FairMoneya Lagos-based, Paris-based digital bank, is in acquisition talks Oopsa credit digital bank that provides payroll and financial services to customers in Nigeria and Kenya, in a deal worth a total of $20 million, sources tell TechCrunch.
The move signals FairMoney’s interest in growing its customer base by expanding into more countries, specifically Kenya. But it also highlights the challenges facing fintechs in Africa amid a challenging market for startups globally: a $20 million all-equity deal would be roughly equivalent to the amount Umba has raised from outside investors.
The takeover negotiations are still at an early stage, according to the sources, who spoke on condition of anonymity because of the confidential nature of the details. FairMoney and Umba did not respond to requests for comment before publication.
Founded by Tiernan Kennedy and Barry O’Mahony in San Francisco in 2018, Umba launched as a credit-driven digital bank targeting emerging markets. It provides banking services such as loans, current accounts, savings accounts, fixed deposit accounts and bill payments to customers in Nigeria and Kenya.
To date, the digital bank has secured about $20 million in funding, per PitchBook data. Its investors include Costanoa Ventures, Monzo co-founder Tom Blomfield, Lachy Groom, ACT Ventures, Lux Capital, Palm Drive Capital, Banana Capital and Streamlined Ventures.
Meanwhile, FairMoney has been backed by the likes of Tiger Global, DST, Speedinvest and others and has raised just over $57 million, according to PitchBook. It was last valued at between $400 million and $500 million after a bridge round last year.
FairMoney, known for its lending services in Nigeria, is looking for more avenues of expansion. In 2020, FairMoney ambitiously entered India as its second market, but apart from a renewed momentum in 2021, it hasn’t made any more recent revelations about how that business works.
FairMoney is also expanding its product. The startup’s eponymous app first started as a digital lender in Nigeria six years ago. Since then, it has added other financial services such as debit cards, transfers and payments. It says it has over six million retail customers.
FairMoney’s previous acquisitions include; PayForce, a sub-brand of N, backed by YCNigerian merchant payments service CrowdForce, which it acquired in a cash and stock deal valued at $15-20 million.
“We see ourselves as a retail bank, but the line between merchants and retail is often blurred,” FairMoney CEO Laurin Hainy told TechCrunch in an interview last year about the PayForce acquisition. “We’ve been thinking about the commerce space more and more and we see a lot of potential synergies between what PayForce and the company have built independently.”
Umba also started as a retail-focused digital bank in Nigeria before diversifying its offerings to include merchant and business finance products in the West African country as well as Kenya. Google Play reports over 1 million installs of its app, but the number of registered and active users is not disclosed.
FairMoney’s potential acquisition of Umba may not be solely dependent on user numbers or product offerings. First, Umba has launched commercial and enterprise products within the last four months, so it is unlikely that it has gathered significant traction and volumes in that time. FairMoney could likely be more interested in Umba’s microfinance license, which was acquired in 2022 through the acquisition of a majority stake in Daraja Microfinance Bank. This license allows Umba to offer banking services in Kenya.
Getting a microfinance bank license in Kenya can be difficult. Unlike Nigeria, which has more than 600 microfinance bank licenses, Kenya has only 14 such licenses. For FairMoney, the acquisition of Umba could simplify entry into Kenya, bypassing the lengthy licensing process that took Umba three years. An acquisition could therefore see FairMoney leverage Umba’s existing infrastructure or combine both fintech capabilities to launch its services in Kenya.
Sources tell us that while Umba was not actively seeking a sale, she may find FairMoney’s offer tempting, particularly given her current financial situation. Between January and June 2023, the fintech generated $335,000 in revenue while incurring $1.54 million in expenses, as detailed in an investment pitch deck obtained by TechCrunch.
Additionally, after securing a $15 million Series A funding round at a $60 million valuation in February 2022, Umba sought further funding last December. Ultimately, it raised a bridge round of $1.55 million at a valuation of just $25 million that is in line with FairMoney’s offering. The fintech may be looking at other options, the sources say.
Amid the fintech boom, digital and challenger banks in Africa have attracted tens of millions of dollars in venture capital investment, prompting the emergence of many players with plans to challenge traditional incumbents.
Now the story is different. VC funding continues to tighten and many of the big bets are not playing out as predicted, with companies missing growth targets and facing tough financials. This led to more M&A discussions. Just this month, Nigerian neobank Carbon acquired Vella Finance, an SME-focused banking services provider. And FairMoney’s potential takeover of Umba, if successful, would mark its second deal in two years.
