How to build a super fintech in Africa? You're competing with cash!

We already know a few people building this quietly but we wanted to share with others, There's a few from Nigeria, Kenya, Tanzania, Uganda, Senegal and Egypt.

Early 2023, I was in Addis ababa in Ethiopia, I spent 30 minutes to understand why my taxi driver wanted me to pay him in dollars, or pay him twice the price in local currency. Then late that year, like November, I was in Uganda (Kampala, Entebbe) and an Uber driver insisted that I pay in Cash although mobile money is quite dominant there.

I also spent some time in Rwanda, Kigali, the same things happened, the difference was this guys spoke french and kinyarwanda but he meant that I either pay cash or MTN momo which is a dominant mobile money there, I said I wanted to pay by card. Long story short, I ended asking the hotel to pay then put it on my bill.

This (article) is not about overwhelming you with statistics, historical numbers or some projections that are way too optimistic to sound pragmatic, This post is written by a product engineer, from a market perspective with reflections of some lived experiences in banking, mobile money as well as offline cash movements in Africa.

Its 2024 and In Tanzania, If you pay using M-pesa or Tigopesa, the bodaboda (Taxie driver) will ask you to add “ya kutolea” meaning add the fee for me to withdraw cash and even Mpesa has added a feature that allow you to add “ya kutolea”

In 2015, I travelled to Nigeria attending a few days event of upcoming entrepreneurs, I had to convert my allowance money into Nairas so that I am able to pay around Lagos and Ogun State where I had spend those few days.

Today, In Tanzania, I still have to withdraw cash to pay for Daladala which is the widely used means of public transport moving about 90% of the people within the country. When it comes to intercity buses, The story is almost the same, I have to pay in cash or send a mobile money adding a withdrawal fee so that the bus operator can withdraw cash to pay for Fuel at the next petrol station.

Another lived experience, I was in Kenya and luckily I was able to withdrawal some money so I can pay for my friends at a club in Nairobi, That was when I was like a little younger but I understood why most people preferred cash as opposed to Mpesa, Bank transfers or Cheques - More on this a bit later.

What are everyday payments?

The majority of "everyday payments" in Africa are done in cash, Mobile money leads on transfers, airtime, paying some bills and of course - Online betting. Well, You may ask So what do you classify as "everyday transactions" and You think mobile money hasn't been able to digitize? I am glad you asked, I made a list so you can easily remember to revisit.

• Paying for a daily Daladala bus ticket (Most common public transport in Tanzania and lots of African countries on the North and SSA)

• Paying for a Bodaboda bike short ride or Bajaji three wheeler ride (They are very common there, UBER had to add these modes of moving in Tanzania on their app)

• Paying for Fruits, Vegetables and Tomatoes at a local market (This is the kind of a market +90% people go to everyday, No shops per se but sales tables)

• Paying for beer at a local Bar even some Hotels, paying for lunch at a Mama Ntilie or restaurant in most neighbourhoods.

• Paying for daily supplies and groceries at a local shop in your street which is actually the biggest "retail distributor by volume and reach" in Uganda, Tanzania and Kenya.

You may ask yourself, If Mobile money is so successful in Africa why haven't they been able to capture that huge market, The answer depends on who you ask - but common responses would be like That market is tough to address, We are making progress, Merchants are unprofitable and probably you will hear stuff like "we are already there".

Some of the guys we believe that are already in the right direction building super fintechs that actually work for Africa includes Ramani, MoniePoint, Sarafu by AzamPay and SafiriApp in Nigeria, Tanzania, Zambia, Malawi

Three key challenges that needs a fresh look.

Below are the key challenges that I strongly believe needs to be worked upon to bring more offline "everyday transactions" into mobile phones.

1. Make it 10 times cheaper for merchants to accept, move and pay digitally, In short this is the main reason why card payments have failed in Africa, that is according to merchants.

2. Make it instantly accessible by merchants, This is where Cash wins, 'Cause cash is real time, cash is instant and paying in cash is cheaper for everyday merchants plus their supplier prefers cash payments too.

3. Make it acceptable by their supplier, This is the game changer piece, I don't know anyone who is trying to do this from any angle.

So how do you actually propose to do the above, Well - I knew you would ask me that question and I ask some of my smartest friends, Below is what they said.

How do you make it 10 times cheaper to accept and move money digitally?

1. Avoid hardware as much as possible, these people already have a common hardware running on a common software (Apps notifications and texts messages)

2. Build wallets for merchants and their customers (Don't be greedy, You don't have to charge when money moves within your wallets)

3. Cover any costs you wanted to recoup by agreeing with regulators that you will pay back interest on balances in form of discounts to users. (It is hard but it is worth it)

How do you make it instantly accessible, instantly move or available?

1. Be interoperable with competitors to allow costs sharing, float balances and no movement sort of daily settlements between parties.

2. Build wallets for merchants and their customers (Money moves in a sec, There is no money movement, just balances on your shared but proprietary digital ledger here)

How do you make it acceptable by suppliers?

1. Well, You become the supplier, or let me say you become an aggregator for all the key suppliers (best sellers) so you can accept digital money from retailers (Your wallets).

2. Incentivize suppliers or distributors to accept e-money and use e-money to pay salaries, pay for inputs, pay bank loans and pay taxes.

The good news is any company can build a successful fintech in Africa, Below are examples and how they would scale to become "everyday payments" platform.

1. International remittances organisation, Expand the offering to include wallets for retailers, individuals and merchants in partnership with commercial banks.

2. Mobile money aggregators, Launch an e-commerce aggregation to become the supplier who accepts mobile money from retailers and reinvent the everyday payment.

3. Mobile money operators, Launch e-commerce aggregation, partner with banks and launch supplier aggregation models in key sectors. Though I am not very sure here!

4. Pan african banks, Partner with the above or launch specific wallets that are KYC light, cheaper, digitally operated, supported and serviced mainly by customers themselves.

Final thoughts, Building a super fintech in Africa requires hard work and re/designing what a basic product does from scratch so that you can significantly cut running costs and grow the reach 10 times faster while making the customer experience as appealing as possible. The good news is there no one or one group which is privileged with the ability to build Africa's super fintech, so you and your champs can start today.