SOLA FANAWOPO
The Nigerian and by extension African fintech space has witnessed a huge surge in the last couple of years. In 2021 alone, more than US$4.7 billion was introduced into the African tech ecosystem to fund startups creating solutions to all kinds of problems on the continent, from Logistics to Healthcare to Education, Agriculture, and the like. However, of the US$4.7 billion introduced into the African ecosystem in 2021, about 62% of that representing US$2.9 billion was targeted at fintech firms.
The growth of the Nigerian fintech space has been phenomenal, to say the least, from companies offering payment solutions, credit-tech solutions, investment-tech, agency banking, infrastructure providers, etc. a host of fintechs have been birthed over the years to solve some of the frictions in the country’s financial system and bolster financial inclusion. According to the CBN governor, Nigeria’s payment system has attracted more than US$700 million in Foreign Direct Investment (FDI) in the last five years alone. This indicates the astronomical growth witnessed in this space over the past couple of years and why a growing number of players are interested in getting a piece of the pie.
MTN, one of the leading telecommunication providers has been itching to get its feet in the fintech space for a while now. It acquired its Super Agency license in 2019 which allowed it to operate and run its MoMo agent network and recently received a license from the Central Bank of Nigeria (CBN) to run a Payment Service Bank in Nigeria.
MTN has been making significant inroads into the fintech space, its aggressive agency banking strategy has seen it acquire more than 800,000 agents on its platform since 2019 till date. However, while MTN continues to make huge strides in agency banking, its revenue and income numbers do not look too attractive.
While as a telecommunication business, MTN is hugely successful, recording 2021 revenues of N1.654trn (US$3.93billion), its digital business division under which it reports fintech revenue has not performed as desired. According to public financial reports, it’s fintech business which consists of MTN MoMo, XtraCredit (Airtime lending), and all other fintech initiatives the group carries out is largely skewed towards Xtracredit as against its agency banking business.
According to publicized financial reports by MTN, 95% of its fintech business is still XtraCredit. That may just be about to change based on MTN’s recent announcement to transform from being just a telecommunications company into a wholesale technology firm It is not unlikely that acquisitions may be one of the very strong options MTN may be considering to achieve this.
MTN and Acquisitions
While MTN doesn’t have a long history of inorganic growth via acquisitions (its acquisition of VGC Telecommunication and VisaFone being the exception), anything can happen in the fintech space, and a firm with deep pockets like MTN may be willing to cough out money to push its fintech initiatives forward if it sees an opportunity in that space.
If it decides to go this route again, one of the best bets MTN may have an eye out for on the market for an acquisition to properly position itself as a technology firm (beyond just a logo refresh) is SystemSpecs.
Why MTN may be considering a SystemSpecs acquisition?
While the assumption is the worst kind of knowledge, it is also important to note that in some cases, seemingly putting the dots together may reveal and unearth certain strategies a big corporate like MTN may be considering.
MTN recently performed a brand refresh to position itself as more of a technology company than just a telecommunications company. This brand refresh included changing some attributes of its logo to look more “tech-like”. According to MTN Groups’ chief sustainability officer, Nompilo Morafo, the new branding is part of the group’s latest strategy tagged Ambition 2025, which is aimed at creating “leading digital platforms for Africa’s progress”.
MTNs much-publicized share offering in Nigeria (an action it had been reluctant to execute some years back) helped it raise about US$244 million. What that means is that beyond just profits, MTN has increasingly deeper pockets and capital required to execute a massive fintech acquisition to position its fintech business to capture growth into the future.
MTN presently has a PSB (Payment Service Bank) license which allows it to perform a host of financial and banking activities. Acquiring a PSSP (Payment Solution Service Provider) license holder who also has a Switching license with already existing transaction volumes will definitely go a long way in accelerating its fintech strategy.
