Exclusive: ₦30 million internal fraud sours exit as Kippa scraps severance for laid-off workers
Kippa, the Nigerian bookkeeping and finance startup backed by investors like Saison Capital and Horizone, lost ₦30 million to internal fraud connected to Kippa Pay, its agency banking product, two people with knowledge of the company’s business told TechCabal. The fraud happened for at least four months but was discovered in November, one month after the company shut down Kippa Pay and laid off 40 employees. Despite this, the company has decided against paying those employees the severance packages it promised via email when the layoffs were announced. “In addition to your monthly salary, you will receive severance pay equivalent to your one month’s net salary,” said the email seen by TechCabal. Kippa did not immediately respond to a request for comment from TechCabal. An inside job The extent of the fraud was only revealed in November when Kippa shut down its agency banking product, Kippa Pay. The announcement of that shutdown led to massive withdrawals of funds from customers. In the ensuing rush to withdraw funds, the company noticed that a customer without a POS was also withdrawing large sums of money. Exclusive: How a clash of visions led to Olu Akanmu’s exit from Opay That person was a senior manager; three people with direct knowledge of the matter told TechCabal and the company discovered ₦30 million in one of his accounts. While the person will not be named for legal reasons, he was arrested by the police in November but has now been released. Kippa has been in the news in recent months after TechCabal exclusively reported that the fintech was shutting down Kippa Pay. Ekezie-Joseph told TechCabal that the Naira devaluation influenced the decision to shut down KippaPay. He also cited the struggles of the 500,000+ small businesses on its platform and a market rapidly changing while Kippa was still finding product-market fit. “We had a significant focus on profitable merchants in tier-two cities, but the past six months have been horrendous for them. Socioeconomic fluctuations have exposed the volatility of this segment,” Ekezie-Joseph told TechCabal in October. The product was later integrated into GPay, a payment subsidiary that Bloc, a business bank, owns, in December. Agency banking, a hotly contested space, is capital-intensive. Companies have to buy POS devices, which more than doubled in price last year while balancing other costs like technology, customer acquisition, managing relationships and providing support. For a startup earning in Naira, Kippa resorted to increasing its prices, but its customers revolted, and it quickly backtracked. “We tried to increase our prices to ₦35 to grow margins when devaluation kicked in. But the amount of backlash the price increase was met with and the threat of user churn made us revert to ₦25,” Ekezie-Joseph said.
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Understanding Nigeria’s digital identity landscape
Around 850 million people globally lack any form of digital identification. A large percentage of this population comes from Sub-Saharan Africa and South Asia. This creates challenges, especially in accessing critical services, building robust systems to tackle identity fraud, and promoting financial inclusion. In Nigeria, financial inclusion increased to 74% in 2023, up from 68% in 2020. However, it has failed to hit the 95% long-term target set by the Central Bank of Nigeria (CBN). The quest for accurate and comprehensive data on key identification systems has become important in Nigeria’s rapidly evolving digital landscape. This article will analyse the enrolment figures for critical identification platforms, shedding light on Bank Verification Number (BVN), National Identification Number (NIN), voter registration, SIM registration, passport issuance, and driver’s license registration. BVNIn February 2014, the CBN deployed a centralised BVN system with a clear mandate to institute effective Know Your Customer (KYC) standards, provide biometrics solutions for identity management, combat fraud, and promote an efficient payment system. The Nigeria Inter-Bank Settlement System (NIBSS) was tasked with providing the Application Programming Interface (API) for financial institutions to integrate their systems into the BVN database. In 2019, the CBN set a five-year target to hit 100 million registered people in the BVN database. As of December 2023, 59,956,056 accounts have been registered, per NIBSS, placing it 40% short of the benchmark. Based on the CBN’s December 2022 Financial Stability Report, there were 159.42 million active customer accounts. 127.92 million of these were linked with BVNs. The gap in the figures is primarily because the CBN’s data includes individuals with multiple accounts, while NIBSS’s is unique. Notably, there was nearly one BVN for every three active bank accounts in 2022, up from about one in two in 2017. The data suggests the trend will continue to rise. This disparity benefits payment platforms in the fintech space that allow customers to open wallets and operate them easily, compared with the stringency of creating and maintaining a traditional bank account. However, while introducing the BVN has certainly helped entrench financial inclusion, bad actors have also targeted it. A study by the Nigerian Financial Intelligence Unit (NFIU) disclosed that between 2015 and Q1 2018, 9,517 suspicious activity reports (SAR) were filed, with 6,503 