Episode Transcript
[00:00:00] Speaker A: From financial fraud to glitch to hacks. We've been seeing a lot of this since last year, and we'll be talking about these issues on the podcast today. Other stories we'll also be touching on is Nala's $40 million fundraise and Cuda's entrance into the remittance space. We'll also be looking at the launch of a fintech hub here in Lagos, Nigeria. You're welcome to the Tech Point Africa podcast. On the podcast today is myself, Bolu, and Tim Gozerin.
Let's dive right in. So, a couple of days ago, op, it was reported that there was a glitch in one of Nigeria's largest fintechs op that saw users buy things without them sending debits. So this cost like a 714 million naira hole inside op.
It started in December and lasted till March this year, according to the reports.
It's. It's a very, um, very interesting story, actually. Um, but, um, the first question we'll be looking at is, how exactly did this happen? Um, do you want to give us a, like, a surface level, um, explanation of how that glitch actually happened? And if I can follow it, follow it up with some other information we found?
[00:01:46] Speaker B: Oh, I mean, how did it happen? There was a technical glitch. At least that's what the report says. That's the official story, that there was a technical glitch. So the extent of the glitch. So, basically, like, certain transactions were kind of misclassified, and since they were misclassified, they were erroneously written as approved, whereas they were not, which is basically what led to the loss.
[00:02:17] Speaker A: Yeah. So, yeah, so if just. Just to explain better. So it's basically you going into a supermarket, you have 100,000 error in your account, and you buy groceries worth 50,000 error. And, you know, you hand your card over to the cashier, and normally you're supposed to see a debit or 50,000 naira, and then you have 50,000 left. But what happened in this case is that after I've paid, right, and the cashier tells me, gives me my receipt, and I can go, I get home, and I still seen 100,000 naira on in my account, basically. So, like Tim Dozim said, it was a misclassification. So what the report said was that it was supposed to be classified as a pending transaction, but then it was classified as a successful transaction.
So they are saying it was the switch that made this misclassification. So switches are like, basically an intermediary when you send money. So if I'm using a GT bank, for example, and I want to send money to Tim Gozerim, um, the switch basically routes, is like a middleman routes the money, um, from my end to Tim Gosum's bank, which is, let's say, um, first bank. So what? So I spoke to, like, um, someone.
Someone in the fintech space, how these things happened. And the person said that what is odd about this particular glitch is that normally most switches, right. They do something called settlements, like daily settlements.
[00:04:06] Speaker B: Everybody does that.
[00:04:08] Speaker A: Yeah. So when you do your settlements, you compare your debits and your credits. Right. If they are not adding up. Right. If the numbers are not making sense, you easily know that something is wrong, then you can fix it immediately. So he said it was odd that it sort of lasted this long, December to march. And what he mentioned was that in fraud cases, generally, right.
Or in this case, a glitch, what you find out is that most times, internal frauds are usually, like, the biggest risk.
External fraud, yes, also a huge risk. But the internal ones are usually, like the largest. So it kind of makes. Kind of lets you think about a lot of fraud cases we've been seeing.
Flutterwave, for example, has been on the receiving end of many, many fraud cases. We had one from last year, about $2 million.
Another $24 million case. We also had this year, 11 billion naira case.
It just goes to show that something really needs to be done about these cases. But to kind of play devil's advocate, it's not just a nigerian thing.
I was seeing a report that actually showed us, like, globally fraud in the financial space every year, at least $4.1 trillion.
I saw another report, I think in partnership. I can't remember who made the report, but it was in partnership with NasdAq. And they said, I think in the first quarter of 2023 or 2022, like, 3 trillion was moved within the financial sector for, like, illicit transactions. So, um, it still doesn't take away from the fact that it's a big issue in Nigeria and something really needs to be done. So let's move from sad stories to a more interesting one. Nala has raised $40 million. Um, Tim was. Who is Nala? Why is it raising money? And what's this money for?
[00:06:32] Speaker B: Okay, um, who is Nala? What is Nala?
So the tanzanian fintech that provides remittance and payment services to Africans. So, I mean, yeah, series a.
First. I think it's. It's good.
Probably a bit encouraging that they are raising first. You don't, you, you don't always see tanzanian startups in the news. So yes, there's that. It's good news that they're in the news.
[00:07:10] Speaker A: Yeah. With a big fundraise for that matter.