Here’s why I think MTN may be considering a SystemSpecs acquisition:
- MTN recently partnered with SystemSpecs Remita via its core financial services business Yello Digital Financial Services (YDFS) to allow for bills payment, money transfers, and TSA Payments on its agency network to bolster financial inclusion. While partnerships in the fintech ecosystem are not uncommon, I believe strongly that if you look between the lines, this may just be MTN testing the waters for what an acquisition may feel like practically.
- MTNs chairman Engr Ernest Ndukwe was recently unveiled as the new Chairman of the SystemSpecs board of directors. This strategic move says a lot about what MTN may have in the works.
- Another key reason I think an acquisition is probably on the horizon is that SystemSpecs recently announced it’s morphing into a holdings company (the same model banks as GTCo and the likes have adopted to bolster their fintech strategies).
SystemSpecs Holdings now has two major subsidiaries; Remita Payment Services Limited (RPSL) and SystemSpecs Technologies Limited, this new model means a SystemSspecs acquisition in addition to handing MTN control of SystemSpecs regulated fintech business (Remita) which allows MTN to take advantage of Remita’s PSSP and switching license, also hands MTN control of SystemSpecs Technology, a pioneering software development firm with three decades of experience in building software solutions for both public and private sector players. The company is responsible for one of the most successful Human Resource Management Software in Africa (HumanManager) that reportedly processed over 10 million salaries at about N1trn(US$ 2 billion) in value in 2021 alone.
Who is SystemSpecs and what would its acquisition bring to the table?
For those who may not know, SystemSpecs is one of the pioneering technology firms in Nigeria. SystemSpecs was founded in 1992 as a software reseller for Systems Union UK before venturing into Human Management software and a host of software solutions. Remita, the fintech arm of the business was launched in 2005 and has played a massive role in the development of the fintech ecosystem in Nigeria as one of the few pioneering fintechs. In 2011, Remita was selected by Nigeria’s Government to power the TSA (Treasury Single Account) policy. The TSA was a game-changer in the management and reduction of pilfering in the Nigerian public sector as corrupt officials were no longer allowed to indiscriminately move money into personal coffers. Remita was chosen as the prime fintech to power this initiative as there were no fintechs at the time with similar capabilities in terms of transaction processing thorough put/technical competence.
The implementation of Remita for TSA by the Federal government of Nigeria reportedly saves Nigeria more than N540 billion (US$1.2billion) annually in public funds that would have otherwise been pilfered.
Due to some of these opportunities, Remita as a fintech is strongly and uniquely positioned based on both its relationship with the major Nigerian banks and the Straight-through Processing (STP) infrastructure it has installed across all the banks in Nigeria, infrastructure that no other fintech in Nigeria has. For those who may not know, Remita’s STP infrastructure in addition to a plethora of functions allows it to debit any account (with consent from the account owners of course) across all banks in Nigeria and credit other banks or stores of value simultaneously.
Remita is also one of the few companies globally that possess an A2A (Account to Account) switch and is a fully licensed payments company with a Switching and Processing License from the Central Bank of Nigeria, which in addition to transaction switching allows Remita play in the PSSP, PTSP (Payment Terminal Issuance) and Super Agency business. An account-to-account switch enables the debiting and subsequent crediting of various stores of value without the need for a third-party medium (i.e cards, etc.). While cards still make up the major proportion of digital transactions in Nigeria today, it is clear that the future of finance and payments will not lie with cards but with token-less transactions that allow for debit and credit transactions without the need for third-party tokens. Remita is one of the very few fintechs globally poised to dominate that market in the future both in Nigeria and Africa based on its A2A switch.
SystemSpecs also tends to be a quiet company, but silence doesn’t necessarily connote inactivity, according to figures released by the Central Bank of Nigeria, Remita processed N20.9trn (US$46billion) in Total payments volume in 2019 alone. This figure is almost three times what Flutterwave (the US$ 3 billion African unicorn) has processed since its inception. While silence is how great companies change the world, it’s also clear that silence may be making the industry underestimate Remita which is something MTN might have seen through.
