Fintech for Cash-First Markets with Nomanini's Vahid Monadjem

February 11, 2021

In this episode, we continue our exploration of the entrepreneurs digitizing informal and analog markets, with Nomanini's Vahid Monadjem. Nomanini is a fintech platform for informal retail merchants in cash-heavy economies, and Vahid, the company's Founder and CEO, believes the best "way to move beyond cash is for us to be really interoperable with it." In this episode, we talk about specialization and interoperability, B2B partnerships, lessons from the last-mile, and much more.

[03:41] - First question, what is the market environment in which Nomanini is operating?

[07:42] - We dive deep into Nomanini's products.

[15:25] - A discussion on cash and interoperability.

[23:45] - On Nomanini's B2B partnerships and how to work with corporates.

[30:12] - What's Nomanini's origin story, and what lessons have they learned from their ten-year journey?

[36:05] - What does the future of fintech and informal retail in Africa look like?

This episode is part of our conversational series sponsored by MFS Africa. MFS Africa's competition is with cash, and throughout this series, we'll feature other startups and entrepreneurs who are digitizing, better organizing, and aggregating analog and fragmented industries.

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Vahid Monadjem [00:11]: I think the way to move beyond cash is for us to be really interoperable with it.

Justin Norman [00:17]: That's Vahid Monadjem. I'm the founder and CEO of Nomanini, a fintech platform for informal retail merchants and cash-heavy economies.

Vahid Monadjem [00:24]: The first thing to consider is just the incumbent technology. And the incumbent technology is pen and paper, physical cash. And while those might seem extremely limiting, they are extremely powerful. A pen and paper keep working whether the internet goes on or off, or power goes on or off. And it's a pretty robust mechanism. Similarly with cash, that's a very fast transaction. It's hard to beat the transaction time of cash without installing the sometimes pretty costly equipment into a point of sale. There needs to be some appreciation for the incentives and what works for informal retailers.

Justin Norman [01:02]: As we continue our exploration into the startups and entrepreneurs working to digitize informal and fragmented industries, in this episode, we'll go deep once again into the informal retail markets. And we'll hear from Vahid, the work involves not only building technology with empathy and a deep understanding of the users, but in particular with a focus on helping retailers, finance and sell more physical products, which makes up the largest proportion of retailer revenues. Vahid and I talk about not only the needs of informal retailers, but also the problems large FMCG and financial services companies have. We talk about building specialized and interoperable products. We talk about Nomanini's origin story and the lessons they've learned after 10 years servicing the informal retail market and much more.

Justin Norman [01:42]: We'd like to thank MFS Africa for their sponsorship of this episode. Throughout this series of episodes, a consistent theme has been interoperability. MFS Africa's payments hub makes over 200 million mobile wallets interoperable across almost 30 African countries. And in this episode, Vahid and I talk about interoperability as a core feature of Nomanini's platform. As this trend perpetuates in the ecosystem, large incumbents are not only taking notes, they're taking lead. This is something I talked to Chris Williamson about. Chris is the head of M-Pesa for Vodacom Group.

Chris Williamson [02:10]: We see interoperability is really crucial to the long-term success of M-Pesa. And it's something we've been, to be a little honest, we've been criticized for in the past for not being for the interoperable with everyone. The reality is it takes time to build interoperability. But when you look at our mature markets now like Kenya or Tanzania, and increasingly the other markets, we're kind of becoming interoperable with everyone. And we're very keen to do that, whether it's a bank or another telecoms player with a mobile money service. We have launched the open APIs now in most of our markets. And that's being consolidated at the moment into a single open API gateway for all M-Pesa markets. So we basically we'll be one M-Pesa partner for anyone that wants to integrate with us. They don't have to do a separate integration per market.

Chris Williamson [2:57]: I think the other key component, we're moving towards, actually, an over the top model for M-Pesa. And we've stated this publicly in a couple of markets where we don't think M-Pesa should only be limited to Vodacom or Safaricom SIM card holders, is it should be whatever network you're using you can use the M-Pesa app. I think that's the future of financial services anyway, so we're embracing that.