[00:07:11] Speaker B: Big fundraiser. So, I mean, I think we've not also had a lot of series a raises this year. So that's one more series a raise that hopefully shows that certain startups are beginning to begin to match up. Why are they raising? There are two, like I said, there are two major services that they offer. There's a remittance and then there's a payment. So payments across Africa and then remittance. So basically doubling down on, what do you call it, on the remittance bid and also on their payment services.
[00:07:45] Speaker A: So yep, that's, we have three interesting newsletters. The first is Tech Point Digest, which is a five minute run through of everything happening in tech all around Africa. The second is about VC's founders and investments. And to get information on all those things, simply subscribe to equity merchants. If you're more interested in the workplace and the new trends around employment and employees, simply subscribe to the modern workplace newsletter. You find the link to these newsletters in the description. We also saw that Cuda, they said they were going to start, they're going to launch multi currency wallets in the Canada. Basically, they're also entering the remittance space.
We are seeing a lot of people entering this remittance space. What is so juicy about that market? Is it really, is it big enough? What was the, what's the play for them?
[00:08:40] Speaker B: So it's, what's the big deal about the market? I mean, you want to make money, you want to look for the place where you'd make the most, or where you like, have people who can actually pay for your services. So the remittance market, typically it's been dominated by large financial institutions. So we're talking Moneygram, western Union. So it's been dominated by them. But sending money to Africa is a pain.
You're spending about, or you lose about 8% of, of the money you're sending. So that's, that's a huge problem for anyone who is sending money to Africa from any part of the world. I think we have the highest rates. We have the highest transaction rates globally.
[00:09:31] Speaker A: Like transaction costs to Africa are the highest?
[00:09:34] Speaker B: Yes. Transaction costs to Africa are the highest. Sub Saharan Africa in particular are the highest. I think most people have between. So to be fair, remittance is like expensive for most parts of the world or it's more expensive than, I mean, payments within your country. So, boy, in Africa, while others have between four to 5%, we are hovering around 8%. So it is a conversation that has been going on, how can we reduce these costs but to the reason they are getting into that market? I think one would be we are seeing a pattern of migration. So migration has doubled. So african migration now has doubled in the last 20 years. Since. Sorry, more than 20 years. In the last time, 30 to 35 years, migration patterns has kind of doubled. And what we are seeing is, yes, there's still a lot of inter african or inter african migration happening. So people going from Ghana to Togo or Bennett Republic to Gabon, for example, we are seeing a lot of that. But what we are also seeing is that as governments fail to provide a certain standard of living, people are beginning to search for the proverbial greener pastures outside Africa. So in Nigeria, for example, jabba is, like, probably the most used words in the last year, slang in the last two to three years, which just shows how much people. Basically just slang that means to leave or to escape or to run away. I'm not your expert, so don't. But we are seeing more people leaving the country, leaving the continent. And when they leave, they do not, um. They do not. Severe ties. Right. So they have family here.
No, it's not just an african thing.
[00:11:35] Speaker A: It's.
[00:11:35] Speaker B: It's common. If you leave a country, you do not. You. You may not sever ties. Well, except there's a reason for that. You often do not sever ties. So you have family, you have friends, you have dependents who often stay back and who you need to send money to. So there's that. And then these guys are saying, how about we get some money or make some money by making it easier for Nigerians in the diaspora, Ghanaians in diaspora, basically Africans in the diaspora, to send money back home and then just take a cut of those. Of those transactions. So, yeah, what we are now seeing, too, is something else that is very important to note is that remittances play a huge role in the economy of Africa. True. In fact, not just Africa, but in the developing world.
[00:12:33] Speaker A: I think for West Africa, remittance accounts for, like, 7% of our gdp.
[00:12:39] Speaker B: Okay. I don't know the exact numbers for, like, the different regions, but we have a case where Nigeria. Okay. Last year, 2023 was, I think, 58 billion.
That was limited to Africa.
[00:12:53] Speaker A: $58 billion.
[00:12:54] Speaker B: Yes, $58 billion to Africa. And what that goes into is medication costs for aged parents. It goes into setting up businesses, it goes into paying for school fees back here. It goes into settling debt that you owe people. It goes into a whole lot of things. So remittance is definitely important.
Countries like Nigeria, like, they're the biggest beneficiaries, but we are also seeing that in some countries, I think in Ghana, for example, remittance is increasing. So, yes, remittance plays a huge role, which explains. And then you also have Africans who are migrating to certain countries, basically creating an opportunity there.
