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

Nigerian credit-led digital banking platform FairMoney has acquired PayForce (sub-brand of YC-backed CrowdForce), a merchant payment services that serves small businesses, as the digital lender looks to broaden its financial services proposition to merchants.

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 joins FairMoney, where he will head 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’s a massive opportunity to provide access to financial services to both sets of customers.

While FairMoney has predominantly operated a credit-led neobanking play targeting retail customers, CrowdForce, through PayForce, provides agency banking services, a branchless banking model that extends financial services to the last mile via a network of human ATMs. However, several iterations, competition-induced innovation and raising 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 with providing merchants with POS devices and allowing them to offer cash-in, cash-out, transfer and bill payments to retail customers while supplying liquidity via a network of partners (the company told TechCrunch last year that it had the largest liquidity among Nigerian agent banking networks, almost ₦1.7 trillion). The fintech, which serves over 10,000 businesses, has buffed up its product suite to include business banking, finance team tools, B2B payments and virtual cards. It raised a $3.6 million pre-Series A last February.

FairMoney, on the other hand, started with a digital lending product that covers loans from 15 days to 24 months to mainly retail customers. The company, which secured a $42 million Series B in 2021, now provides debit accounts and cards, P2P transfers, and payments to over a million retail customers and small businesses, which have become a big part of its business, CEO Laurin Hainy told 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 consumers are taking advantage of 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. Also, it’s not farfetched to think that FairMoney might look to bank some of the offline customers that CrowdForce has served over the years.

“We see ourselves as a retail bank, but the line between merchants and retail is often blurry. 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,” 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 such as FairMoney and Kuda delve into business banking, fintechs on the other side of the board, including OPay and Moniepoint, are acquiring retail customers. However, the transition hasn’t been smooth for most of these players because of the varying banking needs of different customer profiles on one app. Being one of the dominant retail neobanks, FairMoney will be hoping that PayForce — which, according to Hainy, helps small businesses tackle several pain points and allows them to understand their finances better and make more revenue through its “well thought-out” product — provides it a much-needed merchant-focused value proposition that bolsters its position in the country’s business banking space.

“Our view is that PayForce has an advantage because their software is built for the finance manager and small business owners,” said Hainy, giving his thoughts on competition in the acquiree’s space. “PayForce helps them make more money versus a lot of the other competition, which we think are agency banking businesses as they did not build a product with the merchant in mind; they build the product with the agent in mind. There is a huge difference, so we’re not worried about the competitive landscape there.”

Indeed, FairMoney, via the acquisition, wants to obtain 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, remittance, stock and investment products for its retail customers — and include payroll services, BNPL, and online merchant acquiring into its business-facing product suite.

In addition to building out its stack, FairMoney is also actively engaging in several acquisition conversations. The Tiger Global-backed fintech is in talks to raise a $30 million+ bridge round from new and existing investors, money that will go into making these acquisitions (including PayForce’s) and scale operations outside Nigeria and across Africa, according to sources familiar with the deal. Hainy declined to comment.

Acquisitions have been on the rise in Africa lately. According to this report, intra-country acquisitions grew 31% in Q2 to 52% in Q3 2022, signaling an increasing consolidation trend boosted by falling prices and a venture capital crunch. Despite these pointers, basic exit opportunities could trigger a sale in this current market conditions as in the case of CrowdForce according to its former chief.

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