Kerry Naidoo: Hello, and welcome to the McKinsey Africa podcast with me, Kerry Naidoo. This is the podcast that brings you conversations with leading experts and shares actionable insights, addressing challenges and opportunities facing managers and leaders working on the continent. Today, we bring you yet another featured podcast in a series focusing on Africa’s financial technology or fintech industry. For those new to it, fintech refers to any tech used to support, enable, or enhance the delivery of financial services to consumers. And it has tremendous potential for the continent, particularly given that around 57 percent of Africans remain unbanked. Despite or perhaps because of this, the fintech sector in Africa has been surging in recent years. Its growth has been fueled by a youthful and urbanizing population, increasing mobile phone penetration, falling data costs, limited physical banking, and a favorable regulatory environment, and, of course, the COVID-19 pandemic has had a massive impact on the uptake of digital banking as lockdown measures encouraged the digitally shy online.
Kerry Naidoo: In this series, we’ll speak to some of Africa’s most prominent fintech leaders on what it takes or will take to build the sector around the continent. In this episode, I’m delighted to welcome a philanthropist and entrepreneur who is passionate about the role that innovation and access to finance can play in the continent’s growth and development. He probably needs no introduction. Tayo Oviosu is the founder and CEO of Paga, a mobile payments company sometimes called the PayPal of Africa whose mission is to make it simple for one billion people to access and use money.
Kerry Naidoo: Also joining us in conversation is one of McKinsey’s leading authorities on the subject, Mayowa Kuyoro. Mayowa is a partner in McKinsey’s Lagos office and leads McKinsey’s Financial Services Practice in West Africa. Mayowa has worked with several multilateral institutions, both within and outside of Africa, and has extensive experience across West, South, and East Africa, serving major institutions on topics related to large strategic transformations. Mayowa is the coauthor of several published research reports and articles, including Harnessing Nigeria’s fintech potential, “How the COVID-19 crisis may affect electronic payments in Africa,” and “Nigeria’s banking sector: Thriving in the face of crisis,” all of which you can find on McKinsey’s website. Tayo and Mayowa, thank you for being here, and welcome to the McKinsey Africa podcast.
Tayo Oviosu: Hi, Kerry, thank you for inviting me.
Mayowa Kuyoro: Thanks, Kerry, it’s great to be here.
Kerry Naidoo: Tayo, you founded Paga in Nigeria in 2009 and have since achieved global recognition. In 2014, CNBC selected you as the entrepreneur of the year, West Africa, and in 2015, the African Leadership Network selected Paga as the outstanding growing company of the year in Africa. And there’s been no stopping since that growth, has there, Tayo?
Tayo Oviosu: It’s been amazing just seeing the growth and, as we’ve gone after our mission, to figure out how we solve payments for consumers on one side and small, medium businesses on the other side and make it easy for people to pay and get paid. So today we have about 19 million users on our platform, and over 6,000 small, medium businesses are using our payments platform for collection. Our consumers can go to over a hundred thousand points of presence across the communities to get services rendered to them. So we have a long way to go, but we’re excited about what we’ve achieved so far. We’re seeing it in our transactions as well, right?
It took us 99 months to process our first 2 trillion Naira on Paga, and it took us another 22 months to process the next 2 trillion, which ended in January of 2022. We’ve processed over 4 trillion Naira so far, and we’re exponentially reducing the speed of processing. The platform is growing at a fast scale, and we’re excited about that. I laugh when I hear all the conversations about being a unicorn; it’s not about that; it’s about delivering value to consumers and to the ecosystem, and all the growth will come from there.
Kerry Naidoo: It certainly looks that way, Tayo. Tell me, what do you think has been the secret of your success here? If you could point out two or three elements that you believe are supporting Paga’s impressive growth.
Tayo Oviosu: I think the first thing is our team. We’re a group of young, focused people who are keen on making a difference on the continent. And we’re all mission driven. I think the second piece is that we’re driven by the purpose of wanting to make it simple for a billion people to access and use money, right? So when you look across Africa today, in most countries over nearly 60 percent of people are unbanked and arguably everyone is underbanked. So cash is still king, and we’re driven by the mission to solve that and to make it easy for everybody to pay in a digital way and to access financial services. If you look at Nigeria, it’s about 60 percent unbanked; if you look at Morocco, it’s 71 percent; Egypt, almost 70 percent; and Kenya, even with the success of M-Pesa [a mobile phone-based money transfer service], is still at 45 percent.
The problem exists across the entire continent, but we’re really excited about the growth we’ve seen in Nigeria. In fact, we think that the first five or six years of operating in Nigeria, we were building infrastructure. We were building things that did not exist: connectivity to the mobile operators, connectivity to the banks, connectivity to all the utilities, then building our own platform and our infrastructure, and now the market is even more ready. There is a greater desire, especially coming out of the pandemic, of going digital, and we are seeing that adoption really kick in and the hockey stick effect across our transaction. So overall, on a broader scale, we think that the world is going digital—Africa is going to go digital. In today’s Africa, you need an offline and online hybrid approach, because smartphone penetrations are still low, even though that’s growing.
The approach that we’ve taken is to solve the problem in a hybrid way that is both offline and online. For the offline piece, there’s a hundred thousand-point agent presence that I talked about earlier where anybody can go to get services rendered to them, and our 19 million users, a very good majority of them go there. And then the online piece through our digital platforms is scaling fast, so for us as a team, it’s about how do we solve this problem of a cash-heavy Africa in terms of financial infrastructure. That mission—being clear about it, being crisp with the team, and everybody being driven to do something bigger than all of us—has been a real key to our success, and that’s what’s going to continue driving our success going forward.
Mayowa Kuyoro: Tayo, you’ve been building a fintech way before building a fintech was cool, having been in the game for over a decade. I think it’d be interesting to hear some of your thoughts on building and scaling fintechs, perhaps speaking to just gaining skill. You talked about how it took you a certain amount of time to get to 1 trillion [Naira] and then 22 months to get to the next trillion or next 2 trillion; just talk about how that skill journey has been, and also how to think about investment challenges on the continent. Although in the current climate we’re in, I don’t know if there are perhaps challenges on raising investments, but it’d be great to hear some of your thoughts about what it takes to scale a fintech successfully on the continent.
Tayo Oviosu: The first thing is about building infrastructure. I think the companies that focus on having their own infrastructure and being regulated have set themselves up not only for scale but also for long-term success, and I think that’s going to play out. We’ve seen it all over the world; it’ll play out in Africa as well. And that has been challenging, because a lot of the infrastructure didn’t exist, so we had to go build this infrastructure ourselves and connect into all the various funding sources, card processing, bank account to account processing, while building our own technology and building our brand and our business. We still have more to do in Nigeria to scale in Nigeria, but we’re also now looking at going across the continent. It’s something that we are grappling with. We recently announced a partnership with the bank in Ethiopia, the Bank of Abyssinia, to launch our merchant business in Ethiopia, and we’re excited about that. Broadly speaking, despite the need and despite the opportunities and favorable headwinds, it is hard to scale a fintech in Africa. But the opportunity is there; it takes more time than it would in the West, because you have to build a lot more infrastructure; you have to work with the regulators and help educate them most of the time about various topics that they’re not yet as used to and coming from a different mind frame of banking. I think those are some of the challenges in every market in some of the countries, and every country’s very different, with a different regulatory landscapes. On the funding side, I think Africa is still not the primest destination yet, but it’s good to see that there’s a lot more interest from people looking at it as the next frontier.
LATAM [Latin America] has had its time in the sun, and there’ll be more investment in LATAM, but people are now starting to look at Africa, and that’s a good thing. What they will see are world-class businesses here on the continent with world-class talent, and the risk pools will start opening up for Africa, especially when you look globally and what’s happening in developed markets, and the returns are not quite stacking up. So it may be a bit cyclical, but people will start looking to other places where they can make higher returns.
Mayowa Kuyoro: It’s great to hear your thoughts around this, and it’s an exciting time to be a fintech on the continent. I think hopefully, fingers crossed, the future is only brighter from here. Let me ask you one question around how—and this could be your own experience and looking at what’s happening in the markets and what other fintechs around you are doing—should firms think about positioning themselves for this investment, for this interest we’re seeing on Africa-based fintechs, and also how they can negotiate some of the challenges you’ve mentioned. Because you started a couple of years ago where the infrastructure was not there; you’ve had to build a lot that perhaps people coming in now may not have to do. How do they think about positioning and negotiating some of these challenges and then positioning for investments going forward?