Justin Norman [03:22]: We'll hear more from Chris on interoperability, including a word of caution for its limitations later in the show. All right. Here's Vahid.

VO: You're listening to The Flip, the podcast exploring contextually relevant stories from entrepreneurs around Africa.

Justin Norman [03:41]: Let's give a lay of the land to start, in terms of the markets that you're operating in and the problem that you're solving - informal markets cash-only heavily fragmented. Can we talk a little bit about the environment in which you're working, before we talk about the sort of solutions to the problem and the interventions that you've implemented to help solve the problems?

Vahid Monadjem [04:01]: Okay. In terms of the market, the info market is the vast majority of retail interactions in Africa. And so, research on this varies, but anywhere between 80 and 90% of retail transactions are done in the informal retail markets. So this means your formalized multi-national supermarket chains are not the standard. The standard are small stores, often sole proprietorships, owner operated. That is where people buy their rice, their eggs, their Coke, their daily essentials. And in terms of market size, again, the estimates vary massively. I've seen kind of numbers as high as 150 million retailers in Africa. We focus on a particular niche. We look at the fast trading retailers, so typically where you would buy fast-moving consumer goods.

Vahid Monadjem [04:55]: There we estimate there's about 10 million high-trading informal retail merchants that lack a few key things. The first is these are retailers like any other retailers. They need to be able to attract customers to their trading locations. And this means stocking a good variety of goods. And that also means being able to facilitate a widening array of digital transactions ranging from mobile money top-ups, to remittances, to cash-in, cash-out transactions. So yeah, the first is just being able to kind of hold all those different items of stock and have access to them. And then the second is by doing so you can attract customers.

Vahid Monadjem [05:36]: The issue in informal is that these, unlike modern or formal retailers, a lot of these traders don't have access to finance. So they end up using their own cash or borrowing at very high rates in order to stock their shops. When you walk into any supermarket, what you see in front of you generally is financed by the manufacturer. So we were trying to change that game and to be able to do so in a way that doesn't get in the way of their business. We see that that's respecting till time, is something that a lot of service providers don't do in the fragmented, informal space in the same way that we consider optimizing the till time in a supermarket. So customers' time and stock range is what retailers generally need.

Justin Norman [06:26]: Can we just go deep immediately into, you said respecting till time, what exactly does that mean, and how does this manifest itself in how you work with your merchants versus let's say, a normal supermarket?

Vahid Monadjem [06:40]: Well, so we don't actually work with normal supermarkets. We work only with informal retail merchants. But now, I'll give you a few examples. So if you walk into many places in order to, as a consumer to do a digital payment, either put money into your mobile money account or send money overseas, these are transactions that garner very little margin for a retailer. They're in the order of kind of 1 to 2%, by contrast, the sale of beverages or facet of consumer goods are upwards 10%, 20% in some really high cases. So these are very small transactions. They are also very cumbersome transactions. They require the customer to provide credentials to match to either their mobile account or whatever they're paying into. And so, they could actually really eat up till time. And so, you end up having retailers grudgingly do this in order to attract customers for cross-sell, but it isn't really optimized for the fast-moving retail trade.

Justin Norman [07:42]: I see. And so, let's get right into Nomanini's products. So how do you then optimize for the markets and the merchants that you're working with, in the context of everything you just shared thus far?

Vahid Monadjem [07:54]: So, we have two kind of versions, and anything in between, but kind of two extremes. We've got on the one side, simply embedding credit into the FMCG value chain. So that means the delivery people who deliver cases of goods to a retailer can offer terms to the retailer. So the retailer can pay for those goods in seven days, 14 days, 21 days, but whatever's appropriate for the sale rate of those products. So that's very simple embedded credit that we can provide for the retailer through partnership with FMCG and banks.

