building

Will Interswitch Become Africa’s First Billion-Dollar Startup Company?

Africa’s first billion-dollar tech IPO on a major exchange may be imminent. Nigerian digital payments company Interswitch will likely go public on the London Stock Exchange in 2016, sources confirm.

– TechCrunch

Within the business community, it is widely known that the continent of Africa has become home to some of the most cutting-edge and successful tech startups in the world. Meanwhile, many of these new companies have defied a global economic trend, indicating a sharp decline in initial startup investments.

interswitch logoThe Nigerian tech startup culture has been made possible in three primary ways:

  • The use of a previously untapped, talented workforce
  • The early cultivation of a tech culture by many leading industrialists
  • Nigeria’s rapid economic expansion

Now, thanks to Interswitch—a booming financial tech (“fintech”) firm—the rapidly developing continent may soon introduce its first billion-dollar tech company. Interswitch, a large organization with approximately 340 employees, began as a startup in 2002.

Following is a discussion of the internal and external elements that allowed a small startup to become a success. How did a once-small startup become a potential billion-dollar company?

Economic Growth

Over the course of the last decade, Nigeria has had one of the world’s fastest-growing economies. In 2014 and 2015, the country’s success was evident, as CNN listed the African nation as having the third-fastest growing economy globally, behind China and Qatar. The future also appears promising, with Citigroup predicting that Nigeria will experience the world’s fastest GDP growth between 2010 and 2050.

The rapid economic growth, and that fact that 37 million Nigerians had no access to financial or banking services, led government and economic officials to inquire about the stability of the financial infrastructure and policy. The Nigerian government had also been, and continues to be, under pressure to disburse some of the country’s good economic fortune into more hands which, of course, requires a comprehensive banking solution.

growthWith assistance from the government, the emergence of digital payment companies such as Interswitch has helped to level the economic playing field. These companies have made it easier for businesses to get paid, while providing consumers with a reliable payment method.

The Nigerian Central Bank fully embraced digital technology for payment processing, an action that allows companies such as Interswitch to scale with confidence. To demonstrate their commitment, Nigeria’s government also introduced a policy platform known as Cashless Nigeria. According to the Consultative Group to Assist the Poor (CGAP), this platform “entails a wide range of policy initiatives ranging from public information campaigns, point-of-sale guidelines, restrictions on cash-in-transit services, and substantial fees to disincentivize cash withdrawals and deposits.”

Should Nigerian officials execute the policies set forth in this platform, it can be ascertained that the use of digital payment systems by individuals and businesses will continue to scale. The country has already implemented parts of this policy platform, including the introduction of National Electronic (e-ID) Cards with ingrained payment capabilities.

The Role of Interswitch

Interswitch describes itself as “an Africa-focused integrated digital payments and commerce company that facilitates the electronic circulation of money as well as the exchange of value between individuals and organisations on a timely and consistent basis.”

Since its inception in 2002, the company has scaled at a frantic pace, eventually becoming Nigeria’s preeminent digital finance company. The startup would eventually expand to neighboring Kenya and Uganda, executing its strategy to expand throughout Africa. Currently, Interswitch business factions comprise the majority of Nigeria’s digital finance infrastructure.

Business Operations

Interswitch utilizes an infrastructure known as “switching,” which effectively connects different banks throughout Nigeria to its proprietary network. The technology allows for the use of ATM cards across different banks. The Interswitch network includes over 11,000 ATMs. Additionally, of the 25 million payment cards currently in circulation within Nigeria, Interswitch owns 18 million of them.

Despite its stronghold on digital payment solutions, the company continues to seek new opportunities. One of the most significant developments to date is the company’s agreement with Discover Financial Services, the third-largest credit card brand in the United States. Interswitch signed an agreement to provide payment processing for Discover in 2013. Shortly after the Discover deal, the company continued its organizational plans to expand within the continent by acquiring a majority stake in an East African payment company.

Among its product and service offerings:

  • PayDirect: A method of payment collection that accepts and tracks payments across multiple banks from different locations through any channel.
  • Quickteller: An online payment portal for Internet-savvy users.
  • Payment Gateway: Detailed information about financial transactions that have been sent and received.

