Matt Cooke, McKinsey: From McKinsey’s Banking & Securities Practice, I’m Matt Cooke, and this is Talking Banking Matters—new, short audio content for leaders in banking, securities, and beyond. For this episode, our New York–based senior partner emeritus Vijay D’Silva, together with Topsy Kola-Oyeneyin, a McKinsey partner based in Lagos, and Edem Seshie, associate partner also based in Lagos, spoke to Olugbenga Agboola, better known as GB, chief executive and cofounder of the payments solution company Flutterwave. Here’s Vijay to tell you more.
Vijay D’Silva, McKinsey: Africa might be one of the hottest areas in payments these days. Domestic electronic-payments volumes, including wallet-enabled payments, more than tripled between 2015 and 2020, and they are likely to increase fivefold by 2025, hitting over 150 billion transactions. Banks, telcos, and new fintechs are all competing to serve a growing middle class while also enabling financial inclusion on the continent.
The capital markets have started to notice. According to TechCrunch, 2021 was a record year for venture funding into African start-ups, with over $4 billion raised. That was double the previous high of $2 billion in 2019. Most of that funding went to four countries—Nigeria, South Africa, Egypt, and Kenya—and into fintechs. In 2021 alone, there were five fintech unicorns created in Africa, more than the previous years combined.
One of those firms is Flutterwave, a fastgrowing fintech based in Lagos that is looking to provide the payments infrastructure to support businesses, merchants, and consumers across Africa. After its most recent funding round of $250 million, it reached a $3 billion valuation.
My guest today is Olugbenga Agboola, better known as GB. He is Flutterwave’s CEO, having cofounded Flutterwave in 2016 along with Iyinoluwa Aboyeji. Joining us for the conversation are Topsy Kola-Oyeneyin, a McKinsey partner based in Lagos, and associate partner Edem Seshie, also based in Lagos.
It’s easy to see why entrepreneurs like GB are excited about the potential in Africa. It’s a continent of 1.3 billion people with a combined GDP of $2.4 trillion concentrated in a few countries like Nigeria, South Africa, Egypt, and Morocco. At the same time, Africa is urbanizing quickly, and the population in cities is expected to triple over the next 30 years. But banking infrastructure has lagged that of more developed markets. According to the World Bank, only 40 percent of African adults have bank accounts, versus almost 95 percent in North America and the EU. While this creates a challenge for African governments, it also creates opportunities for entrepreneurs.
Olugbenga “GB” Agboola: There are so many problems to solve on the continent. There are so many things to build. I’m excited by entrepreneurs who are willing to take on these crazy problems and try to solve them, across the board. Africa has always been known to leapfrog. We go from nothing to something, consistently—no phones, to mobiles, to internet. People skipped browsers; they search for what they want to buy on Instagram.
We’ve always been that way when it comes to [technology] leapfrogging a generation. That’s already happening here [with payments] as well. A lot of the unicorns you see in Africa are solving real problems. From OPay to Chipper Cash to Interswitch, if you live in Africa, you will see firsthand how these guys are relevant and are actually solving problems. And they hope to do so at a huge scale, which is amazing.
So I think it’s a great time to be here. The market is still huge and still largely untapped. There is still a huge population that are not even banked at all on the continent. It’s just the place to be in the next ten to 20 years. It’s going to be explosive. Our goal is to be here and stay alive to be able to harness the opportunity.
Vijay D’Silva: This opportunity has not gone unnoticed, and Topsy, Edem, and others in Lagos are monitoring the situation closely.
Topsy Kola-Oyeneyin: I think it’s going to be very interesting to see how the landscape evolves, because there are a lot of exciting things happening. Venture funding is increasing, banks are carving out their payment subsidiaries, and fintechs keep developing new, innovative solutions. Here’s what GB had to say about how the various players compete and the way he sees platform banks versus payment service banks.
GB Agboola: I think there will be a lot of change, but the change will just be that everyone will win. The banks will continue to be the infrastructure player and the float bankers for everyone, so the banks are going to win. The telcos, because they know distribution very well, are going to dive into payments, into banking, and go aggressive. That will help to expand the markets. The fintechs are going to complement everybody. We, for example, are not competing with the banks or with the telcos. We’re complementing them, not competing with them.
Still, the banks that win will be those that understand being a platform bank and being able to be an infrastructure bank for a lot of these players. We want to be there and position ourselves to complement each of these players and create more value. I don’t think anybody’s going to lose, but there will be bigger winners and smaller winners.