Vahid Monadjem [08:36]: On the other end, we could also provide a full-service business banking wallet for informal retailers. And this includes the provision of an interoperable wallet for the retailer to trade everything from mobile top-ups to mobile money deposits to bank deposits and provide their consumers with a full range of digital services, as well as to pay their own suppliers electronically. And of course, again, to get access to lines of credit with all their suppliers. Really, what we build depends on what kind of partnerships we can generate in-country to get these solutions to the merchants.

Justin Norman [09:17]: I'd like to go deeper, in particular, into merchant-facing products. I certainly think that there's a little bit of this perception, or maybe it's a misconception, around it being difficult to create digital products that have high utilization, uptake in the informal markets. I'd love for you to talk a little bit about, from a product perspective, from a design perspective, what considerations went into knowing your user, how you built the product, what did it take to get your informal merchants to utilize the app more prevalently? And why do they utilize it more prevalently?

Vahid Monadjem [09:58]: So yeah, maybe just in terms of utilization statistics, and we think these are very good proxies for whether your product is useful. People vote with their attention and their usage. We have retention rates well above 80%, and we have daily average transaction rates between 40 and 50 transactions per day. So these are very active and engaged users. We take a real kind of design mindset. We started the business actually offering solutions directly to retailers, literally going door to door with these propositions and getting that feedback. And that experience in the early days of the company was really essential to informing our mindsets and our kind of entire psyche around, what's important to retailers. There's nothing better than real user feedback and real calls to your support line and real customer complaints and commendations to inform what is important.

Vahid Monadjem [11:02]: Since then, we have moved into a mode where we provide a white-labeled platform and we work through partners to deliver our solutions. But those early lessons about respecting the time of the retailer, thinking about the product with their priorities in mind, really help us. For example, in many markets that are cash first that we operate in, well, it would be really exciting to enable credit card acceptance. It's just not something that a lot of merchants in those markets are demanding. It's not something that their customers use. And so, it's pretty low down the priority list.

Vahid Monadjem [11:40]: And sometimes we see that the incumbents are trying to offer solutions rather than solve informal retail's problem. And if you are card issuer or card acquirer, then your solution is based on card. Yeah, we don't really come with those pre-existing legacy solutions that then we try to back fit into the full merchant. We think merchant first, we get real user feedback. We iterate with that merchant to try to make sure that, or that base of merchants, to try to up the activity and improve the usage for the retailer.

Justin Norman [12:16]: Is it specifically the nature of the opportunities that you're opening up for merchants to either sell digital products or access credit that then also compels them in these cash-heavy economies to actually leverage a digital app? Because I think so often again, and I'm still harping on these perception issues, is that you create something and so often it's trying to get merchants to digitize but then they still sort of default to pen and paper. Or the biggest competitor is still pen and paper and ledgers and it's tough to compel them to log a transaction in a digital way when it's just a cash payment. So can you speak to that in your experience with that?

Vahid Monadjem [13:00]: Yeah. Maybe the first thing to consider is just the incumbent technology. And the incumbent technology is pen and paper, as you said, physical cash. And while those might seem extremely limiting, they also have, they are extremely powerful. A pen and paper keep working whether the internet goes on or off, or power goes on or off. Similarly with cash, that's a very fast transaction. It's hard to beat the transaction time of cash without installing the sometimes pretty costly equipment into a point of sale. So I think there needs to be some appreciation for the incentives and what works for informal retailers including some of them potentially less apparent benefits like privacy that retailers might find important.

Vahid Monadjem [13:46]: The second thing I would point to is kind of thinking about who. I think probably retailers are often kind of lumped into kind of a big mess, and there are very different dynamics. While there must be a huge market for hairdressers, for example, that's not the type of informal trader that we serve. We serve a very specific segment. And within that segment there are specific stakeholders. There will be the owner of the store, there potentially will be one to three till attendance. And I think knowing those dynamics, understanding the role of the distributors and the lines and then how the retailers relate to the distributors, is really key. I think that is something that, when you're digitizing and maybe perhaps you want to scan data asking a till attendant or a store owner to implement the system that then slows down transactions and means more training and incomplete data and more trouble. Is this just simply often more, what's the value in it for the retailer? Sure. It's great that other parties might have access to the data, but that value proposition needs to be really key for the retailer.