of them (68.3%) being BVN-related. As of December 2022, 7,399 BVN-linked accounts were placed on a watchlist by the CBN under suspicion of fraudulent activity. Factors attributed as causes include the random issuance of affidavits in place of original documents and insider abuses by financial institutions. To ramp up the BVN drive in the Nigerian financial system, the CBN has announced that it will freeze accounts not yet linked to BVNs and NINs from April 2024. NIN Based on the most recent data from the World Bank, only 42.6% of Nigerians have birth certificates, which speaks to a gap in identity management. In 2020, the World Bank entered into an agreement with Nigeria for the Digital Identification for Development project. Its collaboration with the National Identity Management Commission (NIMC) aimed to capture 148 million Nigerians and provide them with a digital ID by June 2024. The figure represents 65% of the projected population of Nigeria. As of December 2023, 104.16 million Nigerians had been issued NINs; 59.12m (56.8%) were male, and 45.04m (43.2%) were female. This marks a 10.77% increase from the 94.03 million registered in 2022 but would almost certainly fall short of the target set for 2024. Lagos, Kano, and Kaduna, with 11,427,825, 9,196,640, and 6,451,081 enrollees, respectively, account for 26% of all NIN registrations. Voter registrationThe Independent National Electoral Commission (INEC) began digitising the voter database in 2010 when the Electronic Voters’ Register (EVR) was introduced in preparation for the 2011 general election. Since then, there have been notable technological upgrades, including the Bimodal Voter Accreditation System (BVAS) and INEC’s Results Viewing Portal (IReV). The upgrades were touted to restore trust in the electoral process by eliminating duplication and minimising discrepancies. While there has been success in integrating biometrics, the jury remains out on how effective this has been. Leading up to the 2023 elections, around 45% of “completed registrations” were deemed invalid by INEC for reasons including incomplete data and complicity by INEC staff in infractions that invalidated the process. During the general elections, the BVAS failed, in some instances, in accrediting voters despite having captured their biodata. Doubts have also been raised about the integrity of the voter register with allegations of underage voters, fake identities, and questions over a historically low turnout of 27% despite a record number of registered voters at 93.4m. SIM registration The Nigerian Communications Commission (NCC) is legally mandated to maintain a central database and institute data and confidentiality protection for all telecom subscribers. In 2022, the total number of registered SIM cards crossed 300 million. However, a sizable fraction of those are inactive. As of August 2023, the NCC revealed that there were 220 million active subscribers distributed among four major operators. An estimated 12.4 million phone lines are yet to be linked to their NINs, prompting the NCC to issue an ultimatum of February 28, 2024, before those lines are barred from placing or receiving calls. Passport The biometric passport was first adopted in 2007. Since then, efforts to ensure the collection of passports often take a long waiting time and are encumbered with issues, including a shortage of booklets. Fast-tracking involves high costs and back channels, contributing to a slower adoption rate than other forms of identification. The latest developments show some promise as e-passport issuance has now been automated after it went live on January 8. A step-by-step guide on how to apply for a passport online can be found here. However, a publicly available database on passport issuance in Nigeria is hard to come by, and even the most recent report on passport applications from the Nigerian Bureau of Statistics (NBS) dates back to 2018. It disclosed that 1,011,158 passport applications were received in 2018, up from 720,958 in 2017—a 40.25%
Read MoreNigerian regulators have declared open season and it’s already causing chaos
It’s regulatory season in Nigeria. Early in December, the central bank governor, Yemi Cardoso, fired a warning shot during a speech at a bankers’ dinner in Lagos. “Recent developments in the payment services landscape have raised concerns regarding the use of technology and the existing licensing and regulatory framework,” Cardoso warned at the bankers’ dinner. “Any intentional or unintended non-compliance will be subject to sanctions, as operators have the responsibility to ensure that they are licensed for the activities they undertake.” Cardoso added that the apex bank planned to review Nigeria’s existing licensing framework for payment services. Days after that warning, the central bank mandated all financial institutions to collect ID cards before creating financial accounts. Under a 2013 central bank rule designed to support financial inclusion, Nigerians without identity cards could open lite-versions of bank accounts or digital wallets, which could only receive N50,000 ($63) at once and have a maximum balance of N300,000 ($380). The second salvo was the Nigerian Inter-Bank Settlement System (NIBSS) taking a shot at fintechs that were not licenced to collect deposits but were nevertheless listed as deposit institutions on mobile money transfer apps. Central banks and commercial banks in Nigeria jointly own NIBSS. The results of the two announcements have been