While the Central Bank lifted a directive restricting banks from “dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges” in December 2023, it began asking banks to block the accounts of p2p traders by May 2024. 

On August 23, 2024, a high court in Uyo, Nigeria, denied an application to unfreeze Patrick Okon’s Kuda bank account. The restrictions on his account were directly linked to crypto payments. In April, the Economic and Financial Crimes Commission (EFCC) asked a court to block over 1,000 bank accounts over crypto links. 

In March 2024, Nigeria’s financial regulators blocked prominent fintechs from onboarding new customers for five weeks as a currency crisis worsened. It moved against Binance on claims that the platform allowed for manipulation of the naira and detained two of the company’s executives. 

While the case against the detained Binance executive Tigran Gambaryan drags on, the CBN compelled fintechs to block any account believed to be trading crypto. The SEC, which issued last week’s crypto licences, also held several meetings in May suggesting that exchanges should block p2p transactions out of patriotism. 

These policy flip-flops make it likely that banks and fintechs will continue to distance themselves from crypto-related activities. 

“Crypto is still persona non grata. The CBN has not openly accepted it yet,” one bank executive who asked not to be named told TechCabal.

Banks are ignoring the provisional licences the Securities Exchange Commission  (SEC) issued to Quidax and Busha, said highly placed executives at prominent fintech startups.  

Omotimi Agama, the SEC’s director-general, insisted to TechCabal that “the CBN has lifted any ban.”

While Agama’s position is accurate, banks and financial institutions prefer to play it safe with the Central Bank, always choosing caution. 

“The devil is in the details,” a top executive at one of the fintechs told TechCabal.  “The [guideline] is confusing, and the processes are challenging.”

Chike Okonkwo, the founder of Gamic, a blockchain startup, that claims to have been speaking to the SEC since 2019, understands the banks’ position. 

“If that circular [greenlighting] the banking of crypto firms is binding, why can’t retail traders freely add crypto to the description of their banking transactions?”

Busha, one of the new licensees, is more optimistic and anticipates a better relationship between banks and crypto companies. 

“The issuance of the crypto licences is a critical step in maturing the industry. It means that users can engage with operators with increased confidence, which should generally deepen the market,” a spokesperson for Busha said. The company also claims that it is ready for whatever “tight but effective regulations” are deemed necessary by the CBN.

Until then, banks and fintechs will continue sitting on their hands in understandable fear of the CBN’s hammer. 

“Nigerian banking laws are not customer-friendly,” a highly placed fintech executive told TechCabal, adding that “Financial institutions [retain] the right to freeze any account they have reasonable suspicions about any infraction or illicit activity.”

Are crypto trades illegal? Two new licences and the CBN’s December 2023 directive say they’re not. However, one operations manager at a commercial bank states, ” We can only acknowledge the license after receiving instructions from the CBN, our regulator.”

In Indonesia, the company will not immediately pursue a banking license but will offer its lending product, Merchant Cash Advance, to Small and Medium Enterprises (SMEs). It used a similar strategy in Vietnam.

“We see a massive opportunity with good profit potential in the small business lending space in Indonesia and the region,” Tyme Group chair Coen Jonker told TechCabal. 

“We can also build our brand faster because it takes a lot more time and money to get a full banking license and infrastructure up and running.”

Founded in  2018 by Coenraad Jonker and Tjaart van der Walt, TymeBank focuses on low-income earners and SMEs.

Backed by Tencent, British International Investment, and Patrice Motsepe’s Africa Rainbow Capital (ARC), TymeBank has raised $316 million. It is currently raising a $150 million Series D round and plans to list on the New York Stock Exchange by 2028.

With over 60 million SMEs and limited access to traditional financing, Indonesia presents a market opportunity for TymeBank to grow its merchant lending business. It has disbursed $100 million to over 60,000 small businesses in South Africa.

The company’s Phillipines operations reported a 2.47 billion Philippine pesos ($42 million) loss in 2023, its first full year of operations. According to Jonker, the company aims to break even in 2025 and achieve full-year profitability in South Africa in 2024.

TymeBank will reach 10 million customers in South Africa and 5 million in the Philippines by October 2024. “In the Philippines, we have achieved half in two years of the total customer base that we achieved in South Africa over six years, so that is an amazing growth story,” Jonker said.

In the meantime, the Southeast Asia market’s combination of a friendly regulatory environment and expansive potential market has TymeBank focused on the region. In the future, the bank will not rule out an African expansion, with Jonker saying the move is a question of “when and not if.”

