Payments innovation as a local technology imperative
Card Payment Problems
When my 25-year-old friend and fellow Google Developer Mentor, Kenneth Kinyanjui got to Silicon Valley last year, his card from his local Kenyan bank was not working. I saw him struggle with resolving an issue with a transfer from his MPesa account in Kenya to his bank account. African bank-issued cards are notoriously unreliable globally. I made him realise that he could open a local American bank account and it would save him all the trouble when travelling. Kenneth opened a new bank account in minutes at Silicon Valley Bank of America branch. Doing that has saved him so much headache while on trips since last year.
I used to have the same problem when I was his age, and we had just started a company. My problem was not only just with travelling. I couldn’t even register a domain name because bank-issued Visa cards were non-existent in Nigeria at that time. My older brother in Manchester purchased our company domain. I had to find a way to get the cash to him. My co-founder moved to South Africa, and he continued helping with the renewals from there. When we started creating product web sites for 3rd parties, I realised that this model was not feasible. Luckily, I opened a similar Bank of America account at the airport in Miami when I went there for a holiday. That was my first foreign bank account, and it not only saved me a lot of headaches, but it is also probably the reason we have a business today. They issued a Visa Debit Card with the account, and it enabled us to transact on a wider range of Global platforms and choose a better domain hosting company. We became open to the opportunities of Global technology.
Things improved considerably in Nigeria after that period. Visa and Mastercard started competing locally to get Nigerian banks to issue their cards, and these could work internationally. I rarely used my foreign cards anymore and depended on local cards until December 2015 when the current exchange crisis in Nigeria started affecting Nigerian bank cards. After struggling with the scarcity of foreign currency, GTBank (probably the last bank standing) has finally stopped allowing international payments with its Naira denominated MasterCard.
Global acceptance of locally-issued payment cards is now a major problem. In one week, payments for foreign services by Nigerian technology companies moved back 20 years. International cards and bank accounts have become attractive once again. There is no day that I don’t see a desperate request by someone from Nigeria online, looking for a way to pay for either online adverts or hosting services.
The impact of foreign currency restrictions on global technology dependent businesses is immediate and drastic. One can argue that it creates an opportunity for local innovation, but these things don’t happen suddenly. What probably will occur in the short term are startup failures, “brain drain” and more Nigerian technology people or ventures selling services and products outside Nigeria rather than providing similar services locally. Exchange rate risk is also a dampener of investment appetite. In summary, local technology will suffer a huge blow from uncertainty.
Making international payments is also a pan-African problem, and Global Technology does not care about local economic pains. Most international payments made by local technology companies are for access to Cloud infrastructure and online advertising. With the rapid adoption and ubiquity of Cloud services, providing local Cloud infrastructure probably does not make sense especially when services from companies like Amazon, Google and Microsoft are much more competitive even with a devalued Naira. While we are still struggling with Internet access and payments, others are taking advantage of machine learning and Artificial Intelligence features being provided by those cloud platforms. Moving ahead is important.
I don’t see the dependence on Global Cloud services reducing or local replacements becoming viable in the short term. It means that tackling the payments problems has become an imperative.
The Payments Innovation Imperative
Payment companies are both “infrastructure” and an infrastructure dependent business. It was the reason why the largest payment entities in the world owned their infrastructure or depended on public infrastructure like the Internet. Transaction margins are slim, and third party infrastructure costs could wipe them out very quickly. Payments require rapid scale to be viable. It is why African banks and other entities have floundered, and telcos thrived with mobile payments. Telcos owned the infrastructure and had a cost advantage.
New Internet technology like Cloud services and payments standards have made it possible for Fintech companies to build payment infrastructure companies at scale even in Africa in spite of other constraints.
When an investor in the local payments startup, Flutterwave revealed that they had processed over $200 Million in payments in less than eight months of operation, a lot of people were shocked. Some others did not believe that volume of transactions was all happening locally, but some local e-commerce companies confirmed that they were indeed processing quite a lot of transactions with the help of Flutterwave. Such scale is only possible by adopting the latest standards and technology.
The Silicon Valley Payments company Stripe launched a program called Atlas that required startups all around the world to incorporate in America to get the full benefit of their platform. Flutterwave and others are providing what Stripe would give to local companies who would have had to be registered in America and pay taxes in America. Keeping our payments local means we are not only keeping our taxes local, but it also means that we are keeping our people and knowledge as well.
Flutterwave may have also received some foreign funding but it remains an African Fintech company processing payments all around Africa and solving pan-African payment problems. Nigerians founded it, and the initial investors were also Nigerians. Africa has become the home of payments innovation. Flutterwave’s growth and success has been incredible even by Silicon Valley standards. While we may have lost the Cloud Infrastructure advantage to Silicon Valley, I believe that we should not lose the payments innovation opportunity to them as well. If we do, we would totally lose control of the future of our technology.