Vahid Monadjem [15:00]: And I think this is, also, maybe links to the third perception that there's this kind of perfect vacuum to step into. And actually there are systems operating, they might be extremely manual, they might be extremely analog, but they are there. And I think being able to understand that and figure out how to leverage that rather than think that you can just replace it entirely because this is the way we've chosen to go.

Justin Norman [15:25]: I'd love to harp a little bit more on interoperability. You kind of just talked a little bit about that, and in your strategy to work with multiple different partners versus just being M-Pesa, for example, and compelling people only to use M-Pesa. I mean, how does that sort of shakeout in then driving up utilization and usage, as you mentioned?

Vahid Monadjem [15:45]: So the countries that we're active and are launching in are Zambia, Lesotho, Eswatini, Malawi, Kenya and Côte d'Ivoire. But even there there's a massive range amongst those countries, and for some of the countries within them, that needs to be catered for. And this is kind of, we've had the benefit of building a multi-tenant system from day one. And that means we've had to serve partners who had perhaps different models to go acquire merchants, different features, that's what they've rolled out. And we've been able to build something very modular and that we can configure to the needs of a particular market or a particular project. And I think that's been something that we benefited from a very good mix of having real user feedback early on from the end user, and at the same time being able to deliver white-labeled systems to third-parties and figure out how to make it their system. And so, another combination was really beneficial.

Vahid Monadjem [16:51]: The second thing in terms of interoperability, and I think maybe this touches back on cash, which is the ultimate most interoperable instrument that we have for nearby transactions right now is, where we started was kind of in the heyday of the mobile revolution, where you'd walk into a small store and you'd want to buy an airtime top up and the retailer would often have a small box under the counter somewhere where they would kind of rifle through some scratch cards to find the right one, they may or may not have the right one because not having that much working capital might mean they might not have stocked sufficient numbers of that particular one, even if they have a box full of scratch cards.

Vahid Monadjem [17:39]: And I think that situation is not dissimilar to where we find ourselves in mobile money world, where we have these different systems and now retailers are looking into their counters and they might have three or four phones plugged in order to facilitate transactions for consumers and have their scarce working capital spread between these different systems as well. And so, yeah, that fragmentation is just a little bit of a mess for the merchant. And it's enough of a mess that sometimes when someone will walk into a store and say, I want to buy a bit of electricity, or I want to do a small top-up. A retail might just sigh out audibly and be like, "Okay, are you going to buy anything else?" Is this transaction going to be worth it?

Vahid Monadjem [18:24]: And this is where interoperability comes in. When you have kind of a single wallet, scarce working capital plugged into one multifunctional wallet that can do anything, a workflow for transactions that doesn't mean that you have to go find another phone somewhere that perhaps hasn't been charged or rifled through a different menu structure and then the other one... That simplification means that those transactions that happen, as I said, 40 to 50 times a day, are just easier, are faster and don't get in the way of the main business, which is selling physical goods. And maybe let's talk about that. The physical goods trade for the kind of traders that we work with usually constitutes about 80 to 90% of their income. And so, the digital transactions that they might facilitate to consumers really are a small minority of what they need to sustain their businesses.

Justin Norman [19:15]: So just in terms of being the single sort of point of entry. So how exactly, again, from a product perspective does that work? Is it that you Nomanini is just the front-end being a connector of APIs on the backend? Can we get a little bit more deep into from a technology perspective, how you implement that?

Vahid Monadjem [19:31]: Yes. And maybe before we go to implementation, I think one of our beliefs is, increasing specialization in the ecosystem. And so, there's been an emergence of a number of wonderful consumer-facing mobile money wallets that have gained traction and revealed a whole latent demand that I think banks are now beginning to pursue. These are often closed systems or either literally or in terms of pricing, where the mobile wallet issuers have to acquire both the consumers and the agents to do transactions. And that's kind of what's led to the fragmentation.