The partnership will allow participating financial institutions to view the blockchain ledger that contains all recorded transactions. Banks and fintechs will use this data to reconcile transactions, settle disputes quickly, cut customer wait times, and reduce chargeback and other POS-related fraud.

There are two intermediaries in POS transactions: the payment switches and the Payment Terminal Service Aggregator (PTSA). When a POS transaction is initiated, the PTSA manages the interaction between the cardholder and the terminal, while the payment switch receives this transaction data from the PTSA and routes it to the cardholder’s bank. 

This siloed communication pattern makes reconciliations difficult when there are downtimes. Zone, a payment switch itself, is shortening the communication path for processing POS transactions with this decentralised blockchain ledger. 

“We’ve built the PTSA functionality into the blockchain network so that every node [on the blockchain] can perform these checks,” Zone CEO Obi Emetarom told TechCabal in an interview.

“The PTSA [NIBSS] will use that function to screen payment terminal transactions which they perform today on a central system.”

NIBSS will perform its PTSA functions in the blockchain system. The data from both systems will be harmonised into a central repository that better serves the PTSA.

Zone first implemented its blockchain technology in automated teller machines (ATMs) before creating a module within its layer-1 blockchain system to accommodate POS payments. Unlike ATM transactions that did not need a PTSA, Zone says the partnership with NIBSS was crucial as its switching licence was not enough to grant it access to POS payments.

Emetarom acknowledges that for the blockchain-based PTSA to work, it has to achieve a wider scale. Banks and fintechs with interests in the agency banking sector have to come onboard—many, if not all of them. Currently, over 30 financial institutions are integrated with the Zone network. 

Zone currently offers this integration service at no upfront cost. If there’s no chance for these banks and fintechs to lose money, then it incentivises them to sign up; and if they’re impressed by this technology, they’ll sign on for a longer term.

Despite what looks like a win for Nigeria’s payments system, Zone has to keep an eye out for the transaction volume on its system. One of the arguments around NIBSS is the need to scale its infrastructure to accommodate the growing volume of daily digital payments.

“The only issue with it is transaction throughput. Some [blockchain] layers take about 5 minutes to reach finality, and the receiving party cannot access the money until then, causing a lag in moving money around,” said one blockchain developer who asked not to be named.

While Zone didn’t specify the transaction volume it has processed, the company claims the success rate is over 99%. 

“In 5 years, POS-related fraud activities—particularly the ones related to chargeback—will be zero or very close to zero because we expect to have achieved the scale to have the level of impact required to reduce the cases by more than 99%.”

Names and phone numbers shared with merchants in transactions are often used for marketing, and PrivPay, which launched in 2022, sold the notion of privacy to users. Its solution was powered by  Daraja—M-PESA’s free payment APIs. 

The startup claimed it held talks with Safaricom about its business model and got the company’s buy-in before launch. It also said the telco backtracked after PrivPay began attracting media attention. 

“Your business model is not permitted by Safaricom,” Safaricom wrote to PrivPay in May 2023 in a letter seen by TechCabal. M-PESA prohibits third-party transactions. 

Safaricom did not respond to a request for comments. 

In May 2023, Safaricom suspended the fintech’s pay bill account—a cash collection number built on M-PESA that allowed the startup to process transactions. The telco said PrivPay—which claimed to have 30,000 users—contravened Kenya’s Anti-Money Laundering Safaricom and asked that it obtain a payment service provider (PSP) licence from the Central Bank of Kenya (CBK). Obtaining the payment licence takes up to six months. 

“PrivPay keeps a record of every transaction and ensures that the manner in which the records are collected and stored for at least seven years can pick out any suspicious patterns,” PrivPay said in a response to Safaricom seen by TechCabal. 

For Safaricom, in the absence of a licence, only a letter of no objection from the Central Bank of Kenya would suffice.

“We did not explore a PSP licence at the time due to the resources required. Also, it was going to take time,” a former PrivPay executive told TechCabal. 

While PrivPay hopes to stage a comeback, it must remember that good intentions alone will not help it meet regulatory requirements.

Kuda posted revenue of $22 million (~£17.2 million) in 2022, up from $7.7 million (~£6 million) in the previous year, as customer adoption soared. The company doubled its users from 2.4 million to 4.9 million. 

Headquartered in the U.K., Kuda operates a digital banking platform that allows customers to make payments, access loans, and manage their wealth. The startup operates in Nigeria, its primary market, through a subsidiary, Kuda MFB, which holds a microfinance banking license from the Central Bank of Nigeria (CBN).