Tayo Oviosu: Partnerships are going to be key. Like you mentioned, we’ve built a lot of infrastructure, and we’ve now opened up all that infrastructure to other third parties. So if you are looking to solve savings for the African consumer or on the savings app, you don’t need to go build the infrastructure that we’ve built, you can just come and partner with us and leverage that infrastructure. If you are building the next online travel site, you don’t need to build a payments infrastructure, you can partner with us. Partnerships are key; even for us, it’s key. Two years ago we announced a massive partnership with Visa, and that’s been amazing for us in terms of accelerating our offering to the market and the capabilities that we have.
I would say to companies in whatever market you’re in, look for partnerships. There’s so much to do, competition is not the issue today. Look for partnerships. For us, we’ve built our business around that in every aspect of the business. If I look at our consumer business, the way we reach the mass market in our consumer business is by partnering with small, medium retailers across the community that we call agents. Now we have over 100,000 of those agents that effectively perform the functions of a bank to the community, and that’s how we build out an ecosystem on the consumer side. We’re doing the same thing on our small, medium business side with Doroki, where we are providing a platform to small retailers and to anyone who has a store.
Across Africa, this is how people who want to build businesses for the long term have to think about it. Because we have very different contexts across different countries, all of them cash dependent with very low digital penetration. So you have to think both offline and online and get creative. When I think back to my starting points, one of my biggest ahas, if not the biggest, was trying to figure out how do we serve the mass market in a country where people don’t have smartphones and are not digitally enabled? How do we get them into the digital world? And that was an “Oh, wow, we need to have the offline” moment. That’s how the concept of agents—that person in the local community that lives down the street from you, you’ve known them and they know you, you trust them, and they trust you—and local retail points really started.
Mayowa Kuyoro: Great. Thanks very much, Tayo. You talked earlier about ecosystem and building scale across your network. I know you also have plans; in fact, you mentioned it already that you’re entering other African countries starting with Ethiopia. What would a truly Pan-African footprint look like for you?
Tayo Oviosu: It’s a long game we’re playing, so when we talk about a truly Pan-African footprint, we’re starting out in the next five years, and we want to be in the key countries. We started out with Nigeria, which is in my opinion a must, Ethiopia, and then we’re looking at two or three other countries. I don’t think the names would be surprising to anybody. And then beyond there, I think we go step by step into other countries. The reality as well is that most African countries are actually very small in terms of population size, so I think it’s better to tackle the bigger countries first and then go after some of the other countries. For me, if in the next five years we are solidly in five countries and rolling really hard and scaling well in those countries, that’s success for me.
Mayowa Kuyoro: Talking about Pan-African expansion, what are your thoughts around the African Continental Free Trade Area, which is potentially the largest free-trade zone in the world? How does that help support the expansion?
Tayo Oviosu: I think right now it’s still theoretical. It’s a great move, by the way, but it’s going to take time for African countries to trade with African countries as much as they’re trading outside of Africa, but nonetheless, it’s the foundations that need to be built. If we’re all playing a long game, then that’s great, and what it would do is increase the volume of cross-border transactions. If you take again what I just said about being in five of the largest countries, then that means that as we’re in those five countries, we can enable trade across all five on our platform, and that’s the kind of thing that we aspire to do. What I think a lot of the work in the near term will be within countries in terms of our platform is the free-trade agreement definitely would drive cross-border, which is great.
Mayowa Kuyoro: Absolutely. Now let’s shift gears a little bit into a perennial debate that keeps on popping up every time we talk about fintechs, which is fintechs within the context of existing traditional banks. What role do you think banks will play in the context of the rise of fintechs? I was on a panel maybe a month ago, and someone said to me that they think branches will be completely gone, traditional banks will die out. They cannot innovate fast enough to meet the pace at which we have seen innovations coming out from the disruptors. What in any way do you think is going to be the future of financial services? And do you think banks still have a role to play in this future?
Tayo Oviosu: I definitely think banks have a role to play. Only the banks that don’t disrupt themselves will get disrupted and will disappear. But in general, I do think banks have a leading role to play. They will face pressures from fintechs like us and from others in different ways, but ultimately there’s so much to do, and the traditional banks and the way they’re set up today does not position them to move fast enough to address the needs of the market, and the market is growing fast. But I don’t expect banks to disappear anytime soon. I think bank branches at some point will go away, but in the next ten years, I don’t think so; I think you’ll still have bank branches.
