OPay: From Telnet to Africa’s biggest unicorn
Today, Zhou Yahui, the Chinese billionaire owner of Opera, may have the title of founder/CEO of OPay, but the roots of the company trace back to Telnet, a digital transformation company.
Founded in 1985, Telnet, which occupies a wing of a white duplex located at Kofo Abayomi, Lagos Island, does not have the flashy neon lights of a unicorn builder. However, the company has given birth to not one, but two unicorn companies. The two unicorns are Interswitch and now OPay. A unicorn is a company with a minimum $1 billion market valuation.
Interswitch saw its valuation shoot up to $1 billion after a $200 million investment from Visa in 2019, making it the first-ever fintech unicorn in Africa. At the time, the $200 million was the largest equity deal in a fintech company in Africa. OPay joined the unicorn club in August 2021 with a $400 million investment from mostly Chinese-based venture investors. Apart from that, OPay has become the first Africa-focused company with a $2 billion valuation.
Before OPay was Paycom
The word OPay is a combination of the prefixes of two entities Opera and Paycom. In December 2017, Opera made its first foray into Africa’s payment market with the acquisition of Paycom, a Nigerian-based platform that allows customers transfer money to both users and non-users from their mobile phones. Paycom also allows users buy or send airtime anytime and from anywhere. Paycom was a subsidiary of Telnet, hence on the deal table were the leaders of the IT infrastructure company.
The journey of Paycom started in 2007, when the leadership at Telnet secured a meeting with the Central Bank of Nigeria (CBN). The apex bank back then was looking to grow financial inclusion from the grassroots and invited submissions from potential partners. Telnet’s submission was selected.
The CBN was further convinced of the imperative of accelerating financial inclusion after a study by Martin Oluba in 2008 found that Nigeria needed to keep pace with other nations.
The study compared financial exclusion levels in Switzerland, the USA, Venezuela, Nigeria, Pakistan, India, and Argentina in four and half decades (1960 – 2005) and found that while Nigeria had not done badly in comparative terms, there was a need to accelerate the exclusion rate reduction. This was largely the thinking that drove the issue of mobile payment licence in 2009.
Telnet was the only non-bank and non-core telecom organisation in all the applicant companies that got the licence. Prior to getting the licence, Folorunsho Aliu, group managing director of Telnet, says the company was already building the tech architecture of a payment company that would become Paycom. The underlying mission for Paycom was to be a payment service on any bank and any network.
While not being a bank-led service gave Paycom an advantage of servicing all the players in the financial system, Aliu says the greatest advantage the company had was being run by people whose core competence was building tech infrastructure.
The team comprised of Adewale Adetugbo, Tola Obigbesan, Iniabasi Akpan (currently Country Manager, OPay), Jerry Okoh (Director of Softworks Limited but was the Co-ordinator for PayCom), Dotun Adekunle, Sanya Ogunbusua, Bosun Ayeni, Lanre Oyetunji (Executive Director, iTeco a subsidiary of Telnet), and Folorunso Aliu (GMD, Telnet Group). Gbenga Odujinrin was Telnet’s Group Managing Director at the time and he played a major role in driving the team’s strategic objectives.
A striking thing about the team is that they have been at Telnet almost from inception and worked on several projects that established Telnet as a pioneer of innovations in Nigeria’s financial services industry.
“A lot of people didn’t know that we were the first to come up with encrypted transfers on our USSD while others were using clear text transfers on their USSD transfers, and a lot of people didn’t realise that they were exposed,” says Aliu.
With clear text USSD transfer, a criminal could easily hijack the process by gaining access to the name, the amount being transferred, and the bank details. However, encrypted service meant that if a criminal stood in between the person transferring the money and the receiver, the information they got would be incomprehensible.
Paycom’s infrastructure and the system took the team about two years to build. Acquiring customers for the platform was not a simple walk in the park. Electronic payment at the time was new territory for many consumers who were used to transacting with banks. Thus, low trust was a major barrier to convincing people that their money was safe with the new e-payment companies. Eventually, many companies that got the CBN licence could not continue.
Aliu attributes Paycom’s survival in that period to being focused on building the infrastructure of the company such that when it matters the system would be able to withstand the capacity and pressure. With time, its infrastructure started attracting large enterprises.
“If you are on a journey believing in something much bigger than yourself the chances that you will succeed is quite high,” Aliu states, saying, “Everything we do today is always about what is the next thing that will have a massive influence on the people in Nigeria, which can make lives better. Most of the things we are taking on right now or we are about to start rolling out are also along those same lines.”
Nonetheless, without a sizable user base, Paycom faced serious liquidity concerns. The majority of the banks at the time passed on the opportunity to provide credit to the company. This led Paycom to be bootstrapped from conception to roll out and to the eventual sale in 2017.
Bootstrapping also meant that Paycom for a while paid more attention to its enterprise consumers given they already knew the capability of the payment company. Big companies leveraged the platform to pay salaries and other big transactions, reducing the speed and time wasted going to physical bank branches.
The trust barrier did not just affect Paycom; even banks also learned that having large customers on their system does not mean they would be willing to migrate to their new mobile platforms. Payment companies like Paga that became popular with users had to rely on spending a lot of money on customer acquisition.
Paycom out, OPay in
Aliu says the news of Paycom’s sale went out in 2016. Before OPay came along, the payment company had been approached by several potential buyers that turned out not to be the perfect fit the sellers were looking for.
The team was only going to sell to a buyer that understood the vision and the philosophy behind the building of Telnet – enlightened self-interest. The founding fathers of the company had always seen things beyond money and would cast their minds on the bigger picture before embarking on any project, Aliu notes. This was how the company eventually decided to sell to Opera.
The deal, which was consummated in 2017, led to the birth of OPay in August 2018. The founding members of staff at the new company led by Iniabasi Akpan came mostly from Telnet.
A new era begins
The new owners of OPay may have realised they inherited a solid tech infrastructure so they set about building one of the most ambitious tech-based companies in Nigeria. By 2019, the platform had its hands on multiple businesses, all aimed at providing solutions the financially excluded and people in the formal sector can pay for.
The company had OPay app, a super app that housed services like ORide for fast transportation using motorcycles, OTrike, three-wheel transportation (in Aba and Kano), OBus, a bus hailing service, OFood, a food delivery service, OExpress, a delivery service, OKash and OWealth, which offers quick loans and investment options for users.
But with time it soon became obvious that the company had bitten more than it could chew. It was losing money from many of the services despite its investments and aggressive consumer acquisition programme. It also had to deal with the government, such as Lagos State, that was not very receptive to the ORide service and moved to ban commercial motorcycle operations in many parts of the state.
Around June 2020, the company shut down some of its business units to focus only on its fintech business, citing “harsh business conditions which have affected many Nigerian companies, including ours, during this COVID-19 pandemic, the lockdown, and the government ban.”
The focus on fintech may have paid off because, since the decision, the company has raised a total of $570 million across three venture capital deals. It raised $50 million in July 2019, $120 million in November 2019, and $400 million in August 2021.
“There are fundraises that bring ginger into the market and help other companies get a better valuation, and there are raises that put the fear of God into every investor. This OPay raise is bigger than the fund size of most if not all African Venture Capitals. Seniors just entered the market,” notes Victor Asemota, a tech investor and growth partner at AnD Ventures.
However, while a merger between Opera and Paycom would have been a more profitable outcome in view of current realities, the decision to sell was the best at the time the team made it, Aliu says.