MasterCard's move to take up a stake in MTN’s R100bn fintech business is a nod to the growth and prominence of the broader financial technology landscape in SA and the rest of the continent.
The deal, the financial details of which have not been disclosed except that it values the business at $5.2bn (nearly R100bn), slots MTN’s take on mobile payments as one of the most valuable fintech businesses in Africa.
Mastercard’s financial backing could be seen as a sign of confidence in MTN’s strategy to look for growth in financial services. At the same time, it shows that Africa’s fintech industry continues to attract deep-pocketed international backers looking for growth opportunities in this largely untapped market.
The largest capital raises in recent times for local start-ups have been $120m for Jumo, led by Fidelity Management & Research at a $400m valuation; $48m for Ozow, led by China’s Tencent; and $83m for Yoco. All three are fintech firms.
That trend has continued in 2023, with TymeBank raising $78m, Lulalend $35m and Peach Payments $31m.
“Prior to 2022, African growth companies had begun raising $50m plus equity rounds regularly for the first time in history, mainly in fintech but increasingly in sectors such as logistics, education, and healthcare,” says Risana Zitha, MD and head of Africa at DAI Magister, a mergers & acquisitions investment bank focused on the ICT sector.
Insurance technology platform Naked recently raised $17m in a third round of funding.
Private equity firms are getting in on the action with Andile Ngcaba’s Convergence Partners announcing in April it had invested $10m in 42Markets, an incubator, investor and builder of fintech companies.
If MTN’s financial services unit had been started by a crop of college students or had its first headquarters in a garage, as opposed to being housed at its comfortable offices in Roodepoort, it would be considered a unicorn — a start-up reaching a $1bn valuation — many times over.
Go1, an education platform was crowned SA’s first unicorn in mid-2021. Founded in 2015 by Melvyn Lubega and Australian Andrew Barnes with a group of high school friends, the online learning platform has more than 3.5-million learners at more than 1,600 customer organisations worldwide.
Outside fintech, edtech has — through the Covid-19 pandemic — become an attractive investment area.
Unlike many of the scrappy start-ups looking to gain traction, MTN already had a large base of customers through which it has been able to rapidly grow sign-ups for its mobile payments service.
“Two or three years ago, companies could raise large rounds with a promise of cross-border expansion. Today, investors predominately favour companies with a broader, pan-African presence,” Zitha said.
MTN has 61-million monthly active users across 16 markets, while Vodacom and Safaricom have more than 52-million subscribers in seven countries.
Zitha explains that investors committing to a $50m plus investment round, even a $30m plus round, are working backwards from a $250m-$500m minimum exit in a few years’ time.
“For any African company to be acquired for $500m in real cash requires a full African ‘platform’ business in whatever sector the company competes in. In short, it needs to become very strategic to a buyer, and deliver to that buyer ‘Africa on a plate’.”
Another advantage mobile operators have had is the range of financial services offered.
According to a report by Techpoint, lending start-ups usually get the most investment interest, receiving 30.4% of sector funding for the first half of 2023. Payments, 16%, and insurtech, 8.9%, round up the top three.
MTN’s fintech offering includes mobile money, insurance, airtime lending and e-commerce. This is similar to that of rival Vodacom.
Whether a start-up or corporate-backed venture, valuations have been a concern in a market characterised by volatility, rising living costs, interest rate hikes and an economic downturn.
Bloomberg Intelligence’s John Davies notes that Mastercard’s planned minority investment in MTN mobile money, at an enterprise value of $5.2bn, equates to an enterprise value multiple — a popular tool used to value a business — of 16 times. This is well above rival Airtel Africa’s equivalent 10 times.
“As well as boosting MTN’s see-through valuation, the cash could help the company’s balance sheet, temporarily substituting for dividends from subsidiaries and partly offsetting increased 2023 capital-spending guidance, both affected by forex,” he said.
MTN’s fintech business brought it about R10bn in core earnings, or earnings before interest, taxes, depreciation and amortisation (ebitda) in the six months.
The fintech wave is not only benefiting mobile operators.
This week retail and financial services group Homechoice saw its general profit remaining flat while its fintech business reported a jump. Overall operating profit, generated from a company’s core operations, was up by a quarter to R285m and the fintech’s operating profit surged 44% as fintech revenue leapt 29% to R872m.
Homechoice sells bedding and kitchen goods on credit through call centres and direct marketing to mostly female customers and its financial services division, Finchoice, offers unsecured lending and funeral policies via a mobile app.
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