Over the last two years, the company has focused on launching new products, such as international remittances, and is expanding to new markets, including the U.K., Canada, Ghana, Tanzania, and Uganda.

According to a report by TechCrunch earlier this year, Kuda told investors it expected revenue and user numbers to double by the end of 2023. In January, the company announced that it had reached 7 million users.

Kuda’s total deposits more than doubled from $41 million in 2021 to $100 million in 2022. The report also highlighted Kuda’s growing business banking services as deposits from business customers jumped 154x from less than $102,000 to nearly $15 million at the end of the year.

The business banking segment has grown significantly since then, according to one person familiar with the numbers who asked to remain anonymous so they could speak freely.

“We hit 100,000 businesses this year, launched POS terminals, and [now offer businesses payroll management services through Bento],” the person said.

Kuda’s total assets rose 30% to $154 million in the year under review. Almost 80% of its assets are tied to its Nigerian subsidiary, according to a report by the company’s auditor.

The inflow of deposits is helping Kuda diversify its revenue streams beyond transaction fees and interest on loans. In 2022, the startup earned $3.5 million from treasury investments in Nigeria, representing a third of its interest income, and the company is doubling down on this revenue stream as the CBN continues to raise interest rates to control runaway inflation. 

“[Kuda] has lots of sticky deposits so [it] started taking treasury seriously that year,” a source close to the business told TechCabal. 

At the end of 2022, Kuda spent $42 million on new treasury investments.

“[Kuda] consistently monitors the government’s fiscal policy and [will] adapt accordingly,” said Frederic Bidet, Kuda Group’s chief financial officer.

Although Kuda is seeing significant user adoption and revenue growth, its losses continue to grow. The business posted net losses of $32 million, more than double the previous amount a year before, thanks to higher staffing costs and other operating expenses. The report shows that Kuda has now accumulated $55 million in losses since its launch in 2019.

One person familiar with the business said the Neobank spent heavily on marketing campaigns as it aggressively expanded, including a World Cup advertisement. However, the business has slashed its advertising spend over the last year to reduce its burn.

Yet the pressure on Kuda’s financial resources remains. Last valued at $500 million, fintech has raised around $74 million, but it had $33 million in cash at the start of last year, a nearly 50% decline from 2022. Kuda attempted to raise bridge funding of $20 million at a flat valuation in mid-2023 but later abandoned those efforts, according to a report earlier this year.

“We have reduced the gap [between our revenue and losses] and are making good progress towards breakeven,” CFO Bidet said, insisting that Kuda has “enough funds to reach breakeven comfortably.”

“We do not need to fundraise to meet our operating expenses at the moment.”

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Mbagwu has over 15 years of experience in the financial services sector. He was previously head of business support at Unified Payments, a prominent payment infrastructure provider, and head of service operations at Access Bank.

According to Jumia’s 2023 filing, PalmPay is one of JumiaPay’s biggest competitors. 

Jumia did not immediately respond to requests for comments

JumiaPay is integrated as a payment method at the checkout of online platforms like Jumia—it processed about 39.5% of Jumia orders in 2023. It also has a standalone app that lets users make bank transfers, bill payments, loans, and merchant payments. One person familiar with the company said JumiaPay’s biggest customer is its parent company. 

JumiaPay processed $192 million in payments for 8.4 million orders in 2023, a figure that pales compared to the $5 billion monthly transactions that Palmpay reported in 2023.

Mbagwu will report to Sunil Natraj,  the CEO of Jumia Nigeria.

Mbagwu’s appointment comes as Jumia intensifies its focus on profitability. The company has laid off staff and shut down its food delivery arm to save costs and increase revenue which stood at $186.4 million at the end of 2023, per its SEC filings. Some of those moves have resonated with investors with its share price rallying to $12.16 at the time of writing this article, nearly four times what it began the year.

Raenest, Leatherback, and Vesti are pitching to several founders seeking new banking partners to park millions of dollars in operating capital, several executives at those companies told TechCabal. Some founders have proactively contacted those fintechs.

“My LinkedIn has been blowing up since the announcement, even without any moves from my marketing team,” said Ibitade Ibrahim, CEO and founder of Leatherback, who said they are already engaging 50 startups looking to create U.S banking accounts.

Raenest and Graph have pushed marketing campaigns on social media and prominent tech publications. 

“We also offer perks like same-day onboarding with two free USD cards and no charge on international transfers within the first two months,” Victor Alade, CEO of Raenest, told TechCabal on a call.

While some of these perks are compelling, some startups have switched to Brex, another US-based banking provider, over reliability concerns.

