Nigerian digital financial institution FairMoney in talks to purchase Umba in $20M all-stock deal, sources say

FairMoney, a digital financial institution based mostly in Lagos and headquartered in Paris, is in discussions to accumulate Umba, a credit-led digital financial institution offering payroll and monetary providers to prospects in Nigeria and Kenya, in a $20 million all-stock deal, sources inform TechCrunch.

The transfer indicators FairMoney’s curiosity in rising its buyer base by increasing into extra international locations, particularly Kenya. Nevertheless it additionally underscores the challenges going through fintechs in Africa amid a difficult marketplace for startups globally: a $20 million all-share deal can be roughly equal to the quantity Umba raised from outdoors buyers.

Acquisition negotiations are nonetheless of their early phases, in line with the sources, who requested anonymity as a result of confidential nature of the main points. FairMoney and Umba didn’t reply to requests for remark forward of publication.

Umba, based by Tiernan Kennedy and Barry O’Mahony in San Francisco in 2018, was launched as a credit-led digital financial institution focusing on rising markets. It offers banking providers resembling loans, present accounts, financial savings accounts, fastened deposit accounts and invoice funds to prospects in Nigeria and Kenya.

To this point, the digital financial institution has secured round $20 million in funding, per PitchBook data. Its buyers embrace Costanoa Ventures, Monzo co-founder Tom Blomfield, Lachy Groom, ACT Ventures, Lux Capital, Palm Drive Capital, Banana Capital and Streamlined Ventures.

In the meantime, FairMoney has been backed by the likes of Tiger World, DST, Speedinvest and others and has raised simply over $57 million, in line with PitchBook. It was final valued at between $400 million and $500 million following a bridge spherical final 12 months.

FairMoney, finest recognized for its lending providers in Nigeria, has been searching for extra avenues for growth. In 2020, FairMoney ambitiously entered India as its second market, however past a momentum update in 2021, it has not made any more moderen disclosures about how that enterprise is doing.

FairMoney has additionally been increasing its product. The startup’s eponymous app initially launched as a digital lender in Nigeria six years in the past. Since then, it has added different monetary providers, resembling debit playing cards, transfers and funds. It says that it has over six million retail prospects.

FairMoney’s earlier acquisitions have included PayForce, a sub-brand of YC-backed Nigerian service provider fee service CrowdForce, which it picked up in a cash-and-stock deal value $15-20 million.

“We see ourselves as a retail bank, but the line between merchants and retail is often blurry,” FairMoney CEO Laurin Hainy instructed TechCrunch in an interview final 12 months across the PayForce acquisition. “We’ve thought about the merchant space more and more, and we see a lot of potential synergies between what PayForce and we have built independently.”

Umba additionally began as a retail-focused digital financial institution in Nigeria earlier than diversifying its choices to incorporate service provider financing and enterprise banking merchandise within the West African nation in addition to Kenya. Google Play signifies over 1 million installs of its app, however the variety of registered and lively customers just isn’t disclosed.

FairMoney’s potential acquisition of Umba might not solely hinge on consumer numbers or product choices. For one, Umba launched service provider and business-facing merchandise throughout the final 4 months, so it’s inconceivable to have garnered vital traction and volumes in that time-frame. FairMoney may seemingly be extra desirous about Umba’s microfinance license, obtained in 2022 by way of buying a majority shareholding in Daraja Microfinance Bank. This license permits Umba to supply banking providers in Kenya.

Acquiring a microfinance financial institution license in Kenya may be difficult. Not like Nigeria, which has over 600 microfinance financial institution licenses, Kenya has solely 14 such licenses. For FairMoney, buying Umba may streamline entry into Kenya, bypassing the prolonged licensing course of that took Umba three years. As such, an acquisition may see FairMoney leverage Umba’s present infrastructure or mix each fintech capabilities to launch its providers in Kenya.

Sources inform us whereas Umba wasn’t actively looking for a sale, it might discover FairMoney’s provide engaging, significantly given its present monetary standing. Between January and June 2023, the fintech generated $335,000 in income whereas incurring $1.54 million in bills, as outlined in an investor pitch deck obtained by TechCrunch.

Moreover, after securing a $15 million Series A funding round at a $60 million valuation in February 2022, Umba sought additional funding final December. Finally, it raised a $1.55 million bridge spherical at a valuation of simply $25 million which is according to FairMoney’s provide. The fintech could also be contemplating different choices, the sources say.

Amid the fintech growth, digital banks and challenger banks in Africa attracted tens of thousands and thousands of {dollars} in enterprise capital investments, spurring quite a few gamers’ emergence with plans to problem conventional incumbents.

Now the story is completely different. VC funding continues to tighten, and lots of the massive bets aren’t taking part in out as forecast, with corporations lacking progress targets and going through difficult unit economics. That has led to extra M&A conversations. Simply this month, Nigerian neobank Carbon acquired Vella Finance, an SME-focused banking service supplier. And FairMoney’s potential acquisition of Umba, if profitable, would mark its second deal in two years.