Nigerian credit-led fintech FairMoney acquires PayForce in retail and merchant banking play

Nigerian credit-led digital banking platform FairMoney has acquired PayForce (sub-brand of YC-backed CrowdForce), a merchant payments service serving small businesses, as the digital lender looks to expand its merchant financial services offering.

Both startups declined to disclose the terms of the deal. However, according to sources, the transaction was a cash-and-stock deal in the range of $15 million to $20 million. As part of the deal, CrowdForce CEO Oluwatomi Ayorinde is joining FairMoney, where he will lead the company’s payments business unit: PayForce by FairMoney.

Most African consumers and businesses remain financially underserved – and in Nigeria, where 64 million people, according to the World Bank, are underbanked, there is a huge opportunity to provide access to financial services to both sets of customers.

While FairMoney has mainly run a credit-led neobanking game aimed at retail customers, CrowdForce, through PayForce, offers agency banking, a branchless banking model that extends financial services to the last mile via a network of human ATMs. However, multiple iterations, competition-induced innovation and the raising of venture capital have pushed both businesses to evolve from their flagship products to a plethora of offerings as the digital retail and merchant banking space intensifies.

PayForce launched by providing merchants with POS devices and allowing them to offer inbound, outbound, transfer and bill payments to retail customers while injecting liquidity through a network of partners (the company told TechCrunch last year it had the largest liquidity among Nigerian agent banking networks, nearly ₦1.7 trillion). Fintech, which serves over 10,000 businesses, has revamped its product suite to include business banking, finance team tools, B2B payments and virtual cards. It raised $3.6 million before its Series A last February.

FairMoney, for its part, started with a digital lending product covering loans from 15 days to 24 months to mainly private customers. The company, which secured a $42 million Series B in 2021, now offers debit accounts and cards, P2P transfers and payments to over a million retail and small business customers, which has become a big part of its business, CEO Laurin Hainy said to TechCrunch over a call.

The acquisition, Hainy says, will provide incentives for PayForce-acquired merchants who use FairMoney as their primary bank, such as an 18% annual return on deposits, a rate he claims retail users benefit from on the platform. He also said FairMoney will design specific credit products for different sets of businesses, tackling one of the biggest problems facing small businesses in Nigeria: access to loans and working capital. It’s also not far-fetched to think that FairMoney could look to tap some of the offline customers that CrowdForce has earned over the years.

“We see ourselves as a retail bank, but the line between salespeople and retail is often blurred. We’ve been thinking more and more about the commerce space, and we see a lot of potential synergies between what PayForce and we’ve built independently, he added. “We know that if we combine both businesses, their merchants will enjoy what our retail customers already enjoy.”

As consumer digital banking startups like FairMoney and Kuda delve into commercial banking, fintechs on the other side of the board, including OPay and Moniepoint, are gaining retail customers. However, the transition has not been smooth for most of these players due to the varying banking needs of different customer profiles on one app. As one of the dominant retail neobanks, FairMoney will hope that PayForce – which according to Hainy helps small businesses address multiple pain points and allowing them to better understand their finances and earn more money through its ‘thoughtful’ product – giving it a much-needed merchant-focused value proposition that strengthens its position in the nation’s commercial banking space.

“Our view is that PayForce has an advantage because their software is built for the CFO and small business owner,” Hainy said, offering his thoughts on competition in the acquired company’s space. “PayForce helps them make more money compared to a lot of the other competitors, which we think are agency banking businesses since they didn’t build a product with the merchant in mind; they build the product with the agent in mind. It’s a huge difference, so we’re not worried about the competitive landscape there.”

In fact, FairMoney, via the acquisition, wants to gain more market share and become the “number one” retail and merchant bank in Nigeria as expressed by Hainy. The fintech intends to add credit cards, remittances, stocks and investment products for its retail customers – and include payroll services, BNPL and online merchant purchases in its business-oriented product suite.

In addition to building out the stack, FairMoney is also actively participating in several acquisition talks. The Tiger Global-backed fintech is in talks to raise a $30 million+ bridge round from new and existing investors, money that will go towards making those acquisitions (including PayForces) and scaling operations outside Nigeria and across Africa, according to sources familiar with the agreement. Hainy declined to comment.

Acquisitions have been increasing in Africa recently. According to this report, domestic acquisitions grew 31% in Q2 to 52% in Q3 2022, signaling an increasing consolidation trend reinforced by falling prices and a crisis in venture capital. Despite these indications, fundamental exit opportunities can trigger a sell-off in these current market conditions, as in the case of CrowdForce according to the former boss.

“There are multiple ways to win. To win, a startup needs a great product, strong execution, marketing and funding. Investors mostly provide funding. This acquisition gives CrowdForce and its investors a combined value proposition to begin execution, win and create values ​​for all shareholders. In a fast-paced market like Nigeria, time and speed are of the essence,” Ayorinde said when asked if Abuja-based CrowdForce had to sell because it faced a challenging fundraising environment.