Today’s newsletter edition is written in collaboration with Stitch Co-founder and CEO Kiaan Pillay, and I’m excited about that for two reasons.

First, I want founders and operators to share more insights, and a primary objective of The Flip is for it to be a place for them to share. Having spent a lot of time with Kiaan and team in Cape Town, I know they have lessons the ecosystem can benefit from. Stitch recently published The anatomy of an African fintech stack, taking a deep dive into the fintech infrastructure powering financial services solutions across the continent. So we're doing the same today, taking a deep dive beyond the dollars raised, to provide more perspective behind why the company was able to raise such a sizable round.

We’re coming out of embargo to publish this piece, in conjunction with Stitch’s Series A announcement. I am strongly of the opinion that fundraise announcements are under-leveraged media events and I am glad that I have the opportunity, together with Kiaan, to tell a more in-depth story alongside today’s news.

Stitch’s fundraise, their core products, and their lessons thus far allow us to explore a few pervasive themes in the African tech ecosystem: payments and fintech infrastructure, expansion, market size, tech talent, and specialization.

Its sizable $21M Series A fundraise - one of the largest Series A rounds we’ve seen in Africa, to date - is a bet on the continued growth of the company and the markets they currently and plan to operate in. And it’s a bet not only on Stitch’s ability to serve existing companies, but on its ability to facilitate the development and growth of entirely new ones, as well.

Stitch is an open banking API playing at the data and payments layers of the financial services tech stack. With Stitch’s API, fintechs can connect their apps to its users’ financial accounts, which allows users to share their transaction history and balances, confirm their identities, and initiate linked account bank transfers (also known as instant EFTs in South Africa).

Much like that of card payments, Stitch sits in the middle of a three-sided network, connecting fintech solutions, financial institutions, and consumers.

With permissioned access, developers of fintech solutions are able to immediately connect to their customers’ accounts - to verify users’ identities and determine income and spending behavior, for example, or to enable immediate pay-ins and payouts - without having to implement custom integrations with each bank themselves or waiting several days for traditional verification and interbank payment methods to settle.

For consumers using wallet-based fintech apps, a pay-with-bank-account feature allows them to gain access to and fund their wallets immediately, as well. As Stitch tokenizes bank accounts, returning users can make one-click payments every time they wish to top up their wallets, making payment flows even easier.

One may colloquially refer to Stitch as "Plaid for Africa" due to the product similarities. It's a fair yet incomplete heuristic.

Plaid inserted itself into a wide gap in the US market, where ACH payments are slow by design and where instant bank-to-bank payments were virtually non-existent. Its growth has been both enabled and furthered by the staggering rise of consumer fintech in the US.

Whereas on the continent, we know well the heterogeneity of African markets, and Stitch's experience - from a product, strategy, and partnership perspective - is representative of the fragmentation and complexity of financial services across the continent. And the fragmentation exists not just on a market-by-market basis, but on an individual consumer level, as well, where consumers on the continent transact on far more applications than those in mature banking markets like the US or EU.

Stitch started in South Africa, a market in which bank-to-bank EFT payments exist, but where payments are not always instant - BankservAfrica's Bishnen Kumalo admitted as much in an earlier episode of The Flip - and are comparably expensive. Beyond instantness and costs, manual EFTs remain difficult for fintech solutions to reconcile payments, while leaving a fintech environment and opening a banking app to complete a payment is a big point of drop off.

Kiaan, along with co-founders Natalie Cuthbert and Priyen Pillay, learned this first hand while building a Venmo-style wallet for South Africa as a side project, where a lack of infrastructure to connect to banks slowed them down. As Kiaan told TechCrunch last year, “We were looking for a way to let users cash out from their wallet to their bank account. We did this manually at first and then as a stopgap, we automated the process using screen scraping. We realized that the automated solution to this manual problem could be a product by itself and that there were more elegant ways to do it.”

The opportunity emerged for Stitch to enable businesses and merchants to accept faster consumer payments over banking rails, and to provide a card-like experience from a UX perspective (instant, one-click, no need to exit your fintech app to go log into your bank account each time) without the high cost for the merchant and potential for fraud.

Later in the year, Stitch expanded to Nigeria, a market known for its banking infrastructure.

Continental expansion has come earlier in the life cycle of African startups due to the fragmented, sub-scale nature of African markets. Fintech brings with it an implicit assumption of scale - zero marginal costs, data network effects, and so on - and the Nigeria superlatives - huge market, fast-growing fintech and startup ecosystem - present the most significant opportunity for a business focused on bank payments.

To understand the scope of the opportunity, we should also talk about APIs. We wrote about API-first startups a few months ago. Startups like Stitch are specialists. Their narrow focus on one part of the fintech stack - or in their case, a combination of data + payments that work together - avails best-in-class solutions to their customers.