The success of TSA in Nigeria by Remita has been a game-changing initiative, it has also bolstered interest amongst various other African nations looking to curb revenue and fund leakages in their public sectors to consider adoption. As a Pan-African business, Remita is well-positioned to lead the implementation of TSA on the African continent and replicate the same success it has enjoyed in Nigeria all over the African continent, especially in other developing nations with growing economies.
Remita as a payments company is also an expert in building payment systems on a national basis. According to The State of Instant Payments In Africa report by AfricaNenda, the growth of the adoption of Real-Time Payment Systems in other African countries creates a unique expansion opportunity for Remita to position itself as the payments infrastructure provider for multiple developing nations in Africa, positioning Remita as the backbone infrastructure for payments in Africa – the next 1 billion.
Beyond just payments and collections, Remita has a hugely successful data business that leverages payment and collection data generated on its platform, to create unique use-cases for its customers to build with.
SystemSpecs has been bootstrapped from inception till date and is clearly a profitable company, this means acquiring a company like SystemSpecs beyond the financial and payment assets it possesses is also an automatic addition to the bottom line of any discerning firm.
The secret of every successful company is its people. One of SystemSpecs’s core values is open family-based relationships at work. While the majority of technology firms complain about employee attrition rates, employees at SystemSpecs tend to stay longer due to what many consider its open, helpful, and humble culture. According to data from LinkedIn, the median tenure for employees at SystemSpecs is 5 years, compared to other leading fintech firms in Nigeria; Paystack (1.5years), Flutterwave (1.3years), Interswitch (2.9years), SystemSpecs has significantly better employee retention rates which speak volumes of the unique culture that has been cultivated at the firm over the past 30 years.
A SystemSpecs acquisition also adds a superbly detailed three-story building office with an ocean-view rooftop in the heart of Oniru, Victoria Island, Lagos to the real estate asset of any discerning company that makes such a move.
How much will an acquisition cost?
While I can’t verify how much an acquisition of this scale would cost, I don’t think it would be too far off to assume an acquisition of this scale would position SystemSpecs to become a unicorn. Based on transaction value, volume, and net revenue to the business, compared to other fintechs, SystemSpecs is likely already a unicorn in its own right.
Can MTN be checkmated on this?
While MTN is a big contender for acquiring SystemSpecs, with the rate at which Nigerian banks are now morphing into holding companies to strengthen their fintech plays, it isn’t too far-fetched to believe more Nigerian banks may be considering acquiring solid fintech businesses to bolster their fintech play, a trend that may culminate in one of the big five Nigerian banks (FUGAZ) making a serious bid for SystemSpecs in the coming months.
I also don’t want to rule out the possibility of Airtel or any well-funded Tier 3 bank (e.g. Titan Trust Bank, Taj Bank, Providus, etc.) desiring to bolster their fintech play making a massive acquisition attempt for a SystemSpecs or any other well placed fintech firm the same way Titan Trust Bank acquired an 89.39% stake in Union Bank.
Come to think of it, there just may be a non-Nigerian entity seeing through the local play and planning to make a dash for SystemSpecs. After all, a less-known entity just beat Airtel to Nigeria’s 5G license.
Conclusion
I believe strongly with the latest trends in the fintech ecosystem today, consolidation may become the name of the game going forward, and well-funded telcos, banks, and fintechs may be well-positioned to lead that game in their individual bids to strengthen their hold and their play in the African fintech space. It’s not even impossible that SystemSpecs is contemplating its own acquisitions even though it has always been an organically grown behemoth.
Although it is very possible MTN may take an alternative route by acquiring a significant stake in SystemSpecs, similar to what VISA did at Interswitch, and not completely buy out the business, it is however guaranteed that any transaction of this sort will likely position SystemSpecs to become a Unicorn before the year is over.
We should expect to see more unicorns ride into the scenes in 2022.