mixed. The CBN’s announcement that it will mandate all account holders to submit identification was widely supported by financial institutions. The move is expected to help stem rising fraud in the sector. But even that is doubtful as a significant proportion of cyber fraud cases involve users who had identity cards that passed the smell test. “Most of the fraud that we see is the virtual account space, which is more difficult to tackle,” Esigie Aguele, co-founder and CEO of VerifyMe Nigeria, told TechCabal. “The government could be doing more to institutionalise fraud reporting instead of leaving it to just one agency,” he added. The second regulatory action from NIBBS had mixed reactions. For one, the memo fell short of specifying what companies had broken the rules and were collecting deposits when they shouldn’t have. This left ample room for misinformation to spread on social media. It forced leading fintechs to reassure their customers via email and social media. “It’s been a chaotic day with customers panicking,” a communications director at a leading fintech told TechCabal. “I wish regulators understand that these things affect human lives.” The announcement was well-received by financial sector professionals who feel an overhaul of the fintech space is overdue. “Read the 4th paragraph in Governor speech at CIBN conference… fintech doing more than what they are licensed to do,” one bank executive who leads the digital solutions unit of his bank told TechCabal. Nigerian banks both offer services that fintechs depend on, as well as operate directly competing digital products. NIBSS is also co-owned by Nigerian banks and the central bank. Then, two days before Christmas, the central bank announced that it was removing a two-year restriction that blocked banks from processing crypto-related transactions. The announcement seemed to open the door for a regulated crypto industry in Nigeria, and startups like Yellowcard, a pan-African crypto exchange, promised to “immediately” apply to be licenced under the new regulatory regime. However, hopes for looser crypto policies were moderated early in the new year as the central bank clarified that it was not yet comfortable with the crypto industry. On January 2, 2024, the bank released guidelines that retained a ban on banks holding or trading in virtual assets and limited cryptocurrency accounts to only deposits made in local currency, with withdrawals limited to two every quarter. The case of the commercial banks whose boards and management got the axe has been brewing since December after a report by a special investigator claimed the banks were fraudulently acquired. The central bank said Keystone Bank, Polaris Bank, and Union Bank committed infractions ranging from “regulatory non-compliance to corporate governance failure.” “CBN [is] signalling that compliance is going to be a big deal going forward,” Tola Onayemi, CEO of Norebase, a compliance-tech startup, said on X, formerly Twitter. Regulation across board Financial regulators are not the only ones asserting themselves. Nigeria’s Corporate Affairs Commission (CAC), responsible for registering businesses, planned to enforce a rule forcing private companies with foreign shareholders to have a minimum of N100 million (roughly $126,600) as paid-up capital. Paid-in capital is the amount the owners of a company have paid in exchange for shares in the company Before now, Nigerian companies with foreign shareholding only needed to put up N10 million (about $12,660) as paid-up capital. Part of the fees the CAC charges for company registration depends on the amount of paid-in-capital the company has received, a private wealth management lawyer told TechCabal. By increasing the minimum 10-fold, the CAC will increase its revenue from registering new companies. The CAC notice refers to a 2022 rule, the Revised Handbook on Expatriate Quota, which was issued by Nigeria’s Interior Ministry. At face value, the rule only applies to companies that need a business permit and a Combined Expatriate Residence Permit and Aliens Card (CERPAC) to operate in Nigeria. But this broader application of the rule by the CAC means that even Nigerian founders who do not need a business permit or a residence permit (because they are Nigerian) will be forced to increase the paid-up capital to regain compliance. In a private group chat for tech founders and investors, seen by TechCabal, one entrepreneur wondered why the CAC appealed to a rule from another agency instead of the Company and Allied Matters Act (CAMA), a revised version of which was passed in 2022 to regulate corporate registrations in Nigeria. The CAMA is the same law that establishes the Corporate Affairs Commission. The commission reversed course less than 48 hours later. In a statement published on December 22, 2023, it asked the public to disregard the notice given two days prior. “Our initial notice was based on the Federal Ministry of Interior Handbook on Expatriate Quota Administration 2022 Revised
Read MoreExclusive: How a clash of visions led to Olu Akanmu’s exit from Opay
