The race to occupy Africa’s fintech
space by foreign VC interests has never been more intense. This is following
the unprecedented interest of Chinese investors in Africa’s most populous
country and a company — OPay — taking center stage.
When OPay entered the Nigerian
market, it quickly won the hearts of Nigerians with discounts and several other
incentives. However, for some businesses, this wasn’t a good sign
OPay launched a bike-hailing service
that aggressively acquired customers, included more services to its offering,
grew agents network to over 140,000, and gave more discounts to the detriment
of competitors.
It never really seemed there was
going to be an OPay challenger until last week.
A
date between Chinese investors
Last week PalmPay announced its launch in Nigeria with a
$40 million investment to support its African activities. PalmPay is co-owned
by Chinese-based Transsion Holdings and NetEase.
On the other hand, OPay, which is
partly owned by Norway-based Opera and a Chinese group of investors, has raised
over $170 million. Having secured the sum of $50 million for its launch, OPay
secured an additional $120 million in a recent series B round.
Prominent Chinese investors
associated with OPay are Sequoia Capital China, Source Code Capital,
Meituan-Dianping, IDG Capital, and GSR Ventures.
Even though these investors
represent China’s continued interest in Africa, the playing field will be
different. In part, because, compared to its deal-making on infrastructure and
commodities, very little of the Chinese-African engagement over the last decade
has been focused on tech.
The
paradigm shift
Now, there’s a paradigm shift
towards Internet consumption. And given its ever-increasing demand, the
Internet industry in Africa has tremendous potential.
The Chinese investors’ interest in
Africa-focused businesses — like OPay and PalmPay — is an indicator of this
paradigm shift.
For instance, Transsion Holdings and
MediaTek are original equipment manufacturers (OEM). Transsion is the company
behind the TECNO, Infinix, and Itel brands. Additionally, it boasts an array of
Africa-focused apps, including short video-sharing platform, Vskit, and music
streaming service, Boomplay.
MediaTek is the world’s
fourth-largest global fabless semiconductor company, annually powering more
than 1.5 billion TECNO, Itel, and Infinix devices, among others.
With platforms like Boomplay — reported to have more than 53 million African
users — and Vskit, PalmPay should be able to leverage Transsion’s dominant
network of TECNO, Infinix, and Itel devices to gain ground in Africa’s mobile
and online payment space.
On the other hand, OPay’s investors
will enjoy the first-mover advantage as far as Africa’s mobile and online
payment is concerned.
Having been in the market longer,
OPay has acquired many customers across a suite of products that includes bike,
tricycle, quick loans, and food delivery.
The Opera browser, now belonging to
a Chinese consortium following its sales for $600 million, is the fifth most
popular desktop browser and holds a respectable 10% share of the mobile market.
It is unlikely that the Opera browser won’t aid the drive for revenue in the
fintech and to a lesser extent growth in advertising and search revenue.
Still, investors will savour growth
potential in new opportunities beyond the browser; case in point is the news
and content and classifieds divisions, Olist.
Treading
a fine line
It will not be forgotten in a hurry
that an investor like Sequoia China has a history of backing loss-making
unicorns. A typical example is Sequoia China’s investment in the ride-hailing
startup, Didi Chuxing which reportedly lost over $1.6 billion
in 2018.
Another example is the Chinese super
app, Meituan Dianping that went nine years before becoming profitable
two months ago.
This Amazon-Esque profitless path to
domination comes down to Meituan Dianping aggressively focusing on expansion
over profitability. Careful examination of the OPay-connected investors shows
there is an insatiable craving for super apps.
Many of these so-called super apps
became the giants they are by aggressive customer acquisition strategies.
Whether or not the sustainability of OPay’s business will be called into
question for seemingly building towards a super app remains to be seen.
Needless to say, parallel events
such as the purported shut down of bus division, OBus, and
the over-the-top use of incentives to acquire customers makes it all the more
frightening.
However, on the bright side, an
investor like Meituan Dianping has managed to profit off a notoriously
loss-making food delivery business. Its financial results for Q2 2019 show
$3.17 billion in revenue and $56 billion in market cap. This means it has
replaced Baidu as the third most valuable tech giant in China, only behind
Alibaba and Tencent.
This coincides with the release of Uber’s Q2 numbers in both
revenue and market cap, which reveal the US-based taxi-hailing company is still
struggling to break-even.
Another positive development is the
participation of Japan’s SoftBank Ventures in OPay series B round. As the only
global early-stage venture arm of SoftBank Group, OPay’s investment is SoftBank
Ventures’ first in Africa. SoftBank Ventures has stakes in Uber, Didi Chuxing,
Slack, and WeWork, amongst others.
Still,
nothing is certain
There is an impending competition
between OPay and PalmPay, and this is down to the strong investor network of
both sides.
Together, these Chinese-backed
companies have the experience, finances, and network required to become
dominant players in the African digital ecosystem. And although there’s no
telling if the long-term gains would benefit Africans, enterprises connected to
these startups across board are growing sales, able to cut procurement and
logistics costs, and improve working capital turnover in the meantime.
There is also the argument that the
trend is unleashing the potential of talents in Africa. 2019 is indeed a year
Chinese investors have gone all-in on the continent’s startup scene. Yesterday
it was OPay, today it is PalmPay. Which will it be tomorrow?