Vahid Monadjem [20:10]: Nomanini focuses particularly on the agent side of those transactions. We just consolidate agent transactions onto a retailer wallet. How we do that is modular. We can either issue our own wallet or use a third-party underlying wallet, depending on what our partner might prefer. And then we integrate with the various consumer-facing mobile money players or bank systems in order to be able to facilitate cash in or cash out payments at those retail locations. That kind of transaction flow is straightforward.

Vahid Monadjem [20:45]: What is a bit more complicated is just make it work in a way that works with the many stakeholders at the retailer or around the retailer. So make it work on the countertop fast and easy for various till attendance, for the participants in the retailers orbit like the distributors who might want to receive payment through that wallet. That's really where it gets a bit more complicated. Tut the technology is half the problem, the other half of the problem is making it plug into the ecosystem that already operates, and getting each one of those to make use of it, or see the benefit in it.

Justin Norman [21:22]: And then the partners are there your distribution channels, or how exactly does it work then to get your tech into the hands of the merchants at the last mile?

Vahid Monadjem [21:32]: There's kind of two modes that we work in, the first is where a bank might be leading a deployment and wanting to establish a base of retailers using our technology and making use of that interoperable wallet. Usually, that's deployed either directly by a staff of the bank or they contract trade marketers in order to go acquire a base of retailers very quickly because it's packaged and ready, actually, it can be rapidly deployed. We've got cases where banks have literally acquired thousands of distributors in a week or four. So that's one method.

Vahid Monadjem [22:12]: The other method is where we integrate into FMCG supply chains. So we work closely with FMCGs to map their supply chains, to make the systems work for the distributors downstream. The distributors can actually become acquiring channels for merchants. That's usually just for the lines of credit rather than the full-service wallet. And maybe that's the other kind of bit of complexity that I haven't spoken about yet is Nomanini provides this bridge between the financial world that works in Kwacha and Shillings and Dollars and the FMCG world which works based on SKUs, and being able to understand both sides of that divide is really key for us to be able to do what we do.

Justin Norman [23:01]: Can you say more about that, I mean, is there a translation issue, or what does that actually mean that one side deals in cash and currency and the other side deals SKUs?

Vahid Monadjem [23:10]: Well, it kind of means that in the sense that when you look at a transaction through a pure financial lens, you might just look at the outside of the basket, but you actually need to look into that basket and understand what SKUs are in there. On the flip side, if you're an FMCG promoting certain SKUs, you're potentially less concerned about the financial side or willing to give better discounts and bonuses for it. And yeah, it's just interesting that usually the kind of key denomination of a system is either money or SKUs, and we have to bridge that.

Justin Norman [23:45]: Yeah. We've been talking about partners and we've mentioned partnerships a lot now, can we talk a little bit about the problems that these companies have that you're solving and how those conversations and partnerships go and come to be in your experience?

Vahid Monadjem [24:02]: I'll speak a little bit about two partnerships. One is with Standard Bank and the other is more recently that we've announced with Nestlé. So with Standard Bank, the key issue really was that the bank wanted to offer value in the informal retail space. They recognize that traditional banking solutions didn't solve any of the problems that retailers really needed and want us to build a proposition that actually supported their business. And that's where they identified us and together we kind of configured a solution for the high trading retailers that they were looking to serve. How it came about, was really part of running a B2B business is having lots of conversations with partners, potential partners, and seeing where they go. And this was one of those conversations that, really, we spent a lot of time getting excited about what we could do for the retailers, and seeing that we were very aligned in terms of what was important and how to do it. And it drew quite organically out of that.

Vahid Monadjem [25:09]: On the Nestlé side, they are the world's biggest FMCG company by sales. We got speaking to some of the leadership there about their plans, and there was already a very strong appetite to bring digital solutions into the business. They'd been pitched a few times either by banks or fintech solutions. They were looking to get best of both. And I think when they saw that we were doing work with the big banks, that kind of got their confidence, but they also saw that Nomanini was driving the solution and Nomanini is a very retailer centered organization, very much spoke their language. And that they've moved extraordinarily quickly to create a partnership when recognizing that. The intent of the partnership is to digitize their downstream sales across 23 countries in their markets. They want the retailers and the downstream to have access to finance in order to purchase goods and to grow their businesses.