I don’t think it’s going to move as fast as maybe people think it’ll move in terms of some of those things, but I think the bottom line is that fintechs like Paga are providing alternative ways. Like in our case, in our consumer product, we’re consolidating any bank account. We are not competing with the bank, so wherever your money sits, whether it’s in the bank, whether it’s in Paga, we want you to be able to use it on our platform. So link your bank accounts, link your cards, link your other mobile money schemes, and use it on one platform. For us it’s about convenience and building out that convenience with people. The banks will find it hard to compete with some of those kinds of approaches, but that said, there’s so much to do in the business of banking. I actually say that at least in Nigeria, which I know very well, the banks are not yet scratching the surface on the business of banking.
If I wanted to get a loan for a mortgage, it’s very difficult for me to get that. If I want to get a loan to buy a car, it’s very difficult. If I want to get a personal loan, almost impossible. So there’s so much to do in banking that the banks have a long way to go, and if I were them, I wouldn’t be sitting around being worried about every fintech, but I’ll be thinking about my future and how do I build out and how do I innovate and how do I turn to address the needs of the consumer, because they do have certain advantages in terms of the regulatory covers that they have and the capabilities and the things that they can do as banks that fintechs are not able to do. If they leverage that smartly, they could actually be quite impactful.
Mayowa Kuyoro: Thanks, Tayo. What would your advice be for investors looking to move into Africa? We’ve seen meteoric fundraising in the last seven or eight weeks of the year. I think there was an article that came out saying African startups have already raised a billion dollars in funding in the first seven weeks of the year. So I’d love to hear some of your perspectives about how you think about fundraising, evaluation of companies. What should investors, both local and foreign, be thinking about as they’re looking into the space?
Tayo Oviosu: Providers of capital, venture capital, have a key role to play in unlocking the potential of fintech in Africa, and for fintechs to have real economic impact, we will have to expand revenue pools, attract greater foreign direct investments. And we need our investors who are passionate about driving fintech and bringing the solutions and the things they’ve seen on other continents onto this continent and partnering with operators on the ground, taking a human-centered approach to it to a very underserved segment in terms of investment. There’s a lot of opportunity for investors. If I look back at our journey, I remember my friend telling me, I think this was in 2007, that Nigeria felt to him like where India, China were 15 years ago.
He said, “Imagine those who had gone back to India 15 years ago, you’d be talking about global conglomerates, not just Indian conglomerates.” That’s the opportunity that we have. I think that’s true of the continent more broadly, and I think the more we increase the investments coming into the continent, the better. We have seen a lot of rounds going on, and I think we’ll continue to see more interest. A lot of the investments we’ve seen have come from crossover hedge funds, but I think we’ll start seeing more traditional VCs [venture capitalists] coming in and investing across from seed all the way to growth stage. Maybe the only thing I would say that is different than the West, from my perspective, is that because things take a bit longer here, the labeling of the rounds don’t make a difference. We’ve seen a series A that was $200 million, with the founders investing 60 million of their own money; we’ve seen seed rounds that are $35 million. So the label of the round doesn’t matter; it’s more about pulling in the right capital to be able to drive and scale the business.
Mayowa Kuyoro: I like where you’ve ended, Tayo, because you’ve mentioned some of the differences between investing in Africa and investing elsewhere. One of the other themes that we’ve heard or that have come through is also how investors perhaps might have to take a more hands-on approach with the investments that they make. Does that resonate with how they should think about the talent question on the continent?
Tayo Oviosu: I actually think that if you are backing the right operators, people who are committed to the vision that they’re going after and your job as the investor, I don’t think it’s any different in Africa than the West. Help them think about their strategy, and help them attract and retain the best talent. But I don’t think you have to be any more hands-on, per se. The talent issue is a real issue, especially with the pandemic; there is now a global war for talent, and African countries are not left out of this. We have some of the brightest people in the world on this continent. I see this actually as my number-one job: how do I attract and retain the best people—people who are brought into what we are doing and are driven to pour themselves into this problem set?