Vijay D’Silva: One recent development is the planned rollout of the Pan-African Payment and Settlement System. It is meant to reduce time for cross-border payments from days down to minutes and is estimated to eliminate $5 billion in costs to users. It also highlights the interesting link between faster payments and the availability of credit.
GB Agboola: I’m excited for the Pan-African Payment platform. I hope it comes quickly and becomes operational. But that said, I still believe it’s got to be private-sector-led for it to be successful. The likes of Flutterwave and other fintechs have got to be powering that platform to make it work at the scale being expected.
Beyond that, I also feel the reason why Nigeria is number five on the list of faster payments is due to a bunch of factors that are beyond payments. One of them is lack of credit. In a society where there’s credit, there’s no need for real-time payments, because the money will get there. That is very important for people to understand. Those are the problems driving our innovation in Africa.
But that said, I think we’ll continue to leapfrog on that. An example of where we’ve done that is chips on payment cards. Nigeria did that before the US did that, to stop fraud and to enable payment security. That shows our entrepreneurial spirit and at the same time shows that our payments infrastructure has really grown and expanded to meet the needs of Nigeria and of Nigerians in Nigeria.
Vijay D’Silva: In many ways, GB has a unique history that led him to this point. He talked about why and how he started Flutterwave and how he learned from global players like Adyen and Stripe.
GB Agboola: I have a software engineering background. I started my career with PayPal in the UK, but prior to that, I had started a small Wi-Fi internet company in London, before Wi-Fi was a thing. I was buying broadband from BT [British Telecom] and was reselling it with PCMCIA cards back in the day. We’d configure our own wireless networks and do B2B wireless sharing. So I’ve always been a software engineer.
From PayPal, I joined GT Bank in both Nigeria and the UK, and then I went to Standard Bank, where I worked across Africa, building technology and products for the bank. I did a brief stint at Sterling Bank in Nigeria, where I was responsible for the electronics business, and then went to Google in the US, building a piece of Google Pay that became Google Tez for India. After Google, I built a small payments company in Nigeria that was acquired by a bank, which I joined. After that, we started Flutterwave.
I’ve always been in tech and payments and very interested in technology and business—how we can drive business value through tech, knowing that technology does not exist just for technology. There has to be value being gotten from the entire process.
Topsy Kola-Oyeneyin: I first met GB when he was starting out, working out of Venia Business Hub, a leading coworking space in Lagos. Back then Flutterwave was just a few guys in a room building something, and we had no idea how big this was going to become.
GB Agboola: Flutterwave’s story came from my experience with the banks. I recall some of our customers back then were trying to expand across Africa, and it was hard. For me, that was very interesting, because I worked for a bank that was everywhere across the continent. We were the largest bank by footprint, I think, in Africa at that time. And we couldn’t help these customers scale their businesses. It wasn’t because we couldn’t do it. It was because of the regulatory barriers, technology barriers, and the lack of agility on our part to build quickly and scale.
That was one of the triggers behind Flutterwave. I was wondering, “Why can’t we just build this infrastructure? Why, if I want to send money to Ghana, does money have to move from Lagos to New York, and from New York to Ghana?” It didn’t make sense to me. If you get on a plane from Lagos to Ghana, you get there faster than doing a money transfer. You might as well take the money in a bag and get on a plane.
I said to my manager back then, “Why are we doing this?” And he said, “Well, we’re not really a global bank. We’re a network of banks owned by the same parent.” That’s where I saw that there is a need for a third-party player in the middle of all the banks who can talk to all the banks and provide some sort of complementary services to make payments simple for a small margin.
The use cases we were seeing back then included cases like a small merchant in Johannesburg trying to sell to somebody in Nigeria. The only way they could get paid was through a wire transfer, so until the payer sends a SWIFT [bank identifier code] acknowledgment, the seller can’t get paid, so he doesn’t release the goods to the customer. For me, it was a function of how to put a third party in the middle that is trusted, that can indicate to the merchant in Johannesburg, “This payment is good.” If the payment is trusted, the seller can release the goods to the customer.
Those were the driving forces behind Flutterwave: How do we become like a butterfly that can create a ripple effect in the ecosystem and still be tiny, yet we can make waves? Hence the name Flutterwave, by the way.