Vahid Monadjem [26:21]: And one thing I'll say about both of these organizations is, they have the confidence to have an open mindset and to say, okay, this isn't just for Standard Bank transactions. And this isn't just for Nestlé goods. We want to build things that generally improve the merchant transactions and are not exclusive to our businesses. And I think the MD that we're working with there put it really nicely and said, "This is key to our business, but it is not our core business." And that I think was really essential for us. We've seen a lot of initiatives that end up getting hijacked by the agenda of very powerful partners. And sometimes then, as a result, lose sight of what really matters to the retailer. And I think we've benefited from forging partnerships where our explicit role is to continue to be the voice of the retailer in that partnership.

Justin Norman [27:17]: And I suspect just there being this ethos of interoperability helps in that regard as well. Even big payments behemoths are now touting being interoperable and so, I think even, or especially if leaders in the payment space are taking this sort of strategy and this initiative head-on, then it's a good sign, I hope, for where these economies and these markets are going. And the potential for things to be less fragmented, I suppose.

Vahid Monadjem [27:44]: Yeah It is something that is, I think, a fairly recent phenomenon. I think the aim to kind of build these closed islands that can be kind of fully controlled or owned, I think that started to ebb, and probably the last like two years. And it's kind of going from a grudging okay, we'll do it to okay, let's really embrace that. And we've had the benefit of being with partners that really are just doing this grudgingly, but then see themselves as championing that. I think we are so far from finished, the amount of work to do and benefit for all parties is just immense. And I think that that recognition is spurring more collaboration. And to be frank, within collaboration, there is both conflict and cooperation and I think healthy ecosystems require both.

Justin Norman [28:39]: Yeah. And you just mentioned a minute ago, there's so much work to be done. So I'm curious what that means for Nomanini in terms of the near term and longer-term, what are your objectives from a product expansion perspective? You also just mentioned Nestlé, you have an initiative to go into 23 countries. What sorts of things are you thinking about in terms of what work needs to be done to realize a larger vision that you have for the company?

Vahid Monadjem [29:05]: So ultimately we want for $1 billion worth of sales for retailers to flow through Nomanini systems. And to do that, we have a lot of scaling to do. A big focus right now is simply just growing into the partnerships that we've created. We have enormous partnerships that hold huge potential. We are clocking 10 times growth, and scaling isn't just in terms of making sure that load testing the system at the next level. It's making sure that we're tracking the tickets coming in and we're able to automate whatever we can. It also means that we're making deployment easier and trying to go, step-by-step make it easier for the next country, easier for the next deployment to roll out these solutions, easier for the next distributor to sign up. I don't think we're there yet, but we want to get to the point that a distributor or a bank or an FMCG that wants to take up these services, actually can just go do the self-serve. Now that that's the long-term vision. We think these systems should get to that level eventually.

Justin Norman [30:12]: You talked earlier just about some of the initial lessons that you had in trying to go direct to retailers and the lessons that you learned in dealing with them. I'd love if you can take me back to the beginning of what compelled you to start this company to begin with, and then a little bit of the journey and the lessons and some misconceptions that you overcame to get to this point where the company is today.

Vahid Monadjem [30:34]: Yeah. So at the time I was working at McKinsey, but it was kind of mobile heyday and there was a lot of work with mobile operators, creating new operators or expanding their markets or making efficient their distribution channels. I got to work across a few countries in Africa. I got to work in Southeast Asia, as well. And it was a really exciting time. There was this entirely new service that was unthinkable just five years before that was a great business that provided a service to people that were unsurvivable. I thought that was exciting. The more I looked at it, it was more the kind of the ability that a single dollar payment for a mobile service unlocked literally billions of dollars of investments into the sector that blew my mind.