In addition, the company offers industry-specific solutions within the health care, transportation, and telecommunications sectors. Interswitch consults companies within these sectors to establish their own payment system or network.

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Africa

4 Reasons Why Tech Startup Investment Is Booming in Africa

Global venture capital investment in tech startups fell significantly in the first quarter of 2016. Startup funding plummeted 25 percent from the final quarter of 2015 to $13.9 billion. However, there was one exception: African tech startups.

Upon further examination, the influx of capital into tech startups in Africa hardly comes as a surprise. The brainpower behind flourishing new companies such as M-KOPA, a solar energy provider, and BitPesa, a merchant payment system, have garnered attention and funds from some of the biggest names in the tech world. Notable individuals who have invested in African tech startup companies include Bill Gates and Steve Case, one of the founders of America Online (AOL).

Andela LogoPerhaps the most widely known investment around Silicon Valley is Andela, a Nigerian startup that teaches those within its ranks about software development. The company received a $24 million investment from perhaps the biggest name of all in the tech world: Mark Zuckerberg, the founder and CEO of Facebook.

Economic analysts and other experts predict that the exceptional growth in African tech startup investment will continue for the foreseeable future. As it turns out, human capital and an impressive business infrastructure are ubiquitous within the Saharan continent.

Following are some of the reasons behind the proliferation of investment in African tech startups and why this growth is expected to continue.

Innovative Infrastructure

computersThe advancement of a disruptive tech culture is widespread throughout various regions of Africa. The port city of Lagos in Nigeria is the predominant tech hub of West Africa. The Kenyan capital, Nairobi, is the African headquarters for companies such as Google and General Electric. Cape Town in South Africa is quickly transitioning into an information technology (IT) powerhouse, for example.

Perhaps just as promising and heartening is the rapid tech infrastructure currently developing in previously underdeveloped places such as Rwanda, which is still widely known as a war-torn country that is facing significant civil unrest. SafeMotos, a startup that offers an app to help commuters locate taxi-bike drivers, was founded in the Rwandan capital of Kigali. The business is making a measurable social impact by reducing the second-leading cause of death in Africa: traffic accidents.

Social Impact

Africa is a continent where, in addition to plentiful business opportunities, a significant amount of social good can be accomplished. Many areas of the continent are underdeveloped, resulting in a lack of access to basic services, such as electricity and education.

The World Bank estimates that two in five African adults (about 400 million people) are illiterate, and the United States Agency for International Development (USAID) estimates that about 66 percent of sub-Saharan Africans lack access to electricity. In addition, about one-third of the population has no banking service.

Statistics such as these have attracted those known as “impact investors,” individuals or organizations seeking to invest capital “into companies, organizations, and funds with the intention to generate a measurable, beneficial, social, or environmental impact alongside a financial return.”

A Rising Middle Class

middle classAccording to UHY, the world’s largest network of accounting and financial firms, Africa is home to the fastest-growing middle class in the world. UHY cites “growth in business technology” as the catalyst for Africa’s expanding middle class. As a result, analysts state that “the rate of return on foreign investment in Africa is higher than in any other developing region.”

As the middle class expands, so does disposable income, a vitally important factor for potential investors. The McKinsey Global Institute estimates that consumer spending will increase from “USD 860 billion in 2008 to USD 1.4 trillion in 2020,” more than a 60 percent increase in only a 12-year span.

Financial Returns

For most, investing in an African company is exactly that: an investment—a means to earn a certain amount of profit from an initial expenditure. Fortunately, investors are able to commit capital with a level of confidence that was once questionable.

The most successful startups are capitalizing on increasing consumer demand for certain products and services. Niches currently being filled include: mobile banking services, access to solar power, lending to small- and medium-sized businesses, and transportation services. Savvy investors are also able to take advantage of such economic developments and realize a sizeable rate of return in the process.

Many factors are contributing to the growth of tech startup investments in Africa. Rapid growth in certain areas, an increasingly educated workforce, an expanding middle class, and government support are all viable reasons to invest in Africa’s fertile economic climate.

