May 16, 2023
Podcast: Future of Finance - African perspectives
In this episode, QED's Managing Partner Nigel Morris and Head of Africa Gbenga Ajayi discuss the findings of the Global Fintech 2023: Reimagining the Future of Finance report that we co-authored with the Boston Consulting Group.
Nigel Morris is the co-founder and managing partner of QED Investors, a fintech venture capital platform focused on disruptive, high-growth financial services companies. QED has made numerous unicorn investments, including Credit Karma, Nubank, Avant, SoFi, Klarna, GreenSky, and AvidXchange.
Nigel is the Chairman of ClearScore and Mission Lane and serves on the boards of Remitly, Quinto Andar, Bitso, Amount and Current. Additionally, he serves on the board of Ideas42 and Scotia’s Digital AdvisoryCouncil, and he works in an advisory capacity with General Atlantic and Oliver Wyman. Nigel previously worked on the boards of Capital One, The Economist, Brookings, National Geographic, Klarna, Braintree, TransUnion, and London Business School. He frequently keynotes at industry-leading conferences, including Money2020, LendIt, Finance Disrupted and the Bernstein Annual Financials Summit.
Prior to QED, Nigel co-founded Capital One Financial Services in 1994. Under Nigel’s leadership as President and Chief Operating Officer, Capital One pioneered an information-based strategy that transformed the consumer lending industry.
Although Nigel grew up mostly in England, he takes immense pride in the fact that he is at least half Welsh. He has an MBA with distinction from London Business School, where he is also a Fellow. Nigel was recognized as a Top 100 Venture Capitalist by CB Insights in 2019 and Midas List member in 2020 and 2021. He is an avid cyclist, but he is happiest when he is at home in Virginia with his wife, four children, and three grandchildren.
Gbenga Ajayi is a partner at QED focusing on Africa investments as part of the international team.
Gbenga has spent his career working across fintech/tech and Africa in a variety of roles from product development to growth to marketing to partnerships. He has had experience working across Africa, Europe and the U.S. markets. Prior to joining QED, Gbenga was co-founder of Kanza Ventures, a boutique seed investment and advisory firm focused on fintech in Africa.
Before that, Gbenga was product director for SMB growth at Wise (formerly TransferWise), a global cross-border remittance fintech. Prior to that, he was head of strategic partnerships at Revolut, Europe’s biggest neobank, managing teams responsible for product integrations such as Xero, Quickbooks and Expedia.
Previously, Gbenga spent six years at Google in a variety of roles from managing telecom industry partnerships and strategy in Africa to leading Google’s mobile app business and strategy with clients spread for different companies from banking to travel to e-commerce companies across Nigeria, Kenya and South Africa. He was also a product partnerships lead in Europe and Africa where he worked on localizing Google Search in Africa and launched Google Events Search in Germany, the U.K., Spain and France.
Gbenga is passionate about the tech ecosystem and mentors many founders, especially in Africa. He is a global advisory board member for Antler, a global startup accelerator, co-organizer for Stockholm Tech Fest and also a fellow of the Nigeria Leadership Initiative. Gbenga holds an MBA from London Business School and received his Bachelor of Science degree in economics from Obafemi Awolowo University in Nigeria.
Gbenga is fluent in both English and Yoruba and has a basic working knowledge of Swedish. He is based in London.
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Hello, and welcome to the Fintech Thought Leaders series. I'm Nigel Morris, I'm the managing partner of QED, and I have with me Gbenga, who looks after Africa and Middle East for QED. And we are really having this conversation because we have published a report with our friends at BCG on the future of fintech. And the very brief background on that was that when we were talking to our investors, some of them were saying, "Are we in chapter two, or are we in chapter eight of the book?" Chapter two being we're at the beginning of a very long book and this huge opportunity and upside, and chapter eight meaning look, there has been Credit Karma and Klarna and Stripe and Square and Nubank, and you know what? Innovation's kind of over now and the advantage now goes to the incumbents and we expect the incumbents to continue their merry way.
Now, of course, Gbenga, we do have a dog in this hunt, don't we? In that we are very much committed to believing that it's the chapter two narrative. But I think a key part of the heuristics that make us excited about being in chapter two is really when we think about the developing world. And I was just out in Singapore last week talking about Indonesia, Malaysia, Thailand, and there's nothing that's more exciting than what's happening in Africa. And you came and joined us a year or so ago, and I remember you and I talking about the fabulous future that is Africa.