Vahid Monadjem [31:29]: So Nomanini started with a recognition that informal retail distribution was really important for mobile operators and that they were the key to creating this new opportunity, but they needed better tools because really it was very rudimentary. We started in South Africa, literally creating a wallet that could vend the different mobile airtime providers scratch cards, and could do it fast and easily from a point of sale terminal. Now, this was in the early days, Android was just taken off. There was no cost effective terminals that we could deploy.

Vahid Monadjem [32:08]: So we actually ended up building our own hardware, building our own firmware, building our own software backend to deploy this solution to retailers. So was our mindset that we need to get this right for merchants that we are willing to build all those things. We rolled out to a few hundred merchants and it was to get this cross-functional team going, to make this thing work, to get the product launched was one thing. But to roll out to merchants was a whole other operational learning for us. Both in terms of the feedback we got in the product, but also in terms of like, how do you actually sell a proposition in, how do you maintain a relationship with the retailer, operationally, how do you manage this thing?

Vahid Monadjem [32:49]: And it was during that period that a distributor in the region came to us and he said, "Look, you're selling these terminals in my area. Let's talk about how we could work together." And we said, you know, "What are you thinking?" He's like, "Well, how about this, why don't I buy these terminals from you? And I'll resell them, and I'll split the margin with you." And we thought, "Well, I mean, sure, but how many terminals do you want?"I said, well, the number was around 100. "I'll start with 100 and see where it goes." And we thought, well, geez, that's thousands upon thousands of dollars. Is this guy going to come back tomorrow? And sure enough, he did pay thousands upon thousands of dollars for these terminals and rolled them out to merchants, kind of within a period that was 10 times faster than we could have rolled out and acquired those merchants. So that was our first surprise. Our second surprise is when he came back to us after the first margin payments or commission split payment that we did and said, "I thought we're going to split the margin. Where's the rest of my money?" We're like, "Well, we are." And he said, "You know what? I've got much better agreements. Tell you what, let's just put my name on the box. Will by using my agreements. And you guys can just be my technology partners."

Vahid Monadjem [33:54]: And that's when we made kind of the first big pivot of the company to rather than build our own direct acquisition system, to build solutions for third-parties who would then white label our technology and roll it out in their markets. But we saw this kind of general slowing where the mobile distributors were diverting more and more their businesses towards their FMCG sides. Because often distributors will have three or four principals of physical goods and we'll have mobile or digital transactions as well. And we saw this year, this general shift of their interests towards the FMCG. And I think this is very much in line with gradual declines in mobile distribution margins, making those businesses less attractive for the distributors.

Vahid Monadjem [34:43]: And that's when banks started to approach us about saying, could we have access to do cash in and cash out on those bases that you built up with the distributors? And that's ultimately kind of what led to the second shift, which was to grow beyond doing mobile value-added services payments, to doing fuller-service financial services solutions for retailers.

Vahid Monadjem [35:06]: It was really exciting for us because we got to go from helping a merchant on the digital consumer-facing transactions that constitute 10 to 20% of their business, through to being able to actually have an impact on their whole business. And so we jumped at that with both hands. It took us a while to really establish a partnership with the bank to do the transition, and to build trust with banks four years ago, it took us a while. But we rolled out our first deployment in Mozambique. We learned a lot from it, less on the product side, but more how we should really engage with the bank to be effective. And that really set us in good stead that when we connected with Standard Bank, we had a very clear idea how we wanted to do it. We learned about how to really make sure that our system can stand outside of the bank and can integrate in the right places to making them work together and get the best from our system and get the best from the existing bank infrastructure.

Justin Norman [36:05]: It's a really interesting insight just in terms of, you hear so much about agent networks and agents that handle cash in, cash out and sell digital services, but the retailers who sell physical goods, that's a much better business to service.

