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Unearthing Africa's FinTech Potential: A Conversational Journey with Nala Money's CEO, Benjamin Fernandez
Are you prepared to navigate the thrilling maze of Africa's FinTech landscape? With our esteemed guest Benjamin Fernandez, CEO of Nala Money, we journey through the continent's dynamic financial terrain. We uncover the vast opportunities brought about by Africa's rapidly expanding population and the intricate tangle of diverse currencies and regulation. Get an insider's view into the bustling world of mobile money transactions and understand why it is often described as a sleeping giant.
The second half of our discussion shifts gears, focusing on the nuts and bolts of making and receiving payments in Africa. We throw light on how the scarcity of dollars and Africa's trade deficit sway the economy, and why solutions tailored to local needs are vital. Listen in as we share the solutions Nala has developed, including ensuring payment reliability and offering competitive exchange rates. Hear directly from Benjamin about the huge potential of the remittances industry and how technology plays a crucial role in battling fraud. So, buckle up for an enlightening conversation that peels back the layers of Africa's FinTech landscape.
Guest: Benjamin Fernandez, CEO, Nala Money
Hosts: Micky Tesfaye, Content Lead, Money20/20 EU
Ian Horne, Head of Content, Money20/20 EU
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Welcome to the Money Pot. I am Mickey Tessfaye and I am your host. Today we are live Money 2020 here in Las Vegas and I'm very excited to bring you this episode on the FinTech ecosystem in Africa and some of the challenges and opportunities around payments on the continent. And today, for this conversation, I'm joined by my colleague, friend and co-host the one, the only, the author of YD File Matters, europe's Head of Content for Money 2020, ian Horn. Hello, Ian.
Ian Horne:Oh, there's actually several Ian horns. I did a Google search earlier. But hey, thank you Appreciate the introduction Also. You sound so chill, mickey.
Micky Tesfaye:Thank you very much. I've been trying to work on my chowness and for this, this episode is actually a very special one for me, because, as much as I love FinTech, I also love my friends, and I feel like I am joined by not just one of the coolest dudes in FinTech, one of the most innovative guys in the game, but also a good personal friend of mine. Welcome, benjamin Fernandez. How are you doing, benji?
Benjamin Fernandez:Good, good, it's good to be at Money 2020 here in Vegas my first time at Money 2020 in Vegas. So yeah, really really cool event.
Ian Horne:Great to have you here, man. Thank you so much.
Micky Tesfaye:How is it so far?
Benjamin Fernandez:It's good food. I came here for the free food. No, I'm just kidding, it's good vibes. I've had a lot of fun meeting couple people out here.
Micky Tesfaye:You can take the Tanzanian out of Tanzania, but his desire for food will remain. It's fire. We love it. But all jokes aside, one of the reasons I was so excited to have this conversation with you today, benji, is because, as Ian knows, I am Ethiopian and deeply passionate about Africa's FinTech ecosystem, and there is lots to uncover there, and I feel like you are one of the best placed to kind of really help us see beyond the hood. So to start off with, maybe I'll ask you by asking you to tell us a little bit about your company. You are the CEO of Nala Money, which is a payments company that you operates out of Tanzania, so can you tell us a little bit about what you guys do and where you operate as well?
Benjamin Fernandez:Cool, yeah, so I'm the founder of Nala. We're a cross-border payments business. We operate between the UK, the US and nine African countries, including Tanzania, Kenya, Uganda, Rwanda, Ghana, Nigeria, Senegal, Kotefa and Ivory Coast, and what we do is we enable consumers as well as businesses to do transactions between these markets. So we have a flagship consumer product enables remittances that happen directly into our money wallets. Over the last year and a half, we've integrated over 300 banks across the continent and 30 mobile money networks across the continent, and there are people to pay and disperse into multiple accounts across multiple currencies in Africa.
Micky Tesfaye:So, right there, I think you're now on the head for what we want to talk about today. You integrate with 300 banks in Africa. That's about half of the banks that operate on the continent. Africa is home to 42 currencies, there are 54 countries on the continent and there are more than 300 mobile wallet solutions. So the continent is a mosaic of payment options, opportunities and challenges. So could you tell us a little bit about the complexities of operating a payment business? In fact, I'll take it a step back. Can you tell us about the complexities of making and taking payments in Africa?
