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Your tour guide on African Tech 🧭
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Hey there! Welcome to this edition of Tech Safari.
This week I spent my birthday on the beaches (and low-tide islands) of Zanzibar.
It’s been a beautiful week to celebrate, rest and reflect on the year that was. I’m feeling grateful 🙏🏾
But when you’re on the content treadmill, you can’t stop 😂
Next week, I’m hosting a webinar with Nexford on Landing and Thriving in a Remote Tech Job.
To come along, RSVP here
Today, we’re diving into Banking as a Service, it’s going to be a fun read.
This edition is sponsored by Anchor.
I got to chat with Segun (Founder of Anchor) a few times about what he’s building and where he sees Banking as a Service going.
I also had the help of a friend, Aryaansh, on this one.
He writes a newsletter called Market Munch and has done deep dives into how companies are launching their own banking features. Check him out 👇️
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Strap in, it’s going to be a fun one.
In the 2010’s it was: ‘every company will be a tech company’
Today: it’s ‘every startup will be a fintech’
Your favourite brands, apps, products, and services are launching fintech products and looking more like banks. Take Apple, for example.
In April, Apple launched its savings product, Savings.
At a 4.15% interest rate, with 90 seconds set up time, and (most importantly) an estimated 1.4 billion active iPhones out in the world.
In four days they hit $1 billion in deposits. And in four months, they have over $10 billion in deposits.
Drive over to Uber, we see the same thing.
Drivers on Uber and Lyft consider their ridesharing platform their de facto bank.
And Uber has built on this, adding its new Uber Pro card.
This lets drivers use their Uber Wallet to make payments and get rewarded for it.
This is called embedded finance: when a non-financial provider (like Starbucks, Uber, or Shopify) starts to provide services like savings, lending, insurance, payments and other banking services
Note: These brands aren’t replacing the bank.
They are powered by banks to launch these features. Think of it like ‘brand’ on the front end, ‘bank’ on the back end.
It’s the new way that consumers will interact with financial products.
And it shows us two movements:
A movement towards brands, apps, and products we use on a more frequent basis.
A movement away from the industry incumbents (the bank) to access financial services.
And Africa is a hotspot for embedded finance. A continent with:
An underbanked population of 350 million adults
46% phone penetration in 2021 (not including children)
And embedded finance is about to hit its stride, according to TC Insights
Why is embedded finance hopping over the bank?
1) Fintechs provide more specific services
Banks were the gatekeepers of almost all financial services: storing, saving money, making payments, and accessing loans.
But tech companies hold an advantage: being able to niche down on one product or industry very well.
Take Pivo, for example. Pivo is a logistics and supply chain financing platform, aiming to be the one-stop shop for supply chain financial services.
It’s harder for your everyday business bank to hone in on this niche and quickly launch new products around their customers.
2) Access and Distribution
It’s easier to access startups (and fintechs) than banks.
Startups are easier to access and onboard.
This is because startups need to have easy onboarding and need to distribute at scale (ie, reach a lot of customers quickly).
Wave Uganda’s onboarding process
Compare an experience like this on Wave to going into a bank branch with your physical documentation to set up an account.
So startups can have big advantages over the bank. It makes one ask…
Why do we have banks anyway?
While banks may not be as sexy as fintechs or as quick, they carry their weight.
Banking is complicated, expensive, and compliance-heavy.
As Angela Strange (Partner at Andreessen Horowitz) points out in her article,: Every Company Will Be a Fintech Company:
Citigroup has 204,000 employees.
30,000 of them (about 15%) work in compliance, doing things like reviewing anti-money laundering alerts and filing suspicious activity reports.
That’s 10-15% of a bank’s workforce. And it’s the cost of being in business.
Now, if you’re a startup that wants to offer your own financial services, you’re in a tight spot.
Segun, CEO of Anchor, breaks down what it takes to launch a bank in Nigeria:
To set up a bank from scratch in Nigeria, you need:
Approximately $500,000 in set-up costs
Paid-up share capital - funds that need to be available and deposited to the regulator. This can range between $100,000 to $33 million.
A certified management team and board
Core banking infrastructure → A ledger system, which is like a bank-specific CRM
A physical branch with a vault and a bank teller.
At least 18 months to kill. And even then you can’t predict when you will get the license.
Segun has seen both the setup of a bank and the purchase of a bank by fintechs.
And while buying a bank is a bit easier, it’s still an expensive endeavor.
One that Segun says will set you back $500,000 at least.
Aint no startup got the time (and in a lot of cases, the money) for that.
But it’s getting easier to offer embedded finance, thanks to a new type of startup popping up:
Banking as a Service
Now, startups like Stripe, Unit, and Anchor let companies launch their own embedded fintech features without needing to be a bank.
And in Nigeria, Segun’s company Anchor is letting startups launch their own fintech features.
In 2015, subscription payments were nearly impossible to set up in Nigeria. So Segun started a fintech, AmplifyPay, to solve the problem.
He built a payment solution on top of social media platforms like WhatsApp.
In 2019, Amplify was acquired by OneFi (now known as Carbon), and Segun headed over to JUMO, a company that offered credit infrastructure to mobile network operators and banks.
In that time, he saw the setup and the acquisition of a bank and advised fintechs like Kuda and Cowrywise.
And it was a nightmare. Fintechs were taking years and spending thousands to set up their infrastructure.
The worst part? Everyone was rebuilding the same thing.
So he teamed up with Olamide and Gbeke, who had built tech for Moniepoint, Carbon, and Google.
They built Anchor - a Banking as a Service platform that lets companies plug and play fintech products.
So how does it work? A thing called APIs.
What is an API?
It used to be ‘there's an app for that.’ Now, it’s, ‘there's an API for that.’
An API lets companies leverage years of other companies’ work in seconds.
For almost anything that a business needs to do, there’s an API-first company with a product or suite of products they can plug in.
And Banking as a Service turns your favourite finance features - like lending, cards, and buy now pay later, into simple APIs that you can plug in and start using in your own startup.
Banking on African Startups
Today Anchor powers companies like:
SeamlessHR (Human Resources and Payroll). Anchor powers their payouts and wallets, letting employees store money on the platform.
Pennee (SME Lending Fintech). Anchor powers their lending product.
MTN’s Fintech Arm, Momo PSB. Anchor facilitates their upcoming savings product.
Bujeti (corporate spending for companies in Africa). Anchor powers their infrastructure for corporate spending cards.
Achille, CEO of Bujeti, explains that it would have taken him about a year and $150,000 to build out his own corporate banking platform himself, and using Anchor has let him focus on distribution.
And it’s not just fintechs. Anchor is starting to give non-fintech startups fintech features.
LifeBank is a health tech that facilitates the movement of blood from labs across the country to patients and doctors in hospitals. They also receive blood donations.
Through Anchor they are launching a wallet and airtime rewards product.
Every time you donate blood on LifeBank, you are rewarded with airtime. Anchor makes LifeBank’s reward possible with its banking infrastructure.
Lifebank isn’t even close to a fintech, but it’s offering fintech services.
And it proves the point: as startups build for their users, they will get closer to their customers.
Segun thinks that the best way to expand access and financial choices for Africans is through leveraging that trust and access to offer financial services.
And banking-as-a-service will be a catalyst for the next wave of fintechs
Betting on Banking as a Service is betting on fintech in Africa growing. I think that’s a safe bet.
What do you think of Banking as a Service? And do you think every company will launch fintech features? Let me know here.
PS - if you’re a company that wants to launch embedded finance products get in touch with Anchor here.
And that's a wrap for this week!
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Catch you soon!
👋🏾 Caleb’s