Grace Ashiru
FairMoney, a digital bank with its base in Lagos and headquarters in Paris, is currently in talks to purchase Umba, a digital bank with a focus on credit, offering payroll and financial services in Nigeria and Kenya, for a $20 million all-stock transaction, according to insiders speaking to TechCrunch.
This potential acquisition indicates FairMoney’s ambition to broaden its reach by entering additional markets, with a particular focus on Kenya. However, it also highlights the obstacles fintech companies in Africa are facing in a globally challenging startup environment: an all-share transaction valued at $20 million would approximately match the funding Umba has received from external investors.
The discussions about the acquisition are at an initial phase, say the sources, who preferred to remain anonymous because the discussions are confidential. Neither FairMoney nor Umba have made any comments in response to inquiries before this news was published.
Umba, established by Tiernan Kennedy and Barry O’Mahony in 2018 in San Francisco, initiated operations as a digital bank with a focus on credit services aimed at developing markets. It offers a range of banking solutions, including loans, checking accounts, savings accounts, term deposits, and payment services for bills to its users in Nigeria and Kenya.
As of the latest data from PitchBook, this digital banking entity has amassed close to $20 million in funding. Its roster of investors encompasses Costanoa Ventures, Monzo’s co-founder Tom Blomfield, Lachy Groom, ACT Ventures, Lux Capital, Palm Drive Capital, Banana Capital, and Streamlined Ventures.
On the other hand, FairMoney, which has garnered support from Tiger Global, DST, Speedinvest, among others, has successfully raised slightly above $57 million, based on PitchBook information. Following a bridge financing round last year, its valuation was pegged in the range of $400 million to $500 million.
Predominantly recognized for its loan services in Nigeria, FairMoney has been exploring additional opportunities for growth. In a bold move in 2020, FairMoney expanded into India, marking its second market. However, aside from an update on its progress in 2021, there haven’t been further announcements regarding the performance of its Indian operations.
FairMoney, initially launched as a digital lending platform in Nigeria six years ago, has progressively diversified its offerings. The company’s flagship app now includes a variety of financial services such as debit cards, transfers, and payment options. It boasts a clientele of over six million retail customers.
In its expansion journey, FairMoney has made strategic acquisitions, including PayForce, a subsidiary of the YC-supported Nigerian merchant payment service CrowdForce, secured through a deal valued between $15-20 million in cash and stock.
Laurin Hainy, CEO of FairMoney, shared with TechCrunch in an interview last year, particularly regarding the acquisition of PayForce, “We identify more as a retail bank, though the distinction between merchants and retail can be vague. The merchant sector has increasingly caught our interest, and we believe there are significant synergies to be harnessed between PayForce’s operations and our own.”
Umba began its journey as a digital banking platform focused on the retail sector in Nigeria, later expanding its services to include offerings for merchants and business banking in both Nigeria and Kenya. The app’s presence on Google Play shows it has been downloaded over 1 million times, though specific figures on registered and active users remain undisclosed.
The interest of FairMoney in acquiring Umba might not be driven purely by the number of users or the variety of services offered. Considering Umba has only recently, within the past four months, introduced products aimed at merchants and businesses, it’s unlikely these have yet achieved significant market penetration or volume. Instead, FairMoney’s interest might be more centered around Umba’s microfinance license, which was secured in 2022 after acquiring a majority stake in Daraja Microfinance Bank, enabling it to deliver banking services in Kenya.
Insiders suggest that while Umba wasn’t proactively looking to be sold, FairMoney’s proposition could be appealing, especially in light of its recent financial performance. From January to June 2023, the fintech reported revenues of $335,000 against expenses totaling $1.54 million, according to details from an investor pitch deck shared with TechCrunch.
Moreover, following a $15 million Series A funding at a valuation of $60 million in February 2022, Umba pursued additional funds last December. It managed to secure a $1.55 million bridge funding at a reduced valuation of $25 million, which aligns with FairMoney’s bid. Sources indicate the fintech is exploring different avenues.
In the midst of a fintech surge, Africa’s digital and challenger banks have drawn significant venture capital investment, leading to the rise of several new entrants eager to take on established banking institutions.
Currently, the landscape of venture capital funding is becoming increasingly constrained, with numerous ambitious investments failing to meet their anticipated growth projections and grappling with problematic unit economics. This shift has prompted a rise in merger and acquisition discussions. Notably, this month saw the acquisition of Vella Finance, a banking service catered towards SMEs, by the Nigerian neobank Carbon. Moreover, should FairMoney’s potential takeover of Umba proceed, it would represent the company’s second acquisition within a span of two years.