Olu Akanmu, OPay’s former president and co-CEO, exit underscores the potential tensions between financial goals and brand perception in fintech companies. On July 31, 2023, Olu Akanmu, former co-CEO of Opay, stepped down after almost two years at the Chinese-owned fintech; his exit surprised many, given Opay’s impressive growth under his leadership. A clash of vision between the former banker and the rest of the company’s leadership led to Akanmu’s departure, one person with knowledge of Opay’s business told TechCabal. “The Chinese cared about numbers much more than the brand’s perception,” that person told TechCabal. Opay operates a co-CEO structure, giving Olu Akanmu and a co-CEO internal sources identified as Steven dual leadership. According to those people, Steven was generally in charge of the policy at the fintech. Akanmu’s background in retail banking at FCMB, a Nigerian bank with a market capitalisation of ₦217 billion, positioned him to develop Opay’s merchant business, including POS, agency banking, and wallets. Despite this focus, internal sources said his co-CEO, Steven, had greater control over Opay’s direction. Several of Akanmu’s proposed initiatives, such as a payment gateway and a “payme” account for one-time payments, were reportedly shelved. Additionally, his commitment to social responsibility projects like financial inclusion for women and partnerships with internally displaced persons (IDPs) seemed at odds with the Chinese investors’ laser focus on numbers. Akanmu’s exit underscores the potential tensions between financial goals and brand perception in fintech companies. Opay did not answer any of TechCabal’s questions at the time of this report. During Akanmu’s time at Opay, the fintech grew exponentially, reaching over 30 million users, 500,000 agents, and 100,000 merchants, according to publicly released figures. The fintech previously offered a super app model, offering food delivery, ride-hailing, logistics, and payment services, before solely focusing on financial services in 2020. The fintech also proved to be a formidable alternative to legacy banks during Nigeria’s botched currency redesign, which led to a cash crunch. The fintech’s robust infrastructure and effective distribution strategies were deeply attributed to this win. New Leadership and regulatory hurdles Following Akanmu’s departure, Daudu Gotring, a former director at the Central Bank of Nigeria (CBN), became CEO. This appointment signaled Opay’s attempt to navigate increased regulatory scrutiny surrounding its Know Your Customer (KYC) measures. OPay faces scrutiny over weak KYC system: impersonation, account tiers raise red flags Opay faced increasing regulatory scrutiny over its Know Your Customer (KYC) processes last year, after allegations that it opened accounts for users without consent. The fintech, alongside other neobanks, had simplified user registration to attract unbanked customers, sometimes omitting strict identity verification for basic accounts account types with limited features. Bad actors have exploited this lax KYC approach to perpetrate fraud. TechCabal reported in October that Fidelity Bank, a Nigerian commercial bank, blocked transfers to OPay and other neobanks over concerns that their lax KYC processes are leading to increased fraud cases.
Read MoreNigeria’s inflation hits 28.92% as food costs soar
In December 2023, the purchasing power of Nigerian households was squeezed even more as consumer prices rose throughout 2023, increasing the possibility that the country’s central bank would raise interest rates. Official data from the National Bureau of Statistics (NBS) showed that headline inflation, which tracks the prices of food, energy and other commodities, rose to 28.92%. December’s inflation figure is lower than KPMG’s prediction of 30%. The major driver of Nigeria’s inflation is food, and prices of staples like bread and yam rose as many shoppers in the country struggled to afford their proteins during the festive period. December’s food inflation figure was 33.93%. Nigerian consumers feel the pinch as inflation hits 28.20%, food costs bite “The government has to start doing something with respect to the price of fuel and energy, including electricity, and improving the exchange rate depreciation situation,” said Sheriffdeen Tella, a professor of Economics at Olabisi Onabanjo University. “Once those things are done, we will start getting reduced inflation.” Last week, the World Bank projected Nigeria’s inflation to ease in 2024, hinged on last year’s reforms and the expectation of the easing of the effects of petroleum subsidy removal. However, other analysts are not optimistic that inflation will slow any time soon. The Central Bank Governor, Yemi Cardoso, dismissed the effect of rate hike meetings on curbing inflation at his last public outing. These attitudes show that the January 2024 headline inflation figure could go
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Next Wave: Local tech IPOs are not the answer… yet
Cet article est aussi disponible en français <!– In partnership with –> <!