Benjamin Fernandez:Wow, I could write a whole book, like Ian, on this. So, yeah, look, africa is a fast growing region 1.3 billion people across the continent, fastest growing region across the world. You have average for people across the continent at 18.9 years old, which is crazy. Like you have this huge opportunity for growth of what's happening across the region. Now, as you mentioned, 42 different currencies, 54 different countries, 54 different regulators. Therefore, regulation requirements are also different in every single country. There is not one side fits all. Picture that, okay, you do this in this country, then you can scale to this other country. And so even for us as Nala, we operate in nine African countries, which also means nine different regulatory bodies that we have to work with directly and also listen to what their compliance requirements are and adjust our teams to make sure we're building products directly for them.
Benjamin Fernandez:Now, with each one of the new markets comes a lot of challenges locally. So expanding to new market involves multiple things, but first things first is obviously understanding the regulation, especially when you're bringing foreign currency in. There's a lot of currency rules and regulations around that Governments want to control how currency is traded in the market, and it makes it complicated for how you're building companies across the region. So I do think there is, as we've built Nala like. A year and a half ago we were in two countries in Africa an hour and nine. By the end of next year we'll hopefully be in 14, 15. So trying to double countries is ambitious, but I think we can get there. There's a lot of work that we've been laying out on the ground but it's complicated region.
Ian Horne:Yeah, I mean, just at a glance it looks like you're trying to make things easier for your customers and at the same time keep things localized in very, very low cals. How do you kind of marry that up?
Benjamin Fernandez:Yes, see, I think there's a lot of opportunity across the continent to build and I think the ecosystem has been evolving, which is fascinating. For example, if you look at mobile money, globally, according to GSMA data from 2022, there's $1.26 trillion that move on mobile money a year. $846 billion of that is Africa alone. $496 billion is East Africa alone, which is the home of Mpesa and mobile money services, and so these volumes are astronomical and they've blown up over the last several years. I mean, like six, seven years ago, East Africa was 35 billion. How do you move from 35 billion to 496 billion in a short period of time? Wow. And so I think there's massive opportunity that talks about how the ecosystem has rapidly been evolving in a short period of time and how mobile first region where people have a mobile money account before they have a bank account formally, I had him like I only recently personally, as Benjamin Flanders opened a bank account in Tanzania for myself.
Micky Tesfaye:Wow, you're really leading into the FinTech CEO there on.
Benjamin Fernandez:Wow, give them mobile money, because it's enough to do on mobile money and you don't okay my utility need, for I mean it also means you usually have a bank account if you have a lot more money, which also tells you how broke I am but you know it's a different story, but yeah, that's why.
Ian Horne:Yeah, it's always a CEO. It's a money 2020, you have the least money. I've found that.
Benjamin Fernandez:Ian Singh, as he sees everybody else sponsor all these big things.
Ian Horne:Oh man.
Benjamin Fernandez:We're not a sponsor, by the way, for 2020. Same as, hopefully, next year. No, we'll see. Oh man, that's incredible.
Ian Horne:Yeah, one thing again. Obviously, Mickey kindly mentioned that I've written a book which is on decentralized finance, and obviously you hear a lot of bold claims from that space. You know I'm not a big fan of just saying you know, blockchain fixes everything. I think you need to have really provable use cases for that. How is crypto fitting into the African payment ecosystem? Is it actually having much impact right now? You know there was always this promise about remittances, for instance. Is there any way, are we any way towards achieving that through blockchain?
Benjamin Fernandez:So I'm a big believer in crypto. Personally, I'm not a big believer for crypto for Africa.
Micky Tesfaye:Ooh.
Benjamin Fernandez:That's interesting and I'll tell you why. Because I think, look, ultimately we have all these crypto companies reaching out to us and like, hey, you know big company X, like even a lot of the sponsors here. I see one of them like behind that huge crypto, like maybe they do a certain type of crypto payment and They'll reach out to us and, hey, can you guys do off-ramp for us into these countries in Africa? And I tell them I'm like, okay, cool, look, are you also going to provide liquidity for me in the local markets? Because you go up to a bank, maybe many central banks across Africa aren't big believers in crypto because they maybe don't know how to regulate it properly. So therefore, you're looking for a bank to provide you local Off-ramp liquidities for you to pay out in fiat, because ultimately, you still have to pay out in fiat because that's how you use the money.
Benjamin Fernandez:Even though mobile money is huge across the continent, 7% of those payments are still done digitally. Ultimately, at the end cash use point. So people still need cash where cash-heavy economy. So sure, you can have USDC or whatever, bitcoin etc. But then when you're doing payments at scale and you need large enterprise volume, who's gonna give you that opera off-ramp liquidity and are you actually saving money? I'm not convinced you save money with crypto today across the continent. Why? Because it's a liquidity issue. It's therefore makes payments take longer, the time of disbursement takes a while, and then taking it back into local currency, how long is that time locally? So, for example, for Nala, you can send money from the US, where we are today, to Tanzania in one minute, okay, and you have it straight in fiat. Can you do that, the same with crypto, and have it straight converted to fiat in the same time? Not yet.