[00:13:40] Speaker A: So remittance, please, plays a huge robot. I mean, now we have m five. We have. And by flutterwave, probably munchipakash, a lot of these guys. Right? He's leatherback, I think, sort of. Right. We have these players right in this space.
When does. When does it become. Is it not becoming too saturated for.
I mean.
[00:14:12] Speaker B: It'S not. So first question I'll ask, or if you say it's getting saturated, first thing I'll point you to is the share amount of money that is sent to the african continent.
$58 billion. You are unlikely to capture $1 billion in your first year of operations.
Very unlikely. Right. So where is the money? And here's the thing, too. We. $58. Sorry. $58 billion is documented. That's what's documented. Yes. There are unofficial channels for remittance.
Not just crypto, leave you and your crypto. Not just, there's cash. People remit money with cash, or remit funds with cash to the black market. Someone is going to give them some money, and there are a lot of reasons which we can't really go into, but let's just go with official numbers. 58 billion is a lot. I don't.
For you to get to the point where you have maybe two or three players who are processing that much. Right.
It's going to be. It's going to be a while. So I think the sheer amount of money that has been sent back to Africa is one reason why I think it's not saturated. So previously, there were, like, very few options, but what a lot of index are doing is that they're reducing the cost of sending money back to Africa. So that automatically gives them market share. If they can deliver it consistently. Then we are also, I think we can say, like, with a very good or high degree of confidence that we are going to see a lot more migration over the next ten to 20 years, except we get our arcs right across the continent. We are going to see more migration occur, and that just means that there would be more money to be sent back to Africa. Because like I said, you do not cut ties when you leave the continent. So definitely that market is growing. Thanks to Covid. It shrunk a bit between 2020 and 2021, but it's slowly getting back up. While previously it was countries like Nigeria, that was Nigeria, South Africa, Egypt, that we are always seeing, like the highest. I think at some point, Nigeria even had, like 50% of the remittance, but now we just have 38%. So other countries are getting in on the. On the act. So we are definitely going to see a lot more people leaving the country or leaving the continent who would need.
[00:16:52] Speaker A: To send money back home.
[00:16:53] Speaker B: So, yes, there might be a lot of players right now. I really don't think there are a lot of players, but there might be a number of players right now. But would you stay past the four or five year mark if that's probably when we cannot talk about saturation?
[00:17:11] Speaker A: I think it makes sense if you are especially looking. Looking at our $58 billion number, I don't think all of them combined probably do a small percentage of that.
[00:17:24] Speaker B: So, I mean, they're just launching. So, of course they would not there. There are really established players there who are responsible for that. That figure you're seeing. Yeah.
[00:17:33] Speaker A: So we probably need more of them, because if you have more of them, I'm sure Rem Town's costs also come down.
[00:17:41] Speaker B: I mean, it's not really technology. It's not primarily technology problem. So hopefully someone figures out ways to make remittance a lot, much better than it currently is.
[00:17:54] Speaker A: Okay. Yeah. So, still on the fintech side of things, a fintech hub has been launched in Lagos, Nigeria, by UNDP. UNDP is United nations development program, and they've launched a fintech hub in Lagos, Nigeria, which is part of its $1 billion initiative to support Africa's technology startup. So why are we launching a fintech hub in Lagos? And what exactly is it going to do for fintechs? Okay, I have an additional question, but let me let you answer this.
[00:18:34] Speaker B: Okay. So, like you said, it's the undp's. They are committing a billion dollars over the next couple, couple of years to Africa. And yes, it's starting with fintech, but what. What they are doing is they are identifying at, say, hotspots. So what country is noted or noted for specific developments? Right. Um, what are you. What are you well known for? And then they put a hub there. So there are some. I think there are about six to seven hubs across Africa.
Nigeria gets defined egg hub for obvious reasons.
Other countries get, like, other sectorial hubs. So your question was why a fintech hub answers it, why? And I've also answered, why Nigeria? What would it do for the fintechs? So I think it's important to clarify that the fintech hub doesn't serve Nigeria alone. It serves the entire continent. So what we have currently is, I think, 43 countries, sorry, 43 startups, if I'm not mistaken, who will be working over the next couple of weeks is an accelerator, slash and bootcamp. So they are currently in Lagos. They're going to be working with the UNDP team to refine their products. And at the end, I think they get about $25,000. So it's not, it's not just an, is not just in Nigeria or a Lagos thing. Lagos was chosen because Nigeria has made significant strides in fintech. And like, these are, these guys are coming from across the country, our continent.