APIs let companies leverage years of other companies’ work in seconds… An API-first company essentially abstracts away the complexity of a whole best-in-class company, giving clients the full output of a highly-focused org.

API-first companies are able to do this for two reasons, in particular. Focus and scale. These companies are set up to solve a very specific problem, and if they’re solving these problems at scale, “they’re able to justify small improvements that build up to an incredible product over time” to build best-in-class products.

Consumer-facing companies – the API-first companies’ customers – need these specialist services, and by plugging into best-in-class solutions, they can focus on that which differentiates their businesses, and better serving their customers.

Even in a market with above-average banking infrastructure and instant payments, abstracting complexity for African fintechs is crucial, given just how complex it truly is to build a fintech at scale across Africa. Samora Kariuki lays out this complexity for us in a past edition of his Frontier Fintech newsletter. For a consumer fintech like Chipper Cash to expand to a new market, this is what it looks like:

Chipper Cash for instance gets licensing in each market, partners with someone for identity verification, opens bank accounts for store of value and negotiates exchange rates for settlements. It then partners with a player such as Flutterwave for centralised liquidity management, reporting for some payment types and payments and collections for some markets. It has to build a deeper stack than say a similar Fintech in Europe or USA.

This is all on top of a fintech's core focus: understanding its customers' problems, building an elegant product and user experience, and acquiring and retaining them. These elements together present a massive barrier for companies trying to get financial products off the ground, which is what makes this infrastructure so important.

Stitch is not only providing a tool on top of which other startups can more readily avail new products, services or experiences to their customers - and in the case of its pay-with-bank-account feature, in one case study, has helped increase one fintech's conversion by 50% by providing a pay-in option that is also more cost-effective and less fraudulent than card payments - but they are making it easier/faster/cheaper for these startups and other businesses to get financial products off the ground in the first place.

This is good for consumers and it's good for developers.

From a developer perspective, in particular, a lot has been said recently in the African tech ecosystem about the depth and quality of tech talent across the continent. Developers on the continent are young and less experienced - the average experience of full-time developers in South Africa, Nigeria, Kenya and Egypt are 7.3, 5.5, 3.8 and 4.1 years respectively, according to the IFC and Google's e-Conomy report.

How that's manifested for Stitch is in a product that's developer-friendly yet comes with more high-touch integration support (Stitch was extremely measured in how they rolled out their self-service offering, given their CTO Natalie's experience in her past role with Whereismytransport, where launching self-service came with challenges). And while Stitch is an engineering-centric organization, they've learned that given the data above, engineers in Africa do not necessarily have the autonomy yet to be responsible for business and partnership decisions. They still require buy-in from the rest of the team. Stitch has therefore taken to market a product that speaks to challenges faced by not only developers, but by product, payments, user acquisition, customer support, and other teams.

So when we zoom back out, we can see the anatomy of a $21 million Series A.

From a traction perspective, Stitch boasts a 104% month-on-month growth in payments value since launching the product last April, a 44% month-on-month customer growth and a 72% month-on-month increase in linked financial accounts in Q4 2021. Its ability to execute on its technical vision to build best-in-class API-first products is a function of its strong team - Kiaan's prior stops include Root, formerly a programmable banking API, and the identity API Smile Identity; CTO Natalie cut her teeth with Whereismytransport and Root; its CPO Junaid Dadan prior roles included VP of Strategy for MTN and Head of Product Strategy in EMEA for Stripe; COO Andrew Ma spent time in strategy with Jumo and Google's R&D facility X; over 60% of its team is product and engineering, and the majority of team members have had previous experience building fintech companies on the continent.

And the product itself serves as critical infrastructure, abstracting complexity, and laying another layer of foundation on top of which fintechs can ship and scale. As we've written about before, on invisible innovation and targeting nonconsumption, the growth for infrastructure providers comes not just from existing applications, but from entirely new applications that would not have heretofore been possible without the availability of said infrastructure in the marketplace.

As Eric Stromberg wrote, "New infrastructure enables new apps. Over time those apps need more infrastructure, which in turn enable a wider set of apps to create even more customers for the original infrastructure provider."

So the bet on Stitch is a bet on critical infrastructure in a fast-growing market. At the same time that infrastructure can further accelerate the growth of the market, while the experience and number of developers increases, the amount of funding in these markets increases, and so on.

While we can look at the growth in number of fintechs coming to market and the speed at which they launched in the US following Plaid's growth as a high level heuristic, a solution that can enable such growth within and across African markets - bringing an understanding of the particular nuances, unique regulatory environments and differing consumer preferences that exist across African markets - has the potential to enable a path for even more explosive growth in this industry over the coming years.

Thanks to Thea, Stitch's Head of Marketing & Communications, for her help with the brainstorming and editing of this edition.

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✌️ Justin

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