Micky Tesfaye:So right now, I feel like so that's an interesting conversation and we're talking about, say, like infrastructure or a tool that can be one way of solving some of the issues. I feel like there's a broader issue maybe that we've touched up around, but I want to dig a bit more into right and I think that probably tells us a lot more about the challenges in Africa and you touched on it a little bit at the beginning and that issues around the question around FX, foreign currency right, what, why is foreign currency an issue in Africa in such an acute way? That may not be in other regions, and how does that influence some of the challenges we've discussed today?
Benjamin Fernandez:Foreign currency in Africa is a fantastic question because the Africa's got the largest dollar shortage in the world. You're in a region where you have 45 sorry, 54 countries that are net import regions. So there's only one country in Africa that exports more than imports. That's Cote d'Ivoire. The rest of the countries across Africa import more than the export. So therefore all Importers need to purchase dollars because the dollar is the world's trading currency. So therefore they need to purchase dollars and in order to buy the goods and services they're trying to bring back in the market. Now the banks locally might not have enough supply of dollars to provide to all these Importers who are trying to import these goods and services. Therefore they Banks.
Benjamin Fernandez:What ends up happening is a lot of these local enterprises are importing goods and services, are willing to pay a premium Above mid market rate just to acquire dollars because it's a dollar scarcity, and so that's where you start to see currency fluctuations, that's where you start to see currency devaluations or currency challenges, and central banks start to panic because you know banks are like okay, we want to make sure that whatever rate people are buying dollars at is within x percentage of the mid market rate.
Benjamin Fernandez:Now what ends up happening is Formal quote, unquote black markets form where people are willing to trade outside of the central bank rate because Importers are netting off with x porous and they're making their own markets, and so central banks in Africa try to control that, because if you don't control it, what ends up happening is a Zimbabwe situation when volatility of currency starts to explode and there's a lot of control that is limiting what can happen. So I think, across Africa, these are the challenges that you have in the market. So until more trade increases For countries exporting more goods and services across Africa, there will still be a dollar shortage and will be there for a long time. So country companies that are bringing in foreign currency into Africa can net benefit, which is unfortunate, but still hopefully Provide more liquidity locally in the market where people can actually send money and save more money directly on how they're converting into local currencies.
Micky Tesfaye:So I mean I'm like wow, not doing like a crazy person, but I think you hit that note on the head. And this is to kind of go back to the point we were making earlier on. This is why I, too, don't have that much faith in cryptocurrency for solving payments in Africa, because I think often the challenges of the continent are misunderstood. Right, the piece around the trade deficit is a significant reason why African central banks and regulators require high effects, restrictions and regulations. So if we look at history, actually in the 1990s you had an East Asia financial crisis which was precipitated by withdrawal of foreign direct investment, which created a currency issue, causing panic and causing huge flight of capital from countries like Korea.
Micky Tesfaye:Now, the only way governments can maintain their economy in economies where you have such trade deficits is by having strict effects requirements.
Micky Tesfaye:So in Ethiopia, for instance, the government determines how much access you have to effects, because otherwise how would they be able to get the right resources that are needed for the country right? In struggling economies, for instance, you can't just let the market dictate what is sold in your market. Maybe healthcare resources are required way more than what would be profitable. Governments have to make more choices like that, and so that, I think, is an important piece as to why solving payments in Africa has to be a localized solution too. Right, because localized companies, local companies, understand these issues. On that bit, maybe what I can ask you to tell us a little bit about is, given the challenges of taking payments in Africa and making payments, what are some of the solutions that you guys have worked on to address this? What are the kind of use cases that you can highlight to us that are starting to bridge some of these challenges and make it easier for companies to operate and take payment and grow the economy in Africa?
Benjamin Fernandez:So as we build Nala, we look at it first from any part of the reason. What we're doing today is because we wanted to build those things at the beginning is because the market forces into building those things. For example, if you're building a consumer-reminisced business at Nala that's how we started off we have to do two things really well. Number one is provide really good effects rates for our customers and then number two is enable payout reliability to be phenomenal. So what ends up happening is you end up building a whole treasurey arm of your business by nature of the market. Then you're building payment reliability locally, so you have to apply for licenses locally in the market, trying to force businesses to force and increase payment reliability for your own consumer businesses.