With the global talent pool, people being able to work remote, what it means is that we’re going to see a shift. We’re going to see a shift in compensation. I think in the near term we’re going to see compensation go up. Particularly in engineering and product development type fields, we’re going to have to think very creatively about the work structure. At Paga, as an example, we’ve decided that on one hand, we believe very strongly in collaboration and people working together, so we want people to be able to come together and work as a team, but on the other hand, we want to give them flexibility to be able to work from home if they want.
Three days of the week, we are requiring our staff to come into the office, and everybody on the same team comes in together, but the other two days we’ll give you the flexibility; you could be home, you could be in the office. That’s sort of trying to balance out some of the benefits to help on the talent side. Beyond that, I think we need to start thinking about the next generation. How do we build the next generation of talent? Again, at Paga, we already have built our own training Andela-style program. We’re actually talking about formalizing this into a program that is not just for people that come to work at Paga, but just generally out there, that anyone can come and take this program and develop their engineering and product development skills.
We’re doing that because we see the need to continually build a stronger pool of talent. Then on a personal level outside of Paga, I set up something called Kairos Angels, which I cofounded with my good friend, Temi Marcella Awogboro. We’re an investment club that partners with entrepreneurs who are obsessed with, say, looking for crazy people who are obsessed with changing the world for the better, and that’s also an approach to say, let’s figure out who is the next generation of talent coming through with the potential to become regional leaders, global challengers, and how do we help build this ecosystem? There are a number of ways: I’m thinking about it personally at the company through Kairos as an angel investment arm, but also through Endeavor, for which I’m an Endeavor entrepreneur, and it’s a global community that focuses on entrepreneurs.
With Endeavor, one of the things we’re thinking to do in this year is to launch “ask me anything” office hours, where entrepreneurs who are up and coming, who have been vetted, can get an hour with someone like me and be able to ask us any questions about their business, and we’ll help them with their business and scaling their business and solving any problems that they may be facing or giving them ideas. We think all of these things are to help build the talent pool to help build the ecosystem. Because it’s important that we not just focus on building our businesses, but we think about how we build the ecosystem for the long term, because that’s how we will continue to have greater sources of talent and retention of talent in this market versus exporting talent, which, over the decades, Africa has been a net exporter. We also need to think about how do we keep talent locally.
Kerry Naidoo: Well, this has been a fascinating conversation. Tayo, do you have any final comments you’d like to make?
Tayo Oviosu: Kerry and Mayowa, thank you. I really appreciated the conversation. To your audience, what I will say is if you’ve never been to Africa, come. Come to Nigeria, come and visit in Lagos, I’ll be happy to host anyone. And visit the key countries, because there’s a lot going on here. The best way to get your own feel of it is to come see it for yourself. I remember very clearly where the now CFO of Stripe, way before he became CFO of Stripe, showed up in Lagos, and I was introduced to him, and he said, “I don’t know anyone; I just came to see it.” I haven’t asked him recently, but I bet my bottom dollar that experience influenced his willingness to support Stripe investing in a business first of all in Africa, then acquiring a business in Africa, and then now investing again in other businesses.
Those personal experiences of coming to understand the business climate, coming to see [Africa] is so critical, and I’d encourage anyone to take that as a mission and to do it, because we need more people who understand and have their own feel of the continent. Thank you for doing this program. I know McKinsey; you get a great audience; so thanks for putting it out there. I think Africa is definitely the next frontier, and there’s a lot of good stuff going on in fintech, and we’re excited about it.
Kerry Naidoo: Thank you so much, Tayo, for talking to Mayowa and me and sharing your experiences and insights and passions. And thanks to you, our listeners; we hope you enjoyed today’s episode of our McKinsey Africa podcast series. Look out for the next podcast in the series on Africa’s fintech industry; we’ll be bringing you perspectives from other fintech leaders on the investment opportunities and challenges, how fintechs are thinking about fundraising, and what’s in store on the traditional banking front when it comes to Africa’s fintech evolution. You won’t want to miss it. If you’d like to learn more about this topic or view some of our recent reports, we encourage you to visit our Insights page on mckinsey.com/za. We also encourage you to follow McKinsey Africa on LinkedIn and on Twitter by searching our handle @McKinseyAfrica. Thanks again for listening, and we hope you can join us again soon.