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.
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.
The 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?
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.
With 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.
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.