Benjamin Fernandez:So what we've ended up building at Nala is payments infrastructure across the continent, not by choice, but by nature of the market. So now, all of a sudden, we have five licenses across the African continent and the big question we have large businesses reaching out to us like hey, benji, can we pay out with you guys in country X, y or Z? I'm like oh, that's interesting. Why don't you pay out with provider X, y and Z? They're like okay, reliability is an issue. Float is an issue, treasury is an issue, and we see that you guys have really good rates and so therefore you have probably a better treasury arm than these other organizations. And so, while we were just trying to do two things really well at Nala, which is FX management but also payout reliability, we've ended up building this whole B2B arm of the business that's evolved and becoming a larger part of our business at Nala.
Ian Horne:Yeah, I mean you're in the remittances business as well. I mean, what is missing there, what isn't built at the moment?
Benjamin Fernandez:Just within remittances, there's like five to 10, you know different products that you could build directly. So, for example, in the UK we see our customers sending amounts every month. I know Ian will send $400, £400 to his mom in Ghana. I know that for a fact. It's almost you can see. It's like clockwork.
Micky Tesfaye:So, ian, you've been telling everyone about that one-percent Ghana end.
Ian Horne:It's not obvious.
Benjamin Fernandez:Exactly. So what we see start to see is Ian, let's say, has a cash crunch all of a sudden and he's like, hey look, can you float me the money? I'll pay you back at the end of the month. So there's opportunities to build services like send now, pay later for just within remittances. There's also opportunities to build services like 60% of our transactions are mostly healthcare focus. People are sending money for hospital bills, you know, and taking care of their family or loved ones back home. Is there an opportunity for you to enable insurance plans that a diaspora living in the UK can buy for their relative in Ethiopia, so their mom is taking care, from a hospital bill perspective? The third one could be an issuance of a card. In a country like Nigeria where card prevalence is big, can the sender in the UK issue a card for their mom or their dad in Nigeria where they can see what the mom and dad are spending on and also track real-time balances for how much money their parents are spending, because sometimes parents feel guilty about asking the kid for more money and so they don't know, maybe the kid that the parent is struggling. But there they can check in real time. Mom, I sent you the money for this? Is it actually being used for what we agree it was going to use for? So I think just within remittances there's six to seven to 10 different products you can build.
Benjamin Fernandez:Like the question remittance companies should ask themselves how do you make FX not matter? You know, for example even we talked about FX locally Africa has the largest T-bill benefits in the world local treasury bills. So can you enable somebody in the UK or in the US to invest into a local T-bill in Ethiopia, for example, where you'd return 7% on the dollar, whereas in the US you're maybe returning 4% on the dollar, and then they can collect those revenues back in the US that way? So I think the work in remittances is just at the beginning, nascent stage.
Benjamin Fernandez:If you look at Africa, for example, according to the World Bank in 2015, the volume from abroad to Africa is 48 billion. In 2020, it was 108 billion. How does it double in five years? Impossible. It just means a lot of those transactions happening in non-formal methods and now we're starting to get digitized. So the real remittance volume to Africa is probably around 250 to 300 billion dollars a year. So I think that's where, like just within remittances, there's so much more to be built that we, as an dollar, will never be able to do all of those things. Yeah.
Ian Horne:I need to jump in on that. I mean, firstly, anyone listening Ben does not have notes. All these numbers, you're just reeling these off. This is wonderful, but I love the point you made about how there's so many different products you could build, so many different solutions you could build. When we're looking at just the tech angle of this, when you're walking around the show floor at Money 2020, which kind of things are you looking at? I mean, everyone's throwing AI at everything, for instance, but what areas of tech are you most interested in for fixing these problems?
Benjamin Fernandez:Here at Money 20, I think it's just companies that are trying to optimize payment flows, as companies that are looking at how do you make things cheaper, faster, more efficient, how do you reduce, let's say, fraud from the ecosystem? Fraud is an unending problem. It's big. I mean people. It's unfortunate, but people try to make use of Africa as a way to channel illegal funds or to use that as a place for money laundering globally. Right, and it's really unfortunate and we see this. I mean every FinTech company that operates in the world, every bank that operates in the world, have massive fin crime and fraud teams, because this is a global problem. It's not an Africa only problem. But I think the difference is.
Benjamin Fernandez:I'll tell you about a story of somebody we busted recently. We busted somebody in the UK who was working with like 300 Nigerians in Lagos. But this guy was living in the UK running this whole scheme with Nigerians and people assume, oh, fraud is from Nigeria. It's actually no. The dude is in the UK, organizing crime in Nigeria. Why? Because there's non-extradition clause where even if somebody was caught or busted, they can't get exurided from Lagos to London to get tried in jail. So people take advantage of a lot of people in Africa that way. It's like, ok, cool, this person's low income, they're looking for extra cash. Let me call and try to get 300 people in Ethiopia or Nigeria or whatever to do this for us. And they organize crime that way. So a lot of it is, I think, and it's only going to get worse over the next 10 to 15 years, unfortunately. But I really hope that a lot of tech solutions here that's built up can start combating a lot of that.
