Pawapay Secures $9M Seed Funding - Fintech News

The Importance of Mobile Money in African Digital Payments

For companies developing digital payment solutions targeting African nations beyond Nigeria and South Africa, centering their strategies around mobile money is essential.

This approach is fundamentally logical, given the widespread adoption of mobile money, particularly in East Africa.

Challenges with Unified Mobile Money Infrastructure

However, because mobile money is primarily driven by telecom operators, establishing a cohesive infrastructure for businesses presents significant technical hurdles.

Integrating with multiple telecom providers can be complex and resource-intensive.

PawaPay's Solution

PawaPay, a payments company headquartered in the U.K. with a focus on Africa, is actively addressing these complexities.

The company consolidates technical integrations from major telecom operators – including AirtelTigo, Econet, MTN, Safaricom, Orange, and Vodafone – into a single API for businesses.

Recent Funding and Expansion

Today, PawaPay announced the successful closure of a $9 million seed funding round.

These funds will be allocated to scaling operations, attracting skilled personnel, and expanding into new African markets.

Investors in the Seed Round

The funding round was co-led by 88mph, a U.K.-based fund, and MSA Capital, based in China.

Additional participation came from Zagadat Capital, Kepple Ventures, and Vunani Capital.

Origins and Leadership

PawaPay originated as a spin-off from the online sports betting company, betPawa, last year.

The company is currently led by CEO Nikolai Barnwell, formerly the Head of New Markets, Africa at betPawa.

Notably, Mr. Barnwell also serves on the board of 88mph.

Addressing International Payment Needs

According to Barnwell, the impetus for creating PawaPay was to facilitate seamless international money transfers utilizing mobile money.

A Real-World Example

Consider the scenario of freelancers in Ivory Coast seeking payment for services rendered through a global payments platform.

Traditionally, these individuals would be required to possess a bank account or debit/credit card.

However, in countries like Ivory Coast, where mobile money is dominant, this requirement presents a significant obstacle.

The Significance of Mobile Money in Africa

According to data from the World Bank in 2015, over 350 million people in sub-Saharan Africa lack access to traditional banking services. Several factors contribute to this statistic, but banks often lack the motivation to serve this demographic.

A primary reason is that many unbanked individuals earn less than the minimum wage in their countries, making it challenging for banks to generate profit from them. Furthermore, the Know Your Customer (KYC) procedures required to open a bank account can be burdensome for this population.

However, one certainty prevails: the unbanked population widely possesses mobile phones, with over 850 million mobile connections existing across Africa.

This substantial market has fueled the growth of mobile money throughout the continent. Telecom companies circumvented traditional banking systems by establishing their own platforms.

These platforms enable individuals to transfer funds securely via mobile phones, often with minimal or no transaction fees. Consequently, even those with basic mobile phone numbers can access fundamental financial services like savings and money transfers.

Currently, the mobile money market in sub-Saharan Africa processes up to $500 billion annually. This activity occurs through the accounts of approximately 300 million active monthly users.

This alternative financial system represents one of the largest of its kind worldwide. However, it remains relatively underdeveloped due to fragmentation.

Fragmentation arises from each telecom operator offering its own distinct mobile money product. This poses challenges for merchants, as utilizing these services at scale can become excessively costly.

Challenges and Opportunities

The diverse range of mobile money systems creates complexities for businesses seeking to integrate these services into their operations. Streamlining these processes is crucial for wider adoption and economic growth.

Addressing the issue of fragmentation could unlock significant potential for both merchants and consumers, fostering a more inclusive financial landscape across Africa.

• Mobile Penetration: High mobile phone usage drives mobile money adoption.
• Financial Inclusion: Mobile money provides access to financial services for the unbanked.
• Transaction Volume: The market processes substantial financial flows annually.
• Fragmentation Issues: Multiple operators create a complex and costly environment.

Mobile Money and Card Payment Gateways

PawaPay is striving to become a leading provider of high-volume mobile money payment solutions, prioritizing both reliability and transparency for its merchant clientele. Its Application Programming Interface (API) grants merchants access to mobile money systems operated by telecom companies, enabling them to process payments to and from a vast network of mobile money accounts.

According to Barnwell, the company is heavily invested in the expanding mobile money landscape and the associated infrastructural requirements for seamless mobile money transactions.

He emphasized the rapid growth in mobile money adoption across the continent, asserting that it has evolved into a crucial financial infrastructure with significant gaps that need addressing to support substantial transaction volumes and business operations.

PawaPay simplifies payment acceptance in new markets by managing local operations, ensuring compliance, providing regulatory coverage, and establishing necessary bank accounts.

The company reports processing over 10 million transactions weekly during its beta phase, operating in ten African nations: Cameroon, the Democratic Republic of Congo, Ghana, Kenya, Mozambique, Nigeria, Rwanda, Tanzania, Uganda, and Zambia.

Barnwell explained to TechCrunch that, despite these impressive transaction figures, PawaPay’s potential is even greater, hindered by regulatory obstacles and varying licensing procedures in each market.

“In every country, a fresh assessment is required to understand the regulatory framework, licensing requirements, and the types of companies they are willing to license, allowing for collaborative engagement to ensure their comfort and confidence in our operations,” he stated.

The CEO further noted that while regulation can be a slowing factor, it is vital for PawaPay, as numerous unregulated entities operate without proper licensing and with potentially unstable technologies, sometimes with fraudulent intent.

“We are committed to full regulation and comprehensive coverage in all markets, securing full licensing to establish ourselves as a stable, reliable, and premium product,” he added.

Several payment gateways currently serve businesses in Africa, including Flutterwave, DPO Group, Yoco, MFS Africa, and Paystack. However, when focusing specifically on mobile money, MFS Africa emerges as PawaPay’s primary competitor. Both platforms concentrate on overcoming the unique challenges inherent in mobile money transactions, while others prioritize advancements in bank and card payment technologies.

MFS Africa connects more than 300 million mobile money wallets, facilitating interoperability at scale across Africa for banks, telecom companies, money transfer operators, and other financial institutions through a unified integration point.

PawaPay is approaching a similar scale, with Barnwell indicating the company connects to nearly the same number of wallets and anticipates expanding to 30 to 40 telco integrations shortly.

While East Africa, particularly Kenya with M-Pesa, has historically been the dominant market for mobile money, West Africa is experiencing significant growth. Last year, West Africa accounted for 198 million mobile money accounts, compared to 293 million in East Africa.

The West African region also demonstrated the highest growth in transaction value, increasing by 46% to exceed $178 billion, with Ghana, Senegal, and Ivory Coast leading the way, presenting substantial opportunities for these payment gateway providers, unlike the card payments market which is concentrated in fewer nations.

“Despite the attention given to card payments, mobile money remains the largest payment system in Africa,” the CEO emphasized.

PawaPay’s focus on mobile money was a key factor in Kresten Buch, founder of 88mph and chairman of PawaPay, leading the investment round. He explained that 88mph’s investment in Africa a decade ago was driven by the recognition that mobile money offered a superior payment method to credit and debit cards for online transactions.

Oluwatosin Ajibade, founder of Zagadat Capital (also known as Mr Eazi, a prominent singer-songwriter and entrepreneur in Africa’s music industry), who also serves on PawaPay’s board, shared his perspective on the investment: