OPay and Palmpay, two Chinese-owned digital banking platforms, are leading the Point of Sale (PoS) market in Nigeria, with both accounting for over a million mobile banking agents.

OPay, a fintech company that started business in 2018 following an acquisition of a local payment platform, now leads the PoS market with 563,262 agents, according to data published in Nigeria Financial Services Report by Intelpoint.

PalmPay, in a recent announcement, said it had grown its agent network to 500,000. The total number of banking and mobile money agents is estimated at over 2 million, according to the 2023 State of the Industry Report on Mobile Money by the GSM Association.

The implication is that both OPay and Palmpay account for at least 50 percent of the agency banking market in Nigeria. Moniepoint, with 322,266 (Intelpoint data), and MTN (264,000, according to company data) round out the top four leaders in the market.

The dominance of OPay and Palmpay comes from different factors, with the top being funding, according to some experts.

“Their success can be attributed to first their financial strength. Top players must have deep resources. With the Chinese investing via OPay and Palmpay, and Moniepoint being able to raise a series of funds through the international venture capital market, they are able to actually penetrate the market and operate in other African markets.” said Victor Olojo, national president of the Association of Mobile Money and Banking Agents of Nigeria (AMMBAN).

PalmPay is the fintech subsidiary of Transsion Holdings, the manufacturer of market-leading smartphone brands such as TECNO, Infinix, and itel. In 2019, the holding company raised nearly $400 million in an initial public offering on China’s tech-focused stock exchange Star Market. The share sale pushed Transsion’s valuation to $3.95 billion and established it as one of the biggest attractions on the Star Market.

The company’s share price was trading at $139 last Friday, a 2,719.4 percent jump from its listing price of $4.93 per share in 2019.

PalmPay itself was launched with a $40 million seed funding in 2019 and the app was preloaded on 20 million Infinix, TECNO, and itel smartphones. It also raised $100 million Series A in August 2021 to bring its total funding haul to $140 million. Transsion was the lead investor in both rounds.

OPay, incorporated in Hong Kong, has raised $570 million so far and is valued at over $2 billion. The latest funding for the company was a corporate minority round from Opera. The $400 million Series C raised in 2021 remains the largest funding ticket to a fintech company with a primary focus on Nigeria and Africa.

The large pool of funds at the disposal of OPay gives them leverage to bet on new products and services that competitors may find too risky.

“I think it’s safe to say OPay and PalmPay have shown (that) US venture and business models don’t necessarily work or scale in this part of the world,” said Jude Dike, CEO and co-founder of GetEquity.

For him, the two companies’ models prioritise breadth against depth. In other words, they will invest in ideas that help them acquire more customers and worry about the quality or the value of their transactions. It involves taking risky bets to find out what works and stick with that.

Before July 2020, OPay operated like a super app where consumers can access different services including ride-hailing, logistics, and fintech, among others. It announced in July 2020 that it was shutting down the ride-hailing and logistics and would focus on fintech.

That decision to focus on fintech may have played a crucial role in the record $400 million series C funding it raised from investors led by Softbank Vision 2 Funds, with participation from Dragon Ball Capital, Sequoia Capital China, Source Code Capital, Softbank Ventures Asia, Redpoint China, and 3W Capital.

Peter Oriaifo, principal at Oui Capital, an Africa-focused venture capital, suggests that OPay and PalmPay’s models are not different from what most fintech companies in Nigeria are already doing. The difference is in the scale at which they are willing to bet, he said, adding that the strategy is no different from what US companies are doing.

“How else do you burn $570m+ to achieve what indigenous players have done with less than 1/5th the funds raised,” Oriaifo said.

Transfers from OPay to other banks had been free up until June 19, 2023, when the company started charging users N10 after their third transfer to other banks in a day. PalmPay also has offered free transfers since 2020 and only recently placed N10 after the third transfer. Recently, PalmPay introduced a 20 percent interest rate earning on users’ annual savings.

“Our high-interest savings feature is a win-win for both our customers and our business. It empowers our users with high yield returns and supports their journey towards financial independence, while also resulting in higher customer deposits and therefore transactions on our platform, on which we earn revenue,” said Kelvin Olumese, senior marketing manager at PalmPay Nigeria.

But the biggest win for OPay and PalmPay is the speed of transfers, which became a selling point earlier this year when the Central Bank of Nigeria announced its naira redesign policy. The naira scarcity that followed saw many people resort to using mobile transfers and other digital payment channels to make transactions.

PalmPay said it acquired 25 million registered users in its July 2023 report. This represents the number of users who have registered on the PalmPay smartphone app, a significant majority of whom are carrying transactions, according to Sofia Zab, chief marketing officer at PalmPay Global. The 25 million users are different from the millions of additional customers served by the company’s 500,000 mobile money agents and 300,000 merchants directly.

“All of these people have very aggressive business models that are able to make the system work by itself. It is different from the traditional banking model where you would actually wait for people to come into the banking hall. These fintechs have been very aggressive with their approach to penetrating the market. Most importantly is embracing the agent network model where agents are able to recruit other agents for all of these operators with very good incentives in place, particularly for Moniepoint,” said Olojo of AMMBAN.

For some experts, the growing investments by OPay and PalmPay present an opportunity for smaller fintech companies. The massive acquisition drive by both companies would mean that new customers are being onboarded into the financial system. The investment reduces the acquisition cost for other fintech companies as they would not need to spend money to onboard these new customers. Eventually, it becomes a play on which platform has the best experience that customers would port to.

Edoka Idoko, founder and CEO of OjirePrime, said this has happened to the traditional banks. Inasmuch as the banks onboarded millions of Nigerians who previously lacked access to financial services, today, those customers are jumping to the more nimble and innovative fintech platforms, he said.

“We are all serving the same customers now. That is what has happened to the banks. So we welcome the competition,” Idoko added.

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