Topsy Kola-Oyeneyin: And what an effect Flutterwave has had. A number of players are in the same space with different models. Some have focused on SMEs, others on large enterprise customers. But GB’s company has done the full range and also built infrastructure for other fintechs. We asked him to tell us more about how the journey evolved.
GB Agboola: At the beginning, we saw that payment in Africa is a bit different from payment everywhere else. The problems are different. Africa is highly fragmented when it comes to payments. Every payment system is unique and works well in its own country, but they’re not exported well beyond their shores. Obviously, we can’t just copy and paste a Silicon Valley or European model. We have to build what works for our environment.
Early on, we stumbled on enterprise clients, which gave us an interesting view into the enterprise world of payments, where you can get one huge customer and they’re equivalent to 10,000 SMBs [small to medium-size businesses] in TPV [total payment volume], in revenue and volume. So we instantly focused on enterprise customers. We built a growth team focused on different sectors—education, gaming, remittances, e-commerce—building expertise in to help us understand the problems to solve for each sector and going from that point to building the infrastructure.
We didn’t really care about SMBs back then. But as we started growing as a company, the value proposition of getting one enterprise client who gives you so much volume also means that if you lose them, you’re in trouble, so we started thinking about how to diversify the business.
Then the pandemic struck. The team came to me and said, “GB, let’s build a Shopify-like product but for SMBs and help them sell more, to help them keep the lights on [during the pandemic shutdowns].” So we went from a purely impact perspective and built the Flutterwave store, which quickly became very successful. We were able to onboard over 20,000 SMBs on that platform in a very short period. It was simple. We built in payment logistics and e-commerce in one. You can take a photo of what you’re selling, put it online, and sell it, and then someone can come and pick it up for you and do delivery.
It went viral quickly. When we saw that, we decided to invest in SMBs as a sector. That said, we also believed in building distribution, so we also built a consumer app that’s like Cash App with the goal of building remittances for Africans via that product.
Vijay D’Silva: It’s hard to overestimate the value of data in an environment like this. Most developed markets built their credit bureaus over 50 years ago, and there has been a close correlation between economic growth, credit intensity, and credit data. But in the last decade, some of that has been changing with the emergence of other sources of data enabled by the internet and social media. From some of our research, the three biggest benefits are enabling lending, better targeting, and superior customer service.
Topsy Kola-Oyeneyin: This issue of data is really important. In markets where data on credit history does not exist, the availability of payments data becomes really important in unlocking credit and opening up new avenues of value creation.
GB Agboola: The way we see credit is to use data to drive retention. We’re about to launch Flutterwave Capital to help give the merchant consent to share data with the lender, who can then make a credit decision in their business. But the interesting part there is helping these merchants get more access to credit that can scale and use it to do things like restock their goods and grow their business.
We see Flutterwave as a transaction-processing business at its core. There are channels to drive more traffic to our business, but they’re not really new products, because everything happens on one platform. There’s no new system for our customers to sign onto; it’s all the same platform. So we see them as channels that we’re creating to drive more value onto our platform. We’re like a tollgate. How do we get more cars to come to our tolling infrastructure? Do we need to build more roads? Do we need to help people get more comfortable to use our platform? That’s how we see it.
Vijay D’Silva: While Flutterwave’s staff is mostly based in Nigeria, the company also has employees in the US, the UK, and several cities across Africa. One question is how a fast-growing company manages its growing complexity across different product categories, job profiles, and countries. And how does it find the right talent in a competitive market for people?
GB Agboola: We’re currently moving folks out of Nigeria to Kenya, South Africa, Uganda, et cetera so that they can gain local nuances about what they are building for the different markets. We are already seeing the demerit of having one hub for everything. We need to be global and local at the same time, so we’re trying to solve that problem by decentralizing at the moment.
We used to just look for talent that understands what we’re trying to build and the mission of the company—where we’re coming from and where we’re going. This is one of the very interesting parts of my job. Now we’re thinking more in terms of understanding other markets.
African talent is really amazing. We have the best engineers you can imagine, who can see a problem and by Monday it’s been built, tested, and is ready to go live. We have to be very agile and extremely responsive to customer needs. That is driven by the talent we have. They understand the need for what we are building. For example, we’ve got a lot of amazing women at Flutterwave, from my COO to the head of expansion, head of operations, and the head of data science. These folks are really the best people I could imagine to lead the company.
