Visa takes stake in Interswitch, ramps up African ambitions

Visa has taken a stake in Nigerian fintech Interswitch to further advance its digital payments strategy across Africa, writes Douglas Blakey

Visa’s investment makes Interswitch the most valuable African fintech with a valuation of $1bn. Visa joins investors, Helios Investment Partners, TA Associates and IFC, as shareholders in the payments processor.

Founded in 2002 and headquartered in Lagos Nigeria, Interswitch is already a major player in the region.

For starters, it has form as a market disruptor. For example, Interswitch launched e-payments processing and switching services in Nigeria. In addition, it owns Verve, the largest domestic debit card scheme in Africa with more than 19 million cards.

And then there is Quickteller, the multichannel consumer payments platform. That is a big player in driving financial inclusion across Nigeria

Visa & Interswitch deal: why it is a significant deal

This is not just another strategic investment by Visa: this is a serious deal. In summary it creates an instant acceptance network across Africa. There will also be multiple winners, in particular consumers and merchants.

Sub-Saharan Africa is the fastest growing payments market in the world. Growth is driven by a young and dynamic population. The UN estimates that around 65% of the population is aged under 35.

Then there is the boost of the rapidly evolving consumer behaviour. In addition, there is an increasing desire for payment solutions that can be accepted across the continent and abroad.

In 2018, electronic payments in Africa accounted for 12% of transactions by volume, compared to 54% in Europe and 79% in North America. However, this volume is expected to grow at a CAGR of 35% in Sub-Saharan Africa from 2018 to 2023.

In addition, POS card transactions in Nigeria are set to rise at a CAGR of 63% between the same time period.

Mobile penetration is already fairly high in most African markets but the unbanked segment remains a major issue.

The World Bank estimates that around 66% of sub-Saharan Africa’s population is unbanked.

In Nigeria, the unbanked segment of the population is about 60%. In real money that means there are about 123 million unbanked Nigerians.

It is even higher in Egypt, at about 68% and works out at about 68 million people. Card penetration rates remain a work in progress and depressingly low. For example, card penetration rates in Egypt and Nigeria are 4% and 10% respectively.

On the other hand, cards issued in Nigeria increased five-fold between 2012 and 2016. Over the same period, electronic transactions increased four-fold.

Smartphone penetration rates are also moving in the right direction. Mobile industry body GSMA forecasts that smartphone penetration across Sub-Saharan Africa will hit 66% by 2025 from a current 39%. Smartphone penetration in Nigeria starts from an even lower rate, currently estimated at about 27%.

Africa: a priority region

With the largest population in Africa and seventh largest in the world, Nigeria represents an outstanding opportunity for Visa to grow its regional presence.

Andrew Torre, Regional President CEMEA, Visa, said: “Africa is a priority region for us. We continually seek strategic partnerships with local players to further strengthen our leadership position and enhance the payments ecosystem across the continent.

“This partnership aligns with our global strategy to work with and invest in innovative partners, and we look forward to working with Interswitch to provide new consumer and merchant experiences and support the rapid growth of digital commerce across Africa.”

Helios is one of the largest Africa-focused investment firms with investments in over 30 African countries.

Helios African investments total $2b in Africa: a priority region

According to FT Partners, Helios has invested over $2bn in African businesses. During its ownership the Firm’s portfolio companies have generated over $9bn in revenue and added almost 6,000 new jobs.

Babatunde Soyoye, Helios’ co-founder and managing partner, said: “A strategic investment by Visa, the world’s leader in digital payments, into Interswitch is a substantial endorsement of the Company’s expertise in African payments.

“As an active investor in leading African payments businesses, we see tremendous opportunities to digitise payments across the continent. We have worked closely with Interswitch’s management team to build a high quality and scalable platform geared to address some of these opportunities. We look forward to further collaboration with the Company alongside Visa.”

Helios investment in Interswitch remains one of its most significant. Other notable Helios investments include Fawry, Egypt’s largest electronic payment network.