[00:20:12] Speaker A: I mean, I'm glad, I'm glad I said that. They're starting fintech, so they're probably going to order.
I mean, they're going to other sectors for other african countries, obviously focusing on the strengths that those african countries have. So, for example, they are already there.
[00:20:31] Speaker B: The hubs are already mapped. They are already mapped. So it's not a fintech is the first that they are launching. So they are already mapped. The other hubs are going to be, they're probably going to launch sometime in the year, but they are already mapped.
[00:20:48] Speaker A: So what challenges do you, like, foresee for this fintech hub?
[00:20:55] Speaker B: Challenges?
[00:20:56] Speaker A: Yeah.
Is it, is, will it really bring about the fintech innovation that they are planning to create? Is the, is fintech still, like you mentioned when we're talking about the, you know, fintechs, is the innovation of fintechs, is it still based on technology or something else entirely?
[00:21:29] Speaker B: Well, okay. So I guess the question you're trying to ask is, do you still need more fintechs?
[00:21:35] Speaker A: Something like that.
[00:21:36] Speaker B: And I will say, yes, you do.
I'll say, yes, we do. And the reason is very simple.
Yes, we've had a lot of, a lot of fintechs, but they've tended to be concentrated in one place. And what is fintech? Basically financial services delivered through technology.
So we have a lot of other financial services that we need to start thinking about. There's wealth management, which we are not seeing a lot of. So the likes of Piggyvest, curry wise, what do you call them? Bamboo rice. We have startups like that. There is insurance or insure tech, as some people like to call it. There is.
Okay. We've talked that, we've talked about payments. Then there's, we call banking fintech as a service or banking as a service. There are just a lot of other fintech verticals that we can see need some lesser innovation. I actually want to see like I've been trying to get the composition of the startups that are part of the hub just to see what the spread looks like in terms of their sectorial focus. And the reason I want to see that is just to know if there is still a concentration on the payments and probably neo banks again.
So yes, we do need more fintechs, but now what we really need is people for order, let's say sub sectors in the financial services industry.
[00:23:20] Speaker A: So part of what they want to do with this, these fintech hubs, hoodie ops, they are building all around Africa, generally something called universities innovation ports. But given our educational facilities right on the continent, do you think this university innovation ports will actually be successful?
[00:23:50] Speaker B: It's really hard to say. On one hand, I like the idea of a university innovation port.
[00:23:56] Speaker A: What would I even look like?
[00:23:59] Speaker B: Well, let's, let's say, think um, think of a CCO being a university. Basically that's what that's always going to does. Other way to look like basically something else.
Yeah. Please. Where students come, basically. Please, yes, students come. The maybe workspace, they have meetups, just something like that. Right. Basically a physical structure facility that kind of helps to spark innovation, spark connections and stuff like that.
I mean that's what it's looking like right now. They could take it a step further and probably like have faculty that is drafted from the schools that they decide to cite it in the. And then maybe those faculties like maybe creating a curriculum for people who want to go through it, there are a lot of things they could do with it. But um, like I said, it's, you really can't tell yet whether it's going to succeed or whether it's going to fail, but it's, I think it holds a lot of promise. I've been so there's this VC fund, I think it's called the investor fund or something like, I can't remember the exact exact name. And they primarily invest in, they primarily invest in startups founded by students. Right. And we probably, yes, I'm one of those people that tell you you should get a job before building a business. But if we have people who go through this, through these hubs or these innovation boards, get introduced to entrepreneurship, to technology really early, that could help. I mean, hopefully you're not joining me that just as a bit, you're about to leave school. But we have stories like um. You have stories like the Solana, sorry, the ethereum guy, what's his name again?
Yeah, Vitalik.
[00:26:05] Speaker A: Vitalik, yes.
[00:26:07] Speaker B: So we have such a story and there are a lot of others. Of students. Well, everyone uses Zuckerberg, but we have stories like that of people who started off really successful businesses while they were in school, really successful startups while they were in school. So this should help with that. And considering what the population bulge that we expect to see over the next two to three decades, it makes sense. So yes, I am hoping it's like the execution is where all the, that's where all the work is. If it's executed properly with the right partners, then I think it has a huge potential for success.