These African startups must deposit funding from investors and draw on those deposits to settle operational expenses. Other startups make frequent international payments and must stay connected to platforms like Stripe and PayPal.

“It is more of an access issue for us. I chose a bank that can keep the lights on,” said an e-commerce founder who switched to Brex when Mercury initially halted transactions on the company’s account ahead of the offboarding.  “We cannot afford to abruptly lose access to our accounts.”

Fintechs like Leatherback and Vesti tell founders that, just like Mercury, they directly partner with U.S-based banks with whom they have cultivated deep relationships that leave no room for unpredictability.

Ibatide claims Leatherback is regulated in about seven countries and has 60 partnerships with local banks in America and India. “With Community Federal Savings Bank, one of our local partner banks in America, we spent two years demonstrating that we have the  standard KYC and KYB processes and transaction monitoring process, giving them enough comfort.”

While some startups have begun to switch from Mercury, which gave them 30 days to close their accounts, some executives in Mercury alternatives who spoke to TechCabal say it may be too early to determine whether affected founders have favoured local options.

The list, which also features global companies like Mastercard, Klarna, Flywire, and Robinhood, is the second edition by the Statista-CNBC duo—the first edition was in 2023.

The list was curated based on desk research by the Statista team and information provided by the businesses, such as 2023 revenues, year-on-year sales growth rate, and total headcount. However, it is unranked.

In the 2024 250 top fintech list, Nigerian fintech Kuda and South African Bank Zero were categorised as one of the best neobanks.

Nigerian unicorn Flutterwave, the Chinese-owned Palmpay, Partech-backed South African fintech Yoco, and MTN—for its mobile money service, MTN MoMo— graced the payment category. 

Piggyvest was the lone African startup in the financial planning category.

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“A lot of people [opening] new accounts also want a card that just makes them feel that (they are) completely financially included,” said an OPay executive who asked not to be named. 

Since getting a card is a natural extension of the account opening process, a customer onboarding freeze led to a decline in card demand. Opay and Moniepoint responded by reducing the number of cards dispensed to agents—the agency banking sector’s backbone.

OPay, which began offering cards in 2021, has distributed about 13 million cards, while Moniepoint has distributed around 4 million cards, one person with knowledge of Verve’s business, a card issuer for both fintechs, told TechCabal in June. 

Despite this initial explosion, card growth is slowing. It has allowed some fintechs to deprioritise cards, historically an excellent but loss-making customer acquisition strategy. 

“Moniepoint reduced the pack of cards to only five (from 30),” a card distributor told TechCabal. These distributors move cards across multiple local governments and fulfill requests from an online platform, although most of the demand is generated offline. 

While other fintechs customers apply for cards through apps, many OPay and Moniepoint customers use banking agents instead, making those agents mini bank branches. 

Although cards help customers pay online, adoption is slowing. Fintech customers feel comfortable moving around without their cards as transfer speeds improve and businesses increasingly accept bank transfers. 

“We expected it. We were very aggressive when we launched cards in 2021. Naturally, the pace at which it was growing two years ago is not the same now. It’s the law of diminishing returns,” said an OPay executive about the drop in card demand.

A combination of the growing adoption of online transfers and cards reaching maturity as customer growth maintains a steady pace has played a significant part in the drop in card demand. 

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OPay contacted customers who received value for sums above ₦500,000 via emails and phone calls and asked them to fund their accounts so the retained funds could be debited immediately after it became aware of the issue. 

The fintech recovered 10% of the total amount from those customers. 

“While some customers responded positively to the Applicant’s request and cooperated with the Applicant in respect of the recovery of the Erroneosly Retained Credits, some customers have refused, failed, and/or neglected to fund their accounts to enable the Applicant to deduct the value of the Erroneously Retained Credits from their respective accounts,” the company said in a court filing. 

The fintech asked the court to freeze the customer accounts and filed an affidavit of urgency alongside its application. The orders were granted by the court on June 28, 2024, and OPay will now begin asking thirty banks to restrict the affected customer accounts. 

OPay declined to respond to comments. 

OPay customers received value for pending transactions

Financial institutions use bank response codes to categorise successful, pending, or failed transactions. For OPay, ‘RC 09’ is the code for a pending transaction for which the company does not debit its customer. However, from December 10, several cardholders made payments for pending transactions without getting debited. 

“The Switching Company (Interswitch) that facilitated the said card transactions between the Applicant and its cardholders during this period inadvertently settled all the RC 09 transactions as successful,” OPay said in its filing. 

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