Vijay D’Silva: At this pace and with this much going on, Flutterwave will need to maintain its growth rate while simultaneously managing risk and compliance. Many new companies hit different hurdles at each stage of their growth, beginning with a new product idea, then building a tech stack, finding the right go-to-market strategy, scaling it for multiple segments and geographies, and building the right control infrastructure.
GB Agboola: The way we see the growth is that we are not yet processing even 10 percent of the payment potential in Africa, so it’s still really early days for us. The opportunity for growth is still immense. However, we try to listen to our customers. We follow our customers when it comes to our growth, our expansion, and how we move across geographies and sectors.
We see opportunities in consumer products and a new wave of creative opportunity opening up. We just acquired a company called Disha that helps creators get paid for expressing themselves in multiple forms across the world. They had about 20,000 creators at the time we acquired the company and the product, and we will be enabling payments on that platform. So we’re seeing a bunch of interesting growth areas at this point. Every other day, we are seeing companies scaling from Africa to the US and vice versa; we’re seeing remittances growing and scaling.
What we didn’t expect was to become the infrastructure of payments in Africa. There’s no Africa fintech who is not our customer, and that’s very interesting. There is no other infrastructure to pay or get paid across Africa. So now we are seeing ourselves more as an emerging-markets payment processor, not just in Africa. We are starting to see customers ask us why we can’t do their payments in Europe, why we can’t do it in the US. We have customers who have incorporation in the US and the UK and Nigeria, for example. A lot of African airlines are like that. So there is opportunity to drive value across the board. For us it’s just a question of forging ahead and continuing to build that infrastructure.
We have built something we’re very proud of when it comes to hardware payments, as the present and the near future are still offline. Online is growing massively, but it’s going to be a very interesting mix. We want to be a player in both and scale that. We’re very bullish about payments in Africa and emerging markets. We think we can be the infrastructure that makes it happen. Last time we checked, there are over 20 fintechs in Africa that exist because we exist.
Vijay D’Silva: More and more global firms are focusing on Africa as the next wave of growth. This means global firms have a lot to think about regarding their Africa expansion strategy and the trade-offs of different options, including whether to build or buy or form partnerships.
GB Agboola: Africa is different. Africa is really, really hard. The grit you require here is at a different level. There are a lot of infrastructure challenges you have to cope with. There, in my opinion, lies the opportunity. We need to solve those problems, create the value, and sell that value to people who are willing to pay for it. That’s what you’re seeing across the board in Africa.
Having lived in both worlds, I know the problems I’m solving in Nigeria are not problems in the US. So the only place to solve it is here in Africa, not in the US or in Europe. But that said, there are a lot of similarities with building a business in other places, in the sense that you have to be willing to knock down imaginary walls to be able to move forward sometimes.
The market here is also extremely nuanced. You have to respect the market, even if you’re from Africa. Africa is a continent; every country is immensely different, and every country has its own interests, challenges, regulation, and approaches. Some have exchange control, for example, and some do not. It’s just different across every market. What we’ve been able to do at Flutterwave is to make that one API and behind the scenes abstract all those unique aspects to make payments simple.
Vijay D’Silva: Building a financial business anywhere is not for the faint of heart. In Africa, this is particularly true. According to the African Development Bank, in 2020 Africa saw its worst recession in half a century, triggered by the pandemic. And while the region will rebound in 2021 and 2022, according to the IMF, sub-Saharan Africa is likely to recover more slowly than other regions, while poverty levels remain high even in the larger economies like Nigeria. Economic growth may be fastest in smaller countries like Rwanda or Seychelles and outside the traditional oil and mining sectors. On the other hand, the promise of Africa could be greater than ever now. For anyone who believes in the value of human capital, Africa is the youngest continent by far and getting younger: over 40 percent of Africans are under 15 years old, compared with 16 percent for Europe and 18 percent for North America. Even Asia and Latin America are aging.
The GSM Association (the mobile network operator trade group) now projects that mobile internet penetration will increase from 300 million users in 2020 to almost 475 million in 2025. To put that in perspective, more Africans will come online in five years than half the population of the US. The story of modern African financial services is only just beginning.
Matt Cooke: It’s Matt Cooke here again. On behalf of McKinsey’s Banking & Securities Practice, thanks for listening to Talking Banking Matters today. We’ve got a series of conversations planned, so we look forward to you retaking your front-row seat to listen in on more industry leaders from the world of fintech, banking, and digital talk about their work shaping the future of this industry. For now, wherever you are today, thanks again for listening.
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