Vahid Monadjem [36:19]: Yeah. I mean, ultimately transactions should be free in the long run, right? And so, if you think about the channels that depend entirely on transaction margin to sustain the participants, that's a pretty precarious place to be in the long run. And so, yeah, we kind of saw that on the predecessor on mobile airtime. We saw the margin decline and we just kind of assumed, the next to happen is going to be on the transaction commissions for cash in, cash out and other transactions.

Vahid Monadjem [36:50]: And this is also where our belief that solving a retailer problem is a really durable way to do this, because they're always going to be a shop that's going to sell the chicken and rice and Coke and the community. And they're always going to be accepting payment for those goods and have business to operate. So we based our business less on the transaction margin that's generated from the merchant, and now I've kind of expanded to financial services and other lines that mean that we're not subject to those declines.

Justin Norman [37:27]: You mentioned, transactions should be free, and perhaps it's trending towards that. What's your take on, where are we going? What's the end state or the desired state, the end goal? Maybe that's a separate question is, what do you wish to see in the ecosystem versus what do you think is happening or where do you think we're going? But I'm curious to get your take on that.

Vahid Monadjem [37:44]: Ultimately, we focus on the business of the retailer, and in a world where all consumers have electronic stores of value that they can access and use, acceptance then becomes a huge part of what we need to make sure that to enable a merchant to do. But as it stands right now, the reality isn't very far from that. The digital divide is very real, while the penetration of mobile phones and smartphones is growing massively. The actual kind of usage by consumers of apps, it is pretty limited. There's large majority of people who at the moment don't use those solutions. So I think we're very far from full, mass scale adoption. There's a lot of work to do from everyone, from regulators and banks and mobile operators to actually make that reality true. And I wish them well, because I think this is going to be a multi-decade journey to get right.

Vahid Monadjem [38:40]: I was looking at the latest numbers coming out of Indonesia and India, and they've moved from about 90% usage of cash to 80 in 10 years. And I think a lot of people point to the example in China, I would just caution that there's a very different level of infrastructure from everything, from individual identity to the prevalence of smartphones. That just means that that is a very different context to take cash from 90% of transactions to below 50%. Yeah, I think there's a long journey for the players that are digitizing the value for consumers.

Vahid Monadjem [39:17]: And we hope that Nomanini could be part of the bridge. I think the way to move beyond cash is for us to be really interoperable with it. And that will make it easier for consumers to be less worried about whether they've got cash on them or digital value. And if they can use that and access that at their local corner store, it makes it a more liquid, useful instrument for consumers. But it's something that we react to and are hoping will come, but it's not something that we're holding our breaths to happen tomorrow.

Justin Norman [39:55]: Thanks again, to MFS Africa for their sponsorship of this episode. We've talked about interoperability throughout the show. And earlier we heard from M-Pesa's Chris Williamson, on the mobile money providers views on the topic. But even with their endeavor to be more interoperable, it's not, as Chris says, a silver bullet.

Chris Williamson [40:11]: I think what I'd slightly take objection to is, and particularly in the sort of development community, there seems to be an idea that interoperability is a silver bullet for financial inclusion, and that if we are in tropical with everyone, then that means that suddenly millions of rural customers that don't yet use mobile money are going to start using it and the payments will really scale, in particular. Where we've introduced it, for example, in Tanzania, we launched I think four years ago now, interoperability with the other mobile money players, and we have pretty similar market share each player. Actually, we've only seen only about 10% of our P2Ps are going off-net and it's similar for the other players. And that's because a lot of people before that were using multiple SIMs or they were using send vouchers and things. So it's more complex than people think. And when it comes to payments, you look at a market like Kenya or Ghana where we're not the leading player, MTN is, where you've got one player who's got very, very high market share and very big reach. And still building up the merchant payments side of the business has taken a huge amount of time and investment. Interoperability is a part of that puzzle for sure. But if we want to see Africa become cashless, truly, and for face-to-face payments to move away from cash, then people need to focus not just on interoperability, but on actually what value do merchants and consumers get from going digital.

Justin Norman [41:52]: That's it for this week's episode of The Flip. Next week, we're back in Kenya to talk community savings and lending. See you then.