In 2011, Visa, a global payments provider, announced that it was acquiring Fundamo, a South Africa-based platform provider of mobile financial services for mobile network operators and financial institutions in developing economies.
The deal, which was sealed at $110 million, had a primary strategy: to be Visa’s route to reaching the low-end consumer market in Africa.
At the time, Visa was doing well as a global payment card provider, but the majority of its consumers were in the middle-upper income range.
Millions of people in the lower income bracket needed an internet network to transact with a card, whether at the ATM, on the web service, or using a Point-of-Sale terminal.
However, there was also a projection that Africa would be the next frontier of payments thanks to Safaricom’s mobile money platform MPesa, launched in 2007 and which has grown to 17 million subscribers by December 2011 in Kenya alone.
The challenge was that mobile internet penetration was around 4 percent, according to the International Telecommunication Union. This meant that millions of people on the continent could not make use of cards for payments.
Visa’s plan was to fix this challenge with the acquisition of Fundamo. This was about the time Mastercard, its closest rival, was concluding a $37.4 million partnership with the International Finance Corporation.
The partnership, which was signed in May 2012, was to help microfinance banks expand more rapidly and develop new products and cost-effective delivery channels while expanding coverage in new, often hard-to-reach locations.
Fundamo, currently inoperative, is considered by some experts as a bad investment by Visa.
“Visa bought Fundamo from under the noses of African telco and discovered that it didn’t fit into their plans. They moved on,” said Osaretin Victor Asemota, growth partner at AnD Ventures and Africa partner for Alta Global Ventures.
“We grew on Fundamo as we helped them implement mobile money across MTN. Even MTN allowed Fundamo to experiment and build. When they were acquired by Visa, we saw it as a win at first until we realised that it wasn’t.”
While the payment system operator has invested in more fintech companies in recent years, the failed investment hangs like a shadow over Visa’s approach to competing in the fintech ecosystem in Africa. Asemota, for example, said Visa lost the battle by not allowing Fundamo to embrace the telco-led agent banking strategy.
“Visa had acquired Fundamo and abandoned any serious effort at deepening the reach of the product. I saw a gap with agents and knew it would be a big thing,” Asemota said. “You won’t believe that Firstmonie of First Bank of Nigeria was initially powered by Fundamo.
Firstmonie still remains the most successful bank-powered agent network in Nigeria but it is still a silo. Nobody is building on top of it like Opay is enabling.”
Mastercard has taken a different approach to investing in Africa. First, it has bought equity stakes in two of the largest telecom operators in Africa which also have extensive fintech businesses. These telcos are among the biggest providers of mobile money agent providers.
In 2021, Mastercard and Airtel Africa extended commercial agreements and signed a new commercial framework worth around $100 million which will deepen their partnerships across numerous geographies and areas including card issuance, payment gateway, payment processing, merchant acceptance and remittance solutions.
On Monday, Mastercard also signed a Memorandum of Understanding for a minority investment in the fintech business of MTN Group, Africa’s largest mobile network operator.
The investment sees the valuation of MoMo rise to $5.3 billion, making it the most valuable fintech company in Africa. Apart from its 60.5 million customers, MTN MoMo saw an over 18.1 percent increase in active agents to 1.3 million.
“Mastercard isn’t buying MTN’s fintech business. It’s becoming a very significant partner by buying up to 30 percent of the business.
More details will come out, but it strikes me as a longer-term investment rather than trying to achieve some immediate objective,” said Emeka Ajene, founder of Afridigest.
What is at stake for Mastercard is not necessarily reaching the last mile of the payment ecosystem in the way telcos try to reach remote areas to sell airtime, according to Ajene.
“Not sure what it means for the card schemes to reach the last mile. I don’t think it’s about the last mile per se, but about mobile payments and preparing for a future where cards are less important,” he said.
A 2022 report by McKinsey & Company projected that payments are expected to rise by 7 percent. In Africa, the revenue growth for payment is expected to be almost three times faster, driven by activities to expand financial inclusion.
However, mobile money is predicted to take the lead. Nonetheless, the adoption of mobile money is still in its infancy; hence, card adoption will continue to rise due to the growing agent banking industry in Africa.