Yes, my name is Gbenga Ajayi and I'm the partner head of Africa at QED. I joined QED about going almost 18 months ago though it was feels very much like I've been here for only three months. Before QED as with most people in QED, I came from sort of the operating side of the table, on the fintech side of the table. So I was director of growth at cross border remittance company called TransferWise, well now called Wise in London. Before that I worked at new bank called Revolute in London where I was head of strategic product partnerships for Revolute business. And before that I spent about seven years at Google working in sort of different roles across Africa, really kind of laying these sort of foundations for the digitization that we see all that fintech's taking advantage of today. So everything from sort of the distribution of mobile phones to mobile apps and all of the good stuff that we're kind of all now building on top of the rails today with the fintech that we work with.
Background, I am from Nigeria if you couldn't already tell by my accent, even though I have already lived outside the country for a strong while now, born and raised in Nigeria, went to primary through undergraduate in Nigeria, and then I did sort of my master's degree, my MBA at London Business School. Very nice to meet everybody.
Nice to have a fellow LBS alum, Gbenga. There's a lot of us at QED that are LBS alums, more than Harvard or Stanford or Wharton at this point, I think. So by pure happen chance, or maybe not. Gbenga, let's go to Africa. You and I have talked a lot and you've educated me a lot on Africa is not one homogenous country. Of course it's, how many countries in Africa?
Fifty-three or 54, depending on who you ask.
So this is an incredibly complex and tapestry of different countries. So take a step back for our listeners and by context, the BCG study that we're publishing with QED not only talks about how fintech is going to grow dramatically. Basically financial service revenues worldwide are running at over $12 trillion. I underscore the T there rather than the B. The $12 trillion. Currently, fintech revenues are around 200 billion, so it's 2% of total financial service revenue, and projections going to 2030 suggest that that's going to rapidly accelerate, where fintech revenues are going to grow at about 25% compounding per year. According to our friends with the BCG model, projections are that African fintech revenues are going to grow even much faster. So tell us a little bit about the tapestry that is Africa, and then we'll go from there.
Absolutely. I think, look, Africa's one of those things that you cannot even finish in a five-hour conversation. But I think within the lens of what we're discussing and to kind of allude to your earlier point, one of the things that makes Africa very interesting when it comes to fintech, is that it is the most underserved part of the world. And if you look across, whether it's sort of north, west, east, or south, and we kind of go into different regions, it's very, very underserved. So I think the BCG report has its numbers, something like 73% of Nigerians, for example, have a mobile phone, but less than 2% of them have credit cards. You look at sort of some countries outside of South Africa, for example, where insurance penetration, former credit penetration are all below 5%, right? You look at bank accounts penetration across the continent.
If you look at everything on average, less than one in two adults have a bank account. And if you look at how many people actually use those bank accounts, then you go to sort of less than one in four. So it is just a bed of opportunity from a financial inclusion standpoint, from a financial services standpoint, and certainly technology makes it much easier to be able to actually bridge these gaps. It's not one continent and each country is very, very different from the other. For example, if you look at sort of West Africa, largely, we look at that in terms of what we call francophone West Africa and anglophone West Africa, francophone for French-speaking West Africa and Anglophone for English-speaking West Africa. Now Francophone West Africa, for example, have one common currency, and that currency that they have, the CFA is pegged against the Euro.
So you have a little bit of stability there From a currency standpoint. If you just jump over the hoop and you go to either Ghana or Nigeria, it's a completely different scenario. They have currencies that are not quasi pegged against the US dollar, and so everything that happens with the Fed in the US actually affects them, right? And so you start to see all these kinds of differences. If you go over to South Africa, for example, you will see that insurance penetration is actually, per capita, is one of the highest in the world, I think maybe only second to the US, right? So if you look at Nigeria, very low insurance, if you look at South Africa, very high insurance.
So I think each country brings its different flavors and its different challenges and different opportunities to the table. If we go over to the north, I will go to Egypt, for example. I think cash makes up about 92 or 93% of all transactions, and that's just currently for fintech innovation. So we can actually go into sort of a geographic or historical lesson, but I think the top key takeaways from here is, it's one big continent. There's massive opportunity and different types of opportunity, different types of advancement are in different pockets of the continent.
