”.
The mobile operators who had previously challenged the status quo were on the road to becoming its incumbents.
Paga’s transactions grew from millions to billions, processing US$2.3 billion in 2019, compared to US$61 million in 2012. In April 2021 it had 17,942,375 registered accounts. Based on this growth, it plans to expand into Ethiopia and Mexico. Paga’s founder, Oviosu, describes Ethiopia as “a long game”, but regards 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 per cent are unbanked and 90 per cent don’t save in formal financial institutions.”
The Paga and M-Pesa stories show two contrasting ways in which the mobile money business in Sub-Saharan Africa got started. Both embraced business objectives and social purposes from the start. On the surface, M-Pesa was initially a corporate social responsibility activity started with donor funding encouragement. Only later did it become a very successful business stream for Safaricom. By contrast, Paga, which launched a couple of years later, was a privately financed startup, but one of its initial investors had been funded to focus on financial inclusion through microfinance. Like a lot of mobile money services, it received donor support to enable it to deliver specific services.