–TopBanner Join us for TechCabal Battlefield, Moonshot’s startup competition where you can showcase your startup idea to a global audience and an esteemed panel of judges and stand a chance to win up to 2.5 million naira in funding for your business! Click to register for TC Battlefield First published 14 January, 2024 African stock exchanges, big or small, have the opportunity to build a robust equity capital market ecosystem. That should take priority over asking tech giants to IPO locally. Last week’s Next Wave asked whether Nigerian tech startups should consider listing on the stock exchange if a planned tech board within the country’s stock exchange goes live. TechCabal’s Ganiu Oloruntade followed that essay up with an exclusive where the CEO of the Nigerian stock exchange disclosed that the exchange is in talks with startups who he hopes will go ahead to list on the tech board this year. I think that’s incredibly optimistic, which is not a bad thing, but other than a listing from an older tech group like Interswitch whose London IPO plans have been pushed back repeatedly for several years, I struggle to see who else could conceivably want to go public in Nigeria. I also struggle to see the same enthusiasm for local listings by startups anywhere else on the continent. Several of the most well-funded and more mature companies in any of the big four recipients of venture capital in Africa are only just recovering from the hangover of last year’s brutal operating environment. A few may unfortunately not survive it. And the more mature companies in smaller markets, like Wave whose key markets are Senegal and Cote d’Ivoire, are simply too big1 , for the regional Bourse Régionale des Valeurs Mobilières (BRVM). That leaves the younger early-stage startups that have barely begun to generate revenue as improbable candidates. Think about it for a moment. What African tech startup would you be excited to buy shares in if it decides to list publicly on any African stock exchange this year? The way I see it, focusing on getting the current crop of startups to list in any of the continent’s stock exchanges is a strategic misstep. It is not necessarily bad, but it is a step too early for a continent where an ungodly bulk of the capital financing that helps these startups get started is still foreign and flighty. Lightening public listing rules by creating a junior public market (like Nigeria’s tech board) for startups can be a mixed bag in terms especially if the goal is to simply get them to list, according to this 2019 paper in the Journal of Innovation Economics and Management. Africa’s software companies of today are still pretty much strangers to the institutional capital establishment on the continent. A campaign to get startups to list might help stock exchanges get additional revenue, but it will do precious little to close the gap between local institutional finance and software ventures in Africa. Instead of focusing on creating a pipeline of tech company IPOs by simply creating a tech board, stock exchanges could achieve the same goals by working to connect local institutional capital with startups by building a more robust equity capital market ecosystem. An alternative approach Equity capital markets is a catch-all term for the financial space where companies raise capital from share sales privately and publicly. For the purpose of this conversation, let us imagine a new hybrid equity capital market that includes debt capital. In this imaginary scenario, stock exchanges that wish to see more software companies listed on their trading boards will play an active role in helping coordinate the broader market for capital raising. Specifically, they will help companies and institutional investors build a robust private placement market where companies can raise capital by directly selling to local accredited investors, with the exchange as a mediator and due diligence partner. Do you have a message for Africa’s tech leaders, policymakers or the leading workers building the continent’s startups? Talk to us to find out how we can help share your message on this newsletter. Email bizdev@bigcabal.com to start. Send an email. To put this another way, I believe that the road to publicly listed tech companies will be built on top of a robust private placement market that affords institutional fund managers in key African economies the opportunity to own part of nationally (or even globally) relevant software companies that are created in Africa. This is an arena where tech policymakers in the big economies which attract the most venture capital can focus on gaining even more strategic advantage. I hope someone from CORBEH, the digital sandbox of the EGX is reading this. It’s a no-brainer. And if they are too slow, it is also a sound strategy for tech-hub wannabe countries who have small economies but lofty financial centre dreams. Hello Rwanda, Mauritius, Namibia? The paper I mentioned earlier demonstrates that a compromise can be worked out where junior stock exchange boards are constructed on top of a busy private placement environment. Nothing can replace the trust of local institutional capital When Egypt’s Fawry offered retail investors 5% of shares in 2019, it got oversubscribed, i.e. it received 30 times more applications for shares than it had offered. When Kenya’s government sold part of its stake in Safaricom on the Nairobi Stock Exchange in 2008, the 896,213 new brokerage accounts opened by retail investors more than doubled the number of individual investors registered at the stock exchange up to that point. The retail offering of the IPO was oversubscribed by 4.64 times. When MTN Nigeria offered some 3.2% of its shares in 2021, it hoped to attract 2 million retail investors. But only 126,720 retail investors were enough to buy up the 575 million shares on offer which were oversubscribed by 1.39 times. Two things are common with these three IPO examples. The first is that these companies
Read MoreShowmax reboots with mobile-first focus, Premier League plan at ₦2,900