Well, in fact, I'm just looking at the stats in the BCG QED model, and they project that Africa's fintech revenues will go from five billion in 2021 to 65 billion, that's 13 x over the years. And a driver of that is the massive population sizes and the growth in population. The western world, the northern hemisphere population's actually declining. I think the last number I saw on Nigeria was 280 million people.
220 million, I think it is. Yes.
Yeah, and growing at a pretty rapid rate. These are large countries that are developing incredibly quickly. Now, historically, banks across the continent have not served the mass middle, the middle classes, the emerging middle classes. To some extent in South Africa, we've seen the middle classes being served by the next generation of banks that emerged 20 years ago, but still, we're just scraping the surface, aren't we, Gbenga?
Absolutely. I think again, if you talk about financial inclusion and underserving a population, I think Africa is a benchmark for that. And it doesn't matter whether you look at South Africa or you look at Egypt or you look at sort of Kenya and Nigeria, all of those countries, the long to in the middle are massively either underserved or unserved at all. Yes, you look at a country like South Africa, on the very top, it looks like it's very well served, but if you actually drill down, you will find out a lot of people still lack access to formal credit, lack access to sort of some of regular financial products. So it's really, really honestly, there's a massive, massive opportunity there.
When you came on, I remember you went and did a tour of Brazil and Mexico where QED had made some extensive investments over the years in Nubank and Quinto Andar and Kavak and Creditas and Konfio. And the question I have is to what extent will Africa follow a pattern similar to the emergence of really some fintech titans in Latin America? Do you see that emerging?
Oh, absolutely. I think there's a very strong parallel between sort of Latin America and Africa in terms of fintech and what's happened in the last decade or so. So if you actually kind of match inflows in terms of investment influence into say Brazil and Mexico and Nigeria and Egypt and these countries, you could almost say that sort of Africa fintech is maybe five years behind if you will, four, five, six years behind. But that's a gap that is slowly starting to catch up. Remember, technology does not follow a very linear distribution model. Adoption rates actually follow bell curves.
And so the way I look at, when I look at Latin America, and you quite rightly said, mentioned me going on a tour and looking at what QED has done and what fintech has done, is I kind of see the entire global fintech race as a marathon, and I think Africa is that sort of middle runner who is starting to pick up pace, not very much in front, but slowly starting to pick up pace, starting to get a little bit more confident. And this is driven by changing behaviors in terms of adoption models driven by just technology is actually much cheaper now to be able to distribute and build than it was, say five years ago.
And there's one thing that's also happening across Africa, which I think is very interesting, which is the regulators are starting to pay attention, and they're starting to take, at the very minimum, slightly friendly stances. So Central Bank in Egypt have a fintech sort of manual. Their fintech bills in Nigeria, South Africa. So a lot of the regulators on Africa and continent are also looking the see when investors are looking, they're looking to the rest of the world and it's starting to take stances. And so I think just to bring everything back, I would say sort of the Africa fintech ecosystem is behind Latin, but it's slowly starting to catch up and it's very hard to tell whether it's going to be the same or it's going to be beyond it, but I don't think it's going to be linear.
Exciting times. We've seen this in Mexico and Brazil. Last week, as I said, in Singapore, we've seen it in India, where the regulators are seeing the power of fintechs and how fintechs can promote inclusion and can squeeze the black economy and can create multiplier effects in their economies. And I think we are seeing a very progressive wave now of regulators around the globe really embracing fintech, and I think that's going to be really critical. Where does QED invest and where are the biggest opportunities? Are we thinking lending or are we thinking payments? Are we thinking wealth management? Do you tend to focus on Nigeria or Egypt or Kenya or SA? How do you start to think about where you allocate your time, Gbenga, with so much potential opportunity?
Oh, that's the sort of million dollar, 10, or a hundred million dollar question, Nigel. Resource allocation, I'm trying to figure out, is something that we're constantly thinking about. But look, I think the two ways primarily that we've thought about this, one is in terms of countries, and the others is in terms of verticals. So the four key countries that we focused on kind of on day one, at QED, and those countries, I kind of named them the big four. So if you ever go to Africa on safari, there's sort of big four animals that you need to see. And I've named sort of the markets after the Big four and they're South Africa, Egypt, Kenya, and Nigeria. And we've chosen this market partly because of obvious reasons, very large and diverse economies driven by very young population, but also they're interestingly what I call gateway markets.