[00:26:51] Speaker A: I mean I just really hope that the investors do not frustrate those efforts, especially if they are not going to like use existing facilities in those say for example, they want to like build. Yeah, that will make sense.
[00:27:09] Speaker B: Well, I mean they could use one, they could use existing infrastructure. They could, they, I mean what they choose to use is really not an issue, but like what the most important thing is, like the execution. Who are your partners in doing this?
And then what are the modalities for the, for the engagement? Those are the two major things that would determine whether it succeeds or not.
[00:27:32] Speaker A: What's the name of that dude that gave the Ethereum guy?
[00:27:36] Speaker B: That's Peter. Phil. Oh, by the way, I think CCO, we've had something like that. I think it was at university or College of Education, the CCOT, they had a similar initiative. I don't even know what's up with that. I haven't heard much about it. It would be interesting to go, go look at what the results of that collaboration was. Yeah, I think that's, that's probably a pointer to.
[00:28:03] Speaker A: For those who don't know what Peter does, I think he asks if you are willing to leave school and you.
[00:28:13] Speaker B: Get one hundred twenty k and drop out.
[00:28:15] Speaker A: And then drop out.
[00:28:16] Speaker B: Someone should have done that to me.
[00:28:21] Speaker A: I'm nothing. Not certain that I will know. Embezzle. Your majesty.
[00:28:28] Speaker B: I've been behind bars right now. Spending a bit. Spending your productive years behind bars.
[00:28:34] Speaker A: Yeah. But it's very, very interesting stuff and some really good things came out of it. I mean I think the Ethereum story was probably the biggest one.
[00:28:42] Speaker B: I'm trying to remember the names of some of these startups that came out, but I think they had the Figma guy yes.
[00:28:48] Speaker A: Oh cool.
[00:28:49] Speaker B: I think they had the Figma guy.
Who else? I think they're like two or three unicorn. I think more than three unicorns came out of that experiment.
[00:28:59] Speaker A: So that money is like investment basically.
[00:29:02] Speaker B: Like it's just money to go figure out your idea.
[00:29:06] Speaker A: Boy like gets a stick that I can't remember if he's getting his take.
[00:29:12] Speaker B: Whether he's getting his take or not. Like it's not people who think or who say that the education system broken. So this is like their way of fixing it. I don't entirely agree with that pattern but obviously it has created a lot of value so unfortunately it's difficult to argue against results. But I'd rather, I'd rather an innovation center in university where students are encouraged to like experiment. If it works out, fine. If it doesn't work out, you move on to the next thing because I mean 18 for a lot of people.
Okay. I don't know about Nigeria, what age, but like between those ages 16, 1718 you don't have a family yet except your few food and so if you don't watch football, sorry for you, but except your few folding, you don't have a child at the age of 21 so you do not have like major responsibilities. You can take major risk at that age. Hopefully don't drop out. Don't drop off for what?
Hopefully don't doubt from Fuyi anything you see, just take it like that.
[00:30:17] Speaker A: Okay.
[00:30:17] Speaker B: Um.
[00:30:18] Speaker A: Before chingozyrim disrespects my alma mater any.
[00:30:22] Speaker B: Further, that's all I say.
[00:30:25] Speaker A: Careful what you say.
[00:30:27] Speaker B: Is he licensed? You don't even have like an alumni association. That's how bad it is.
[00:30:31] Speaker A: It's still new. Now this group came out, it doesn't matter.
[00:30:34] Speaker B: But people like have, like we probably do. Have you had anybody who any, have you had any successful person apart from you that get from us?
[00:30:43] Speaker A: So you think of me as success? So thank you. Um, yeah, I mean, besides me, the.
[00:30:47] Speaker B: Fact that you breed the same AI bridge, that's enough success.
[00:30:50] Speaker A: Besides me, I mean I know friends that are doing really amazing things. What are they doing out there?
[00:30:55] Speaker B: Acting skits?
[00:30:57] Speaker A: All right, um, it has been a very interesting one on the tech point Africa podcast. Um, if you enjoyed this episode, please be sure to leave a, like leave a comment, share with people that might gain something from this. There are a lot of other stories that we didn't really talk about. You can find them on the Techpoint Africa website. Just go to Techpoint Africa and you'll find those stories there. Alright. That's it from me and Jim Gazim on this episode. We'll see you in the next one.
[00:31:26] Speaker B: Yeah, and stay in school, guys.
