FairMoney, a digital bank based in Lagos and headquartered in Paris, is in discussions to acquire Umba, a credit-led digital bank providing payroll and financial services to customers in Nigeria and Kenya, in a $20 million all-stock deal, sources tell TechCrunch.
The move signals FairMoney’s interest in growing its customer base by expanding into more countries, specifically Kenya. But it also underscores the challenges facing fintechs in Africa amid a challenging market for startups globally: a $20 million all-share deal would be roughly equivalent to the amount Umba raised from outside investors.
Acquisition negotiations are still in their early stages, according to the sources, who requested anonymity due to the confidential nature of the details. FairMoney and Umba did not respond to requests for comment ahead of publication.
Umba, founded by Tiernan Kennedy and Barry O’Mahony in San Francisco in 2018, was launched as a credit-led digital bank targeting emerging markets. It provides banking services such as loans, current accounts, savings accounts, fixed deposit accounts and bill payments to customers in Nigeria and Kenya.
To date, the digital bank has secured around $20 million in funding, per PitchBook data. Its investors include Costanoa Ventures, Monzo co-founder Tom Blomfield, Lachy Groom, ACT Ventures, Lux Capital, Palm Drive Capital, Banana Capital and Streamlined Ventures.
Meanwhile, FairMoney has been backed by the likes of Tiger Global, DST Global Partners, Speedinvest and others and has raised just over $57 million, according to PitchBook. It was last valued at between $400 million and $500 million following a bridge round last year.
FairMoney, best known for its lending services in Nigeria, has been looking for more avenues for expansion. In 2020, FairMoney ambitiously entered India as its second market, but beyond a momentum update in 2021, it has not made any more recent disclosures about how that business is doing.
FairMoney has also been expanding its product. The startup’s eponymous app originally launched as a digital lender in Nigeria six years ago. Since then, it has added other financial services, such as debit cards, transfers and payments. It says that it has over six million retail customers.
FairMoney’s previous acquisitions have included PayForce, a sub-brand of YC-backed Nigerian merchant payment service CrowdForce, which it picked up in a cash-and-stock deal worth $15-20 million.
“We see ourselves as a retail bank, but the line between merchants and retail is often blurry,” FairMoney CEO Laurin Hainy told TechCrunch in an interview last year around 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.”
Nigerian credit-led fintech FairMoney acquires PayForce in retail-merchant banking play
Umba also started as a retail-focused digital bank in Nigeria before diversifying its offerings to include merchant financing and business banking products in the West African country as well as Kenya. Google Play indicates over 1 million installs of its app, but the number of registered and active users is not disclosed.
FairMoney’s potential acquisition of Umba may not solely hinge on user numbers or product offerings. For one, Umba launched merchant and business-facing products within the last four months, so it’s improbable to have garnered significant traction and volumes in that time frame. FairMoney could likely be more interested in Umba’s microfinance license, obtained in 2022 through acquiring a majority shareholding in Daraja Microfinance Bank. This license allows Umba to offer banking services in Kenya.
Obtaining a microfinance bank license in Kenya can be challenging. Unlike Nigeria, which has over 600 microfinance bank licenses, Kenya has only 14 such licenses. For the Tiger-backed FairMoney, acquiring Umba could streamline entry into Kenya, bypassing the lengthy licensing process that took Umba three years. As such, an acquisition could see FairMoney leverage Umba’s existing infrastructure or combine both fintech capabilities to launch its services in Kenya.
Sources tell us while Umba wasn’t actively seeking a sale, it may find FairMoney’s offer enticing, particularly given its current financial status. Between January and June 2023, the fintech generated $335,000 in revenue while incurring $1.54 million in expenses, as outlined in an investor pitch deck obtained by TechCrunch.
Additionally, after securing a $15 million Series A funding round at a $60 million valuation in February 2022, Umba sought further funding last December. Ultimately, it raised a $1.55 million bridge round at a valuation of just $25 million which is in line with FairMoney’s offer. The fintech may be considering other options, the sources say.
Amid the fintech boom, digital banks and challenger banks in Africa attracted tens of millions of dollars in venture capital investments, spurring numerous players’ emergence with plans to challenge traditional incumbents.
Now the story is different. VC funding continues to tighten, and many of the big bets are not playing out as forecast, with companies missing growth targets and facing challenging unit economics. That has led to more M&A conversations. Just this month, Nigerian neobank Carbon acquired Vella Finance, an SME-focused banking service provider. And FairMoney’s potential acquisition of Umba, if successful, would mark its second deal in two years.
Despite glimmers of profit, most African neobanks remain in the red
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