So if you invest and spend time in Egypt, you start to understand what's happening in other countries around it. Same thing in South Africa, you start to get a sense of what's happening in the rest of Southern Africa, and certainly if you want to understand what's happening in East Africa, you spend time in Kenya. So those are the four big markets kind of anchoring and sort of putting our flag in, if you will, to kind of get through to the rest of the markets. And then in terms of verticals, I think the broad things, you're absolutely right. Credit is, look, I was speaking out of tone, I'm a QED investor. Credit is one of the things we've been very good and very excited about, but we're talking about the world's most underserved credit market. So I think just a natural marriage there. So credit is, credit and lending is one area.
Payment is not solved in Africa fully. I think maybe with the exception of, say Kenya, where I actually believe from an electronic mobile payment standpoint, they're probably the most advanced country in the world, with M-Pesa being used by probably something like more than 70% of GDP, I think. But outside of that, payments is a big area for us. One example here, is that the flight between Lagos and Ghana is less than one hour. Nigeria spends Naira, Ghana spends Cedis. For you to go from Lagos to Accra and spend money, you need to change monies to dollars and then change it back.
I mean these are areas that we're super excited about. Another area that was excited to spend a lot of time with is embedded finance. I think this is not just in Africa, this is for QED globally, but we like this idea of verticals that are self-sufficient and that have these sort of inefficiencies, and payments often is one of them, where you could basically solve the inefficiencies of specific verticals, by serving payment or by serving the financial angle of those embedded verticals. So those are, I think, the broad areas. Lending, payments, we're very excited about. B2B and sort of getting lots of B2B treasury solutions.
Yeah, helping SMBs do what they do. What about the role of the incumbents? We're seeing certainly is a matter trend in the US, is that the incumbents are now much more able and willing to work with the fintechs to provide solutions, that it's hard for the incumbents to develop themselves in a world where there are resource constraint. What about the incumbents? Are they going to be a powerful galvanizing force or will fintechs be built out of the ground more de novo?
I'm of the school of thought that incumbents play a very critical role in this fintech revolution. I think not all fintech is going to be powered by fintechs, I think fintechs is a segment, fintech is a theme that is horizontal. And so some incumbents will embrace fintech as a thing, and actually become better. I think incumbent and fintechs together is actually what really solves a problem really well, especially in a place like Africa. And look, we're starting to see some of these partnerships in places like Nigeria and Egypt and South Africa. You have a lot of upstarts, a lot of new companies that use bank sponsorships, bank regulatory understanding to work with incumbents or help them to deploy their balance sheets or actually digital distribution for insurance. And so we're starting to see some of these partnerships. I do think that, I think a combination of both is what's going to be required to create a very robust ecosystem, built by partner I think is kind of going to be a lot of what happens with the incumbents.
It's very clear that in the report that we are publishing that Africa plays a major part of the growth in the 2020s. Is it true to believe, and I'll let you finish on this comment, that actually the 2030s actually probably will be even more growth? We are laying the foundation now for the inclusion and the fintech being really developed over the next two decades rather than a single decade.
In 1999, Nigeria had no mobile phones. We had landlines, and landline penetration was less than 5% of the population. A South Africa company called MTN took a bet and went to Nigeria to erect mast and think that people would use mobile phones. That company today is the most profitable company in Nigeria, and I think it makes up for about 16% of the stock exchange. It has 73 million subscribers. Lots of people ask them, they said, "Why are you going to Nigeria? They have no mobile phones, they have no phone directories." They bet on something called leapfrogging, and they bet on something called changing demographics. And so I would just kind of turn that back to you and to everybody else today to say in the 2030s, the Africans that are coming on today, they have trust in their mobile devices, they're used to not going to a bank to get things to work, and I think it's an exciting future for the kind of way they would engage with technology and the kind of products that fintechs can build and distribute to them.
Well, well said. And as investors in Nubank, Nubank went from zero to 70 million customers in five to six years. Gbenga, it's been lovely to have you an advocate for your continent, and we're really excited about things Africa. Gbenga, thanks for your time, my friend.
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