Micky Tesfaye:There's so many things that you're saying that are so fascinating. There's 15 different threads of interesting conversation going in my head, but when you're talking, one of the things I'm thinking about right now is just what you always say to me when we normally catch up or whenever we're talking. I don't even want to say this because it makes us look sad. We don't have anything else but FinTech to talk about. But you're always like payments in Africa is only 1% built. We've got so many big African companies, right I mean, just look at the show Florin Vegas. We've got companies like Salli, learn and Flutterwave, huge African FinTechs that are now not just big in Africa but expanding beyond. How is it the case that you still say payments in Africa is still only 1% built?
Benjamin Fernandez:then, I think that I'm a big believer in this and it's something I always tweet often because I think there's so much more that's going to be built in African payments that we're not even seeing it. We're just at the nascent stage of it. For example, let's say in the UK or in the US you're building a SaaS company where you charge somebody a subscription fee let's say Spotify, for example, $6 a month, whatever $8 a month. I use my friend's Spotify. I don't pay for Spotify but I'm low budget. But anyway, listen, hear me out.
Benjamin Fernandez:So we've already covered fraud or Netflix I don't even watch Netflix. Anyway, let's say a company is trying to expand in Africa, or like trying to build a service locally in Africa, where the primary form of transactions across many markets is mobile money. So who's enabling businesses to do direct debit where they can charge a mobile money wallet $6 equivalent every single month for a good or service that they're providing? That doesn't exist today. So imagine what needs to be built for that to exist, where you can do direct debits from these mobile money wallets where, every single month, people who have these balances, you can pull money and build a whole world or plethora of business services that are built on top. So what ends up happening is a business that is serving those customers has to pick up the phone, hire a whole call center that just does accounts receivable to call customers to make sure they're paying every month. It's a waste of money, and so I think that's where the opportunity for tech and payments comes into place. And one simple example right there, you know the other pieces, like I can give you 50 examples of this. But float management, for example today, if you're trying to manage, we have 86 bank accounts at Nala. So if I'm trying to manage the wallet and bank balances in these float accounts. I have to log into 86 bank portals every single day to check with what's the balance in this country, that country, this country, right? Who's building automation for us to be able to track? Okay, this is the amount that's balanced in these wallets that you can check from one dashboard and manage float in the centralized position. Those are the opportunities, or even balance checks across accounts.
Benjamin Fernandez:Mickey, for example, is trying to pay his cousin in Kenya. His cousin in Kenya's M Pesla wallet can only hold $3,000. This cousin has $2,800 in that account. Mickey's trying to send $1,000, it says payment failed. Why? Because there's no bank query balance that checked how much money was in his cousin's bank account. Mickey's upset because the money didn't get delivered. So I think there's going to be a whole plethora of businesses built and I really think payments across Africa are 1% built.
Micky Tesfaye:Amazing, benji. You know, you and I can talk for days on this subject, but unfortunately we are running out of time. So just to wrap it up, let me ask you one last question. What gets you so excited about payments in Africa? What is the thing that gets you super excited when you think about the future?
Benjamin Fernandez:The people across Africa inspire me to the work that we do at NALA. I think there's so much about the ecosystem that has to be built and there's a lot of work that needs to be done. I think the way you even look at NALA, NALA is bigger than me. I ask my team all the time I say, look, how do we build ecosystem rails that exist 100 years from today, Like how do we look at ourselves like a brand like Coca-Cola, that 100 years from today, when Ben like it's bigger than me, when Benji's gone, long gone in a grave, that we built rails that the world traded with Africa on? Those are the questions I ask myself. That's what keeps me up at night. That's what keeps me going.
Ian Horne:Amazing. Yeah, ben, that was awesome, really great to hear from you in such a wide range of challenges, but also opportunities, in the African payment space. Honestly, I mean, you guys obviously know this inside out. For me hosting, but largely listening that was really fascinating, and just such a depth of knowledge of the topic too. I'm sure everyone enjoyed it. So I'm going to wrap it up, ben. Firstly, thanks for joining us, mickey awesome as always. Of course, you know this. So, yeah, thanks for joining us. Thanks to our listeners, both here at the show and our podcast audience. If you have any ideas for the show that you might have been inspired to send in a few after this, write us at podcastatmoney2020.com. If you like the show, leave us a review on iTunes or Spotify and, of course, we love our FinTech nerds. Thank you for joining us.