Showmax, the streaming video-on-demand service owned by MultiChoice, is betting on affordable pricing and a mobile-first focus to drive subscriptions ahead of the February launch of Showmax 2.0, the second iteration of its streaming service. At a presser held in Lagos on Monday morning, the company shared an advance view of the app, its new brand identity and subscription tiers with a room filled with around 50 content creators, journalists and film stars. Showmax 2.0, which represents one of the company’s most significant investments for the future, has three subscription tiers: entertainment, Premier League and a bundle subscription of entertainment and the Premier League. The mobile-only subscription for the Premier League, an incredibly popular sporting offering in Africa, will cost ₦2,900, ten times cheaper than the premium subscription for DStv, its cable TV offering. A mobile-only entertainment subscription will cost ₦2,500 a month, while a mobile bundle of entertainment and the Premier League will only cost ₦3,200. “Nobody understands this market like we do,” said Arinola Shobande, the marketing manager of Showmax, referring not only to the product’s pricing but the “data economy” built into it. “You can watch Showmax for 24 hours for just 1GB of data,” Arinola added, addressing one of the biggest obstacles to streaming on the African continent. MultiChoice invests a further $27 million into Showmax relaunch Given its extensive investment into Showmax, MultiChoice is targeting 50 million subscribers in the next five years. In March, it inked a partnership with NBCUniversal, and the new app will use NBCU’s Peacock technology platform. The company will pay R247 million (~$13 million) to license that technology for seven years and give NBCU a 30% stake in a new holding group. Exclusive: IROKOtv’s user numbers show Africa’s oldest streamer is behind competition The relaunch of Showmax coincides with increasing competition in Africa’s SVOD sector. Foreign players like Netflix and Amazon Prime are increasing their spend on the continent, partnering with local studios to churn out original content. Yet, Multichoice will be buoyed by two considerations. First, a recent research from Omdia Research, a tech research firm, showed that Showmax is Africa’s video streaming market leader with 1.8 million subscribers. The second is its library of original content, which is likely the largest in Africa. With popular entertainment offerings like Big Brother Nigeria and original shows like Wura, the company believes that nobody understands the market as it does. In 2024, it will launch 21 new originals as it prepares for a February 23 launch. The new app will be available for download by January 23.
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👨🏿🚀TC Daily – Woven knits itself back together
In partnership with Share this newsletter: Lire en Français اقرأ هذا باللغة العربية Sup’ This week, you can stay smarter and step ahead of everyone by signing up to receive breaking news from TechCabal. In today’s edition Lyca Mobile shuts down in South Africa Citigroup to lay off 20,000 employees Woven refutes shutdown The future of EV in Africa Stat of the week The World Wide Web3 Job Openings Telecoms Lyca Mobile shuts down in South Africa GIF source: Tenor South Africa is seeing another multinational exit with network operator Lyca Mobile’s shutdown. The news: Last week, the mobile virtual network operator (MVNO) stated that it’s cutting ties in SA. Users had until January 9, 2024, to hop onto another network or face the risk of losing their phone number and access to text, call and data services. The reason: Lyca’s announcement didn’t say much, but the company’s long-time partner Cell-C is facing significant financial challenges. Lyca launched in SA in 2017 thanks to a partnership with Cell-C. As an MVNO, Lyca uses other telecoms’ physical infrastructure—in this case, Cell-C’s. Cell-C, however, has lost 9 million customers between 2021 and 2013, and has a R10.7 billion debt ($576 million). Some analysts deem the company technically insolvent. South Africa is expensive for telecoms: South Africa’s load shedding is also leaving businesses blind. The country’s continuing declining electricity supply forced MTN to spend an extra $84 million on power supply and security last year. Vodacom has spent at least R4 billion ($218 million) on generators since 2020, and Telkom says it spent R655 million (35.2 million) on diesel and batteries in 2023 alone. While Lyca didn’t have to deal directly with these as an MVNO, its partner certainly did as Blue Label, Cell-C’s parent company, also reported profit declines due to load shedding. Meanwhile, Lyca is still active in Tunisia and Uganda where, in October 2023, it refuted rumours of a shutdown. Around the same time, it also suffered a hack that disrupted services for its 16 million customers across the world. Lyca is the second MVNO to exit South Africa in three years; the first was Virgin Mobile which exited the country in 2021 after succumbing to financial hurdles. Access payments with Moniepoint Moniepoint has made it simple for your business to access payments while providing access to credit and other business tools. Open an account today here. Layoffs Citigroup to lay off 20,000 employees In what is the biggest layoffs of 2024 so far, global investment bank Citigroup has announced that it will cut 10% of its workforce, about 20,000 jobs, by 2026. A tough quarter = tough decisions: According to chief financial officer Mark Mason, the layoffs are part of the company’s reorganisation and bid to boost its bank results. The company has had four rough quarters culminating in Q4 2024 when it recorded $1.8 billion in losses, the biggest losses recorded since 