At an investors’ call in March 2020, Segun Agbaje, the current Group CEO of Guaranty Trust Holding Company (GTCO plc) unveiled the bank’s ambitions to play in the Nigerian fintech space. Its template is going to be WorldPay, one of Britain’s most spectacular success stories in payment services.
GTCO plc is the largest commercial bank in Nigeria with a market capitalisation of N810.8 billion as of August 27, 2021. That position is currently under threat by a digital bank that was founded less than three years ago.
OPay, a Nigerian-founded startup whose current owners are backed by Chinese investors, raised $400 million on August 23 and saw the market valuation jump to $2 billion (N822bn). As of the time of writing this article, OPay sits comfortably as the largest bank in Nigeria with the biggest network of mobile banking agents in Nigeria.
Nigerian commercial banks have had their threat antennas raised since OPay launched in 2018 and started reporting customer traction in 2019 and 2020. For example, Agbaje once pointed out why OPay stood out as a threat among the many fintech companies in Nigeria.
“I think the difference between OPay and a lot of people that came in this market is that OPay basically piloted at scale, which a lot of new entrants into Nigeria don’t do. Most people come into Nigeria and they want to get their toes wet before their feet get wet. That is what made OPay very scary. “They had a lot of money. They piloted everything they were doing at scale. So you’ve got to watch them. Anybody who has the guts to pilot at scale, and has the money, and has the will, and has the drive is someone you really have to watch. And they have grown market share. Part of what I’m saying is those models are the reason why I’m very encouraged that Guarantee Trust Bank going into the payment space will do very well,” Agbaje said.
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GTCO is not the only bank pushing investment into payments and hoping to confront big fintech threats like OPay. Access Bank is also completing the details of a payment company to be called AccessPay as part of its holding company structure that would probably be launched later this year.
For these banks planning to confront OPay and other fintech companies that are a few steps away from humongous valuations, the story of WorldPay holds lessons.
For context, Worldpay currently processes over 40 billion transactions annually through more than 300 payment types across 146 countries and 126 currencies.
Building WorldPay was more collaborative
Like OPay, the founding of WorldPay is often attributed to the Royal Bank of Scotland (RBS), then the fifth largest banking group in the world, which acquired it in 2002 through a hostile takeover. However, the company was actually founded by Nick Ogden in 1997 as an electronic payments system provider under NatWest Bank.
At the time Royal Bank of Scotland took over the company, the company was valued at £29 million ($40m) and later sold most of it to private equity firms Advent International and Bain Capital for about £2 billion ($2.7bn). When the company was partially listed in London in 2015, it was valued at almost £5 billion ($6.8bn). It was bought in 2019 by Fidelity National Information Services (FIS) for $35 billion in cash and shares, plus WorldPay’s debt.
There lies the first lesson for Nigerian commercial banks looking to build payment companies from scratch when there are many fintech companies building exciting innovations but lack the funding to continue.
From the time it was built to when it was sold to FIS, WorldPay has passed through several owners and management, which has given it the advantage of multiple ideas and creativity.
At the investors’ call, Agbaje said the approach of the bank to the fintech market would be to build a company similar to Paystack, and it planned to do this alone. Earlier in the year, BusinessDay reported that GTBank was recruiting for a payment company called HabariPay.
The only resemblance to WorldPay the GTBank entity appears to have is becoming a separate business unit from the bank.
“We will then watch and see whether we want to list it somewhere else. But I think if you are going to leverage the current advantages we have as an organisation it will start as a separate business unit,” Agbaje said then.
GTBank will rely more on digital channels for delivering efficient banking services. With 220 domestic branches and 44 e-branches, it already has a much smaller footprint than its rivals, some of whom have 700 branches.
However, the bank dominates other commercial banks with its online and mobile banking platforms, particularly its USSD channel.
Although Nigerian banks may be feeling uneasy in falling behind a startup whose main operation resides online, the likes of GTBank don’t think collaboration is the answer. If anything, the bank thinks fintech companies are overvalued so it would rather start its own payment service.
WorldPay on the other hand survived and grew to become one of the top 50 payment companies in the world by forging partnerships with banks, first with NatWest. RBS expanded the business significantly by acquiring the merging number of payment solutions companies from different countries.
Over a period of five years under RBS, WorldPay was combined with seven global retail payment solutions brands: Streamline, Streamline International, PaymentTrust, Netherlands-based Bibit, RiskGuardian, and US-based Lynk.
WorldPay had multiple investors
WorldPay’s shares were at no point owned 100 percent by one bank. When it was under NatWest, the company’s shares were divided between the bank and Nick Ogden.
After the hostile take-over by RBS, the bank’s partnership with other global payment companies was structured in such a way that it shared equity with them. Even when RBS decided to sell the company, it let a part of it be acquired by Bains Capital and Advent International in 2010.
GTBank’s insistence that it would ride alone could mean owning 100 percent of the company. Interestingly, the bank in a report titled ‘Evolving Competitive Landscape’ acknowledged that the capacity of startups to effectively gain significant market share is limited without collaboration or investments.
It remains to be seen how the bank plans to replicate a WorldPay in Nigeria without partnering with fintech companies or inviting outside investments.
OPay has gained more mileage by opening up to new investors. So far, the company has raised over $500 million in three funding rounds.
“From my little experience with African banks, for collaboration with fintechs to be effective, there needs to be buy-in from the very top,” said Victor Asemota, growth partner at AnD Ventures, saying, “Someone has to crack the whip and flog the bureaucracy.”
For banks like GTBank to succeed in the evolving fintech landscape, experts say banks need to be more open to the idea of collaboration and foreign investments. At the moment, it appears the competition landscape is set between banks and fintech companies like OPay.
