Instant payment market deep dive: Brazil; The evolution of payment stack architecture; West Africa: Mobile money’s new powerhouse;
In this edition of Fintech Wrap Up, we’re exploring the rise of digital-only SME lenders, the booming mobile money market in West Africa, and the transformative impact of Brazil’s PIX real-time payment system.
Insights & Reports:
1️⃣ Challenging Traditional Banks: The rise of digital-only SME lenders
2️⃣ West Africa: Mobile money’s new powerhouse
3️⃣ Instant Payment Market Deep Dive: Brazil
4️⃣ The Evolution of Payment Stack Architecture
5️⃣ How do you pay from your digital wallet, such as Paypal, Venmo, Paytm, by scanning the QR code?
6️⃣ Kazakhstan Fintech Market 2024
Curated News:
1️⃣ NALA raises $40M to improve payments in Africa and beyond
2️⃣ Alipay rolls out Tap! to make in-store payment experience simpler for users in China
3️⃣ HSBC Partnered with Visa to Develop Zing International Money App
TL;DR:
First up, digital-only SME lenders are redefining the banking landscape. Unlike retail-focused peers, these lenders prioritize lending volumes and deposits over sheer customer numbers. Allica Bank, founded in 2018, achieved a revenue of nearly £191 million in 2023 with a net profit of £16 million, marking its first profitable year. Similarly, Redwood Bank, established in 2017, reached profitability within four years, posting a profit of £5.5 million in 2023. OakNorth, known for its data-driven approach, announced a pre-tax profit of £187.3 million in 2023, showcasing a 23% increase from the previous year.
Shifting gears to West Africa, mobile money is making waves as the region becomes a global leader in mobile financial services. Over a third of new registered and active 30-day accounts globally in 2023 came from West Africa. The West African Economic and Monetary Union (WAEMU) saw more than 110 million new mobile money accounts opened between 2018 and 2022, boosting financial inclusion from 56% in 2018 to 71% in 2022. This growth is driven by regulatory frameworks allowing non-bank entities to offer financial services, leading to a thriving mobile money ecosystem.
In Brazil, PIX has revolutionized real-time payments in just three years, becoming the world’s second-largest real-time payments market after India. Launched in November 2020, PIX now supports over 150 million active users and expedited over 37 billion transactions in 2023. Brazil’s mobile-first consumers have embraced PIX for its no-fee, instant transactions, which now represent more than 36% of the country’s electronic payments.
Exploring payment stack architecture, banks face challenges with evolving payment rails and customer expectations. The optimal approach involves modernizing payment orchestration systems to manage complexities effectively. A payment hub, positioned between the core system and gateway connectors, can centralize and streamline payment processes, ensuring agility and control over payment capabilities.
For those curious about the technicalities of QR code payments, the process involves quick interactions between the merchant’s point-of-sale system and the payment service provider (PSP), enabling swift and secure transactions.
Lastly, in Kazakhstan, the fintech market is booming, with online banking users increasing 4.6 times between 2019 and 2023 due to technological advancements and supportive regulations.
In curated news, NALA’s $40M funding aims to enhance payment reliability in Africa, Alipay’s new Tap! feature simplifies in-store payments, and HSBC’s Zing app promises seamless international transactions with its smart multi-currency capabilities.
Insights & Reports
Challenging Traditional Banks: The rise of digital-only SME lenders
Compared to their peers serving retail customers, SME lenders seem to be less focused on the number of customers they acquire every year and more on the lending volumes and deposits they receive from these customers. While niche markets might be perceived as less attractive by investors compared to the broad appeal of retail banking, the need and potential for SME banking are continuously increasing.
Allica Bank, founded in 2018, positions itself as a specialist challenger bank aimed squarely at established SMEs. It is now recognized for its personalized service that combines digital efficiency with personalized relationship management, focusing on SMEs that require bespoke financial solutions and are usually underserved by traditional banks. Allica Bank’s lean technological integration has contributed to its robust performance, with revenues of almost £191 million in 2023 and a net profit of £16 million, reaching profitability for the first time five years after its creation.
Similarly, Redwood Bank, created in 2017 as a digital-only bank focusing on local businesses, has steadily grown to profitability within four years. By emphasizing local businesses and offering attractive rates for loans and savings products, Redwood Bank achieved a profit of £5.5 million in 2023 (from £2.1 million in 2021 when they first reached profitability).
West Africa: Mobile money’s new powerhouse
Over the past few years, West Africa has led the growth in access to mobile money. The proportion of new registered accounts and new active 30-day accounts originating from West Africa has risen sharply since 202. In 2023, over a third of new registered and active 30-day accounts globally were from West Africa, more than any other region.
Much of the significant rise in agent networks globally in 2022 occurred in West Africa, with regulations in Nigeria driving this trend. With several mobile money providers now holding a licence to operate in Nigeria, the country has seen a rapid rise in the use of digital financial services. This special feature focuses on how regulation, mobile money providers and investment have impacted access to financial services and financial inclusion in the region.
The West African Economic and Monetary Union (WAEMU), made up of Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo, has experienced significant growth in the use of mobile money. Between 2018 and 2022, more than 110 million new mobile money accounts were opened, including 60 million since 2021. The region has a population of more than 137 million, 60% of whom live in rural areas. The growing use of mobile money has helped increase financial inclusion from 56% in 2018 to 71% in 2022.
Curated News
NALA raises $40M to improve payments in Africa and beyond
UK fintech company NALA has raised $40 million in Series A funding to support its global expansion and enhance the reliability of payments to Africa by developing its payment rails. This is NALA’s second round of fundraising in 20 months, having raised $10 million in 2022, bringing the company’s funding to over $50 million.