2009 when it recorded $8.9 billion in losses in its fourth quarter. At the time, the company was recovering from a humbling financial crisis that saw 73,000 jobs cut in 2008 due to a $20 billion loss. To recoup some of its 2008 losses, the company sold off some of its business arms and raised $9 billion in the process. History repeats itself: Citigroup is playing the same card. The bank has sold some of its operations outside the US including its China consumer unit, its Vietnam business unit, and several other businesses across South East Asia. In Mexico, failed efforts to sell its consumer unit Banamex have led the company to list it as a standalone firm in pursuit of a 2025 IPO listing. Startups Woven denies shutdown news GIF Source: YungNollywood A surprising turn of events has Nigerian fintech Woven has retracted its shutdown announcement. In an email shared with customers last Wednesday, the company had announced an imminent shutdown. “After a thorough analysis of the current market dynamics and their impact on our business model, Woven Finance has resolved to cease its payment services operations in the first quarter of 2024,” the email read. And now? Woven says the email was sent in error. In a call with TechCabal, a highly-placed source said the email was unauthorised. The company also backtracked on its service transfer to Hydrogen. Woven says it will continue to operate until its board or shareholders decide to cut the wool. Woven acquired a PSSP licence in 2022, and this could mean the company is exploring new avenues for their operations without abandoning existing services. Zoom out: The incident exposes communication problems at Woven. While the company promises to send updates, mixed messages won’t reassure customers and could spark a bank run if there isn’t one already. Secure payment gateway for your business Fincra payment gateway enables you to easily collect Naira payments as a business; you can collect payments in minutes through cards, bank transfers and PayAttitude. Create a free account and start collecting NGN payments with Fincra. TC Insights The future of EVs in Africa Electric mobility in Africa is still in its development stage. Although the sales of electric vehicles (EVs) on the continent have increased in recent years, they have remained the lowest worldwide. For instance, South Africa is the continent’s largest e-mobility market, yet electric vehicles account for 0.05% of the total 12 million automobiles in the country at 1,000 EVs as of 2022. While these electric vehicles offer cost-effective and environmentally friendly alternatives, their path to widespread adoption is faced with controversy and challenges. Image Source: TechCabal Insights The chart shows that the projected stock of electric vehicles (EVs) in sub-Saharan Africa by 2040 is expected to be 13.5 million in the base case and 25 million in the accelerated case. The base case assumes that current trends continue, while the accelerated case assumes that there are significant policy interventions to accelerate the transition to EVs. As the majority of EVs in sub-Saharan Africa are expected to be two-wheelers, this also makes
Read MoreWoven Finance fumble: startup denies shutdown after erroneous email
Woven Finance, the Coronation Group-backed fintech startup, has denied shutting down, claiming that an email sent to customers on Wednesday morning informing them of a shutdown was sent in error. “The email was unauthorised and was immediately recalled,” a highly-placed person at the company told TechCabal. “After a thorough analysis of the current market dynamics and their impact on our business model, Woven Finance has resolved to cease its payment services operations in the first quarter of 2024,” part of the company’s Wednesday email said. The company also denied a crucial detail in the email where it told customers that it would transfer its services to Hydrogen, a fintech owned by the Access Group. “There are no plans to transfer any service,” the same source said, perhaps referring to the Payment Solution Service Providers (PSSP) licence it received in 2022. The fintech told TechCabal that it would send communication clarifying the error and that it continues to operate until shareholders and the company’s board decide otherwise. Woven Finance is backed by Trium, the venture arm of the Coronation Group, which includes companies like Coronation Merchant Bank and Coronation Insurance (formerly WAPIC). *This is a developing story
Read MoreExclusive: How Africa-focused VCs are turning to secondary markets for liquidity lifelines
Africa’s venture funding boom between 2020 and 2022 gave birth to a bustling market for secondary sales of startup shares. It made early investors, founders and employees wealthy as one VC firm was able to return its entire first fund, worth $5 million, through a secondary sale. But as big-ticket investments slow to a trickle, it is getting harder to find buyers. Africa’s startup ecosystem has long faced an exit problem. According to The Big Deal, a comprehensive database of startup funding in Africa, there have been 2,971 venture deals since 2019, but only 143 exits (4.8%). This includes initial public offerings (IPOs), mergers and acquisitions. Faced with limited opportunities to recoup their investment, investors in Africa’s tech ecosystem have turned to secondary share sales to collect profits. Secondary transactions refer to when employees or investors in a company sell their existing shares to