Stripe acquires Nigeria’s Paystack: Game-changer for Africa fintech

  • Big Tech companies are looking to enhance their operations in Africa, disrupting banks' fintech operations
  • The deal is reportedly above US$200mn; this is Nigeria's first fintech acquisition
  • Nigeria remains among Africa’s top destination for fintech offerings — Paystack’s acquisition may be the first of many
Stripe acquires Nigeria’s Paystack: Game-changer for Africa fintech

In what could easily be called Nigeria's "fintech deal of the decade", Paystack — a homegrown payments solution provider — is in the process of being acquired by US fintech giant Stripe. This follows Stripe leading Paystack's Series A US$8mn financing round in 2018, with Visa and Tencent. Although the terms of the deal have not been disclosed, reports puts the estimated value in excess of US$200mn (above NGN80bn).

Notably, this is the first outright acquisition of a fintech company in Nigeria – a major scorecard for the country’s fintech landscape. However, we note that larger transactions are occurring in some of the main fintech hubs we have identified in Africa, such as World Remit’s acquisition of Kenya-originated Sendwave for US$500mn and Network International’s acquisition of DPO group for US$288mn.

Paystack’s acquisition could be the first of many

Nigeria is not new to receiving funding from global investors for fintechs, as 16 Nigerian start-ups each raised more than US$5mn in 2019. In the same year, Visa acquired a 20% stake for US$200mn in Nigerian payments processor Interswitch making it Africa’s first fintech unicorn (defined as a privately held company with a >US$1bn valuation).

Nevertheless, Stripe’s acquisition of Paystack has certainly increased attention on Nigeria fintechs once again. More funding rounds could attract larger capital as well as global investors acquiring stakes or full ownership in other Nigerian fintechs to kickstart their African operations or even to dominate the Nigerian market.

Nigeria remains an attractive destination for the growing fintech market, given a combination of its large unbanked population (estimated at 60mn people by Global Data), high mobile penetration rate, youthful and large population and conducive regulatory environment (CBN’s regulatory sandbox and SEC Nigeria’s move to regulate digital assets).

Implications: Banks and the growing threat from fintechs

Nigerian banks such as GTB, Access Bank and Sterling Bank are all pursuing holding company structures to create room for establishing businesses in fintech, insurance, asset management and other non-banking operations (see here). Paystack's acquisition could set the precedence for more big international tech companies looking for exposure to African fintech. This could, in turn, potentially disrupt plans for these banks to scale up future fintech operations by creating a more competitive market.

For GTB, we believe its digital payments subsidiary would start out to be a scaled-up version of its platforms "GT Pay" and "Habari", while Sterling Bank could buy out completely, one or more of the fintechs it is currently collaborating with. For Access, details on possible investment opportunities are expected soon, but we do not rule out the possibility of the bank buying a fintech business, given its strong record of inorganic growth.

Background: Paystack — the 'Stripe of Africa'

Paystack was founded in 2015 and has since grown the number of businesses collecting payments through its channels to above 60,000 across Africa. The company has historically disclosed some of its milestones, reporting a monthly transaction volume of US$3mn (NGN1bn) as at July 2017 and US$27.5mn (NGN10bn) as at November 2018, representing a growth of 9x in Us dollar terms. Following this growth trajectory, current volumes could easily be double its last reported volumes in November 2018. Post-acquisition, the company will continue to operate independently, and seek more avenues of expanding API-based payments into new African markets, with the help of Stripe’s funding and expertise.

Related reading:

The rise of digital payments infrastructure: The plumbing of global finance

EM digital payments infrastructure: Six companies spearheading the charge

The ultimate guide to African fintech

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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...

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