Fintech companies, like every other business, aspire to extend their operations beyond their first base. For example, a startup that began in Nigeria may, in a few years, desire to expand into other countries when the right opportunity opens up. Lidya, Paga and Migo are among a few recent examples.
When we examine how expansion works, a common thread comes to the forefront:
Because the realities of running fintech operations differ from one country to another, it is often impossible to set up shop in a new country without assistance. Requirements for business registration, licensing, account opening, taxation, data protection and others could make the expansion process intense and discouraging.
And so it’s no surprise to learn that, to deal with this hassle, fintechs engage in several types of partnerships. Take Cellulant for instance.
The fintech company has grown from one office in Kenya in 2004 to being present in 33 markets in Africa. But according to Sike Bamisebi, acting CEO, Cellulant Nigeria, the company is only incorporated in 18 countries. To do business in the other markets, they partner with some competitors to deliver the value they offer.
As Bamisebi explained on TechCabal Live, collaboration with competitors is one of three types of partnerships. The other two could be partnerships with companies that offer industry verticals and with providers of segmented infrastructures.
Bamisebi believes that fintech companies must first have a clear reason for wanting to enter into partnerships; a view shared by Nosa Omusi, the Nigeria country manager for Catalyst Fund.
Omusi explained that partnerships could serve various purposes. The usual case is that a company seeks out partnerships to scale customer acquisition.
But it is possible for a company to enter into a partnership in order to shore up trust in its services. Whatever the purpose, companies must ensure that such partnerships rest on an alignment of strategies between parties involved.
“Your best partners are people whose strategic goals align with yours. If you want to go into a partnership, you need to ask yourself: which organisations do my value propositions make the most sense to,” Omusi said.
With that set, other factors come into play, like ensuring the value proposition is clear, concise, and measurable. Because fintech partnerships tend to require some technology integrations, an audit of the would-be partner’s level of digitisation is foundational as well. And where revenue-sharing will be involved, terms have to be laid out clearly and agreed to without coercion or reluctance.
One thing to note: there is not a one-size fits all approach to fintech partnerships, as Clara Odero, VP Partnerships and Growth (Middle East and Africa) for NIUM, observes:
“Markets are very different. If you come from a card-first market like Nigeria, operating in Rwanda’s mobile money ecosystem is totally different. The infrastructure is different. How you acquire merchants will be different.”
In other words, doing thorough research and having a baseline understanding of how fintech works in a new destination is indispensable.
Bamisebi points out that it might be tempting to underestimate the role cultural and language differences play in how a startup expands across Africa. In reality, there is more to navigating from a francophone country to an anglophone region than meets the eye.
As in other business sectors, dealing with regulatory differences is the big elephant in the room with expansions and partnerships. Should companies skip permissions and ask forgiveness later?
It is certainly possible, but Odero’s counsel is to “please ask for permission.”
“Seeking forgiveness is great when you have a great lawyer on call to get you out of problems. But having conversations with regulators from the start introduces them to your business model and helps them advise you on what you need to do and when.”
She says she has dealt with lots of regulators in her job and is yet to meet one that is not disposed to have a conversation.
And should fintech startups pursue an aggressive approach to expansion?
Bamisebi thinks an aggressive or gradual approach “depends on your risk appetite as a founder. But I feel a good understanding of the market is critical.”
Odero gives some context; the nature of the investor(s) backing a fintech startup may influence how aggressive an expansion strategy is.
“It’s one of those things that should be evaluated on a case by case basis. If you see something you think can do, you should. But the pressure should not be external,” Odero says.
But sometimes, aggression may be inevitable if the timing is right. Omusi observes that this TechCabal conversation is taking place on Zoom, a company that was trickling upwards but whose growth has exploded over the last year. Aggressive expansion looks good for them. Not to take advantage would be negligent.