another investor. In September 2023, an early retail investor in Flutterwave was looking to sell 50,000 shares at a $3.75 million price tag, a person familiar with those conversations told TechCabal. This was barely one month after Flutterwave’s CEO, Olugbenga Agboola, told Bloomberg that his firm would go ahead with its IPO plans. “Angels love secondary exits,” Joe Kinvi, partner at Hoaq, an angel investing community, told TechCabal, “Funds, not so much because they need to return the fund and selling out early might not return the fund.” However, African VC firms are not averse to selling when the opportunity arises. One early-stage pan-African VC firm returned its first fund, a $5 million micro-fund, after it sold part of its Moniepoint shares in a secondary transaction, three people familiar with the sale told TechCabal. In a few cases where VC firms delayed participating in secondary transactions when the opportunity arose, they sometimes lost it all. One such case is 54Gene, the now-defunct genomics startup. Investors in the company were offered an opportunity to participate in a secondary share sale at a $100 million valuation, according to three people familiar with the matter. Two people said most investors passed up on the opportunity, and 54Gene would later shut down in a cloud of controversy after raising $45 million. Syndicates and micro-funds are big winners Angel investor syndicates and micro-funds have been the biggest beneficiaries of secondary market transactions. The funding boom of 2021 and 2022 was a boon for these early investors who sold shares in companies they had invested early in to newer (and typically) desperate investors looking to get into “hot” startups. Startup founders and employees have also benefited from selling parts of their shares in secondary market transactions. “Employees of high-growth tech companies have, on average, reached the end of their stock options vesting period and are now open to liquidity,” said Jude Dike, the CEO of GetEquity, a Nigeria-based investment platform. “Ideally, these liquidity sales used to be the next time the company fundraises, but with the current drought, companies and employees are looking at alternative options.” The founders and early team members at Moniepoint made “millions of dollars” from selling their equity at the startup in secondary transactions, according to one person familiar with those deals. Dike added that employees from Flutterwave and Andela have also sold equity in their respective companies. TechCabal has previously reported that Wasoko, the Tiger Global-backed Kenyan e-commerce startup, allowed employees with vested shares to sell their stake three times over the company’s lifetime. When Kuda Bank closed its $55 million investment co-led by Valar Ventures and Target Global in 2021, secondary sales by existing early investors made up part of the deal, one person with knowledge of the matter told TechCabal, requesting anonymity. That round valued the fintech at $500 million. Secondary markets as a viable path? Some investors see secondary markets as a vital exit path. ”We see interest from larger VC funds doing Series A, B and C, [who] want to buy out early-stage investors to simplify cap tables and exert better control in corporate governance matters,” one early-stage VC investor told TechCabal, requesting anonymity because she was not authorised to discuss private matters. The investor, a partner at one of Africa’s most active VC firms, said her firm was actively talking to growth-stage investors who want to buy out their stake in some portfolio companies. “Since you invest at pre-seed, if you can exit at Series A and Series B with the right level of returns, it can be interesting,” the VC partner said. Sometimes investors buy secondaries when it is sold at a discount to improve their internal rate of return. Internal rate of return or IRR, is one way investors measure the profitability of their investments. However, selling secondary shares “does not materially improve the company” since proceeds from secondary transactions are paid to shareholders instead of being invested in the company, Ik Kanu, founding partner at Atlantica Ventures, told TechCabal. Kanu says his firm, a pan-African VC firm that manages a $50 million fund, prefers to invest in deals where their funds are invested in helping the company grow. Like Kanu, some investors, especially development finance institutions, do not also want the funds they invest to be used to pay earlier investors. In at least one instance where a development bank is involved, early-stage investors are already having difficulty closing investment rounds that include secondary share sales by existing investors. Foreign investors with deep pockets are stepping back from writing big cheques, leaving newly formed local funds and development banks to prop up growth-stage companies. As a result, opportunities for investors to exit with secondary share sales are dwindling. Fewer secondaries mean fewer opportunities for early investors like angels to collect profit on their investments. Uwem Uwemakpan, Head of Investments at Launch Africa Ventures, believes angels should plan for 5 to 10-year scenarios. “Angels have to make investments with long time horizons in mind, rather than quick flips on secondary markets,” he said. Secondary market transactions tend to flourish in frothy markets, Kanu said. “In the present macroenvironment where
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