An influential factor that cannot be overlooked is the rise of impact investing. One can argue that many of the region’s most prominent investors, such as Bill Gates and Mark Zuckerberg, are committing significant amounts of money in the interest of advancing certain elements of African society just as much, if not more so, than in the interest of obtaining a return on investment. This is a promising trend with a humanitarian twist that is likely to continue into the foreseeable future.

programming language

Andela: The Amazing Startup That Powerful Investors Love

“There are five open jobs in the U.S. for every software developer looking for one. It is a challenged ecosystem. We’re able to tap into what I argue is the largest pool of untapped brain power in the world. – Jeremy Johnson, CEO/Cofounder of Andela on what motived him to start the company

Introduction

Andela LogoWith multiple job openings for every software developer and computer programmer, it is very difficult to find information technology (IT) talent. Some estimate that the U.S. will need to increase its IT workforce by nearly 50 percent over the next two years.

Perhaps more important (and disheartening) are the unemployment statistics in Africa. Some African nations cite youth unemployment that hovers around 50 percent. In Lagos, Nigeria, there are roughly 11 million young people who are unemployed, and 20 percent of these are college graduates.

Analysis conducted by the Brookings Institution states that when youth unemployment is taken into account, about 90 percent of young people are considered unemployed or underemployed in some areas of the continent.

Filling the IT labor gap

This is where Andela comes in. The company has ambitious plans, which include training more than 100,000 software developers and computer programmers in the next decade—all of whom come from Nigeria or neighboring Kenya.

Andela doesn’t simply seek to fill the significant gap that exists between IT jobs and available talent; the company is also striving to attract more women in efforts to fill these roles. According to labor statistics, only about 20 percent of software developers are female.

To do its part, Andela aims to raise the total of women working in its software development area to 35 percent. “We just weren’t where we needed to be. We have struggled to have that percentage. It’s getting the word out there to young women that we’re an employer to be actively excited about. Then, getting word out to their families that Andela is a safe place to work,” says cofounder Christina Sass.

History of Andela

Andela was founded in 2014 by Jeremy Johnson, an education technology entrepreneur; Christina Sass, an American education advocate; Ian Carnevale, a graphic designer and entrepreneur; and Iyinoluwa Aboyeji, a Nigerian entrepreneur.

programmingAboyeji, selected for a prestigious economic award by the World Economic Forum in 2012, says of the company’s founding: “Andela began after my friend and mentor Jeremy Johnson visited Nairobi in 2013 and saw how a lack of career paths for young people was contributing to Africa’s youth unemployment.”

Applicants that make it past the company’s rigorous application screening process are invited to attend training, or “boot camp.” It is at this juncture that accepted applicants are referred to as fellows. One of the company’s selling points is that it pays the equivalent of a Nigerian upper-middle-class wage while attending training. Following successful completion of its training program, Fellows are placed with prominent international companies, including Microsoft and Udacity.

To date, the startup has received over 40,000 applications in a part of the world where IT training and education is nearly absent. Of these applications, it has accepted just .7 percent. CNN dubbed Andela “a startup more elite than Harvard” in a recent article. (Harvard accepts approximately 6 percent of applicants.)

Johnson adds: “Our plan is to train 100,000 genius-level young people across the continent over the next 10 years, but we’re always going to have very selective approaches. What we care about is being able to train in a really high-quality way… the reason we’re able to do that is because the people that are in the program and the developers that Andela produces are head and shoulders above what you’d expect for a junior developer.”

Despite its selectivity, the company aims to have a mix of experience and education within its ranks. While the enrollment statistics are not made available, the founders state that some have college degrees. Many students have taught themselves basic computer science. Others have taken free online courses, while still more have no formal education at all—just an aptitude and willingness to learn computer programming.

Upon their placement with a company, the fellows have the option to take advantage of Andela’s professional development courses. These courses range in subject matter, but generally focus on either technical or soft skills.

The company’s business model and overall mission have attracted a number of prominent investors, none more so than Mark Zuckerberg, founder and CEO of Facebook. The Chan-Zuckerberg Initiative, founded with Zuckerberg’s wife Priscilla Chan, reportedly invested several million dollars in the startup. Other investors of the promising new company include Facebook’s cofounder Chris Hughes, AOL cofounder Steve Case, and Carmelo Anthony, a professional basketball player for the New York Knicks.

The Zuckerberg-Chan initiative will reinvest any profits back into its organization. The initiative has historically focused on investments in education and health care.