Interswitch to extend Verve card use in Africa to up unicorn status

By David Whitehouse

Posted on Monday, 11 May 2020 15:58
An artist in Nairobi works on a mural calling for retail M-Pesa mobile phone cashless payments to help stop the spread of COVID-19, April 19, 2020. REUTERS/Thomas Mukoya

The COVID-19 pandemic gives Interswitch the opportunity to extend use of its Verve debit card into new African markets, CEO Mitchell Elegbe tells The Africa Report.

Verve is positioned for “other markets using our existing channel partners, particularly card issuers with a presence beyond Nigeria,” Elegbe said. Interswitch is present in Nigeria, Uganda, Kenya and Gambia and its services and payment tokens are used in 25 African markets.

Wider use of Verve, a chip and PIN payment card which has fingerprint, face and voice recognition capabilities, would strengthen the hand of Visa in its African showdown with Mastercard.

  • Visa took an undisclosed stake in Interswitch in 2019 in an agreement which valued the company at $1b.

The $1 billion valuation made Interswitch an African “unicorn”, following in the footsteps of e-commerce retailer Jumia. A unicorn is a startup valued at $1b. Shares in Jumia have slumped since their New York listing in 2019.

  • Jumia’s market cap, at one point over $3b, now languishes at around $250m, close to the maximum value of $230m suggested by The Africa Report in April 2019 in the light of previous industry transactions.

READ MORE: African e-commerce investment must continue when the Jumia party stops

Of course there is an element of public relations in Visa setting the value of Interswitch at $1bn to quality for the “unicorn” label. But Visa is unlikely to have substantially overpaid for its stake. A valuation has been fixed by an established industry player, rather than through a sell-side driven stock market frenzy, as with Jumia. That’s a strong positive for the Interswitch investment case if its IPO ever happens.

  • The company has repeatedly postponed listing plans and Elegbe declined to comment on the future timetable.

Diversification between economic sectors is one advantage of the Interswitch model. “The application of electronic payments is sector-agnostic,” Elegbe said. The company serves businesses and public-sector bodies in retail, telecoms, health and financial services in Nigeria. “We remain relatively insulated from the immediate effects of the crisis. Our services are not tied to an industry or sector, meaning market fluctuations are felt much less severely.”

Digital precautions

Sub-Saharan Africa was the world’s fastest-growing digital payments market even before COVID, Elegbe said. The pandemic may accelerate this trend, as more people turn to electronic transfer to exchange money safely, and businesses use digital means to keep running, he said.

READ MORE: Coronavirus is triggering deep digital change in African fintech

Electronic payments are a “precautionary act” against propagating the virus.

  • Business continuity plans have ensured that Interswitch’s B2B and B2C operations have kept running, with the vast majority of staff now working at home, Elegbe said.
  • The pandemic has not affected the implementation of Interswitch’s recent partnership with American Express.
  • This enables American Express members to transact using merchants who process payments through the Interswitch platform.
  • The agreement will enable Interswitch to integrate its network of Nigerian merchants into the global American Express network.

Payments in sports betting businesses have been significantly impacted by the suspension of major league seasons in Europe, along with airlines, restaurants and hotels, Elegbe said.

  • “These drops have been balanced by growth in the purchase of airtime and data bundles, as well as the increase in retail transactions, particularly fast-moving consumer goods purchases.”
  • There has also been an “uptick” in electronic payment of utility bills, he said.

Bottom line: Interswitch’s business model is more practical and investable than that of its African unicorn predecessor Jumia.

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