Inside the Stripe Acquisition of Paystack with Shola Akinlade & Matt Henderson

December 3, 2020

On October 15, 2020, Paystack and Stripe announced the acquisition of the former by the latter, in a deal reported to be worth over $200 million. This marks Stripe's largest acquisition to date and is an incredibly meaningful exit for the African tech ecosystem. To unpack the deal, we spoke to Shola Akinlade, Paystack's Co-founder and CEO, and Matt Henderson, Stripe's Business Lead for Europe, the Middle East, and Africa.

[03:43] - We start our story of the Stripe acquisition of Paystack in the Winter of 2016. Paystack becomes the first Nigerian startup to participate in Y Combinator, where Shola is introduced to Stripe Co-founder and CEO Patrick Collison. Stripe leads Paystack's Series A.

[06:02] - As both companies - and their relationship with each other - grew, the idea of an acquisition arose naturally.

[08:10] - Why is Stripe interested in Paystack, and Africa as a region?

[10:38] - What does the future for Paystack look like now that it has joined Stripe?

[13:40] - We explore the growth opportunity for Paystack's merchants, as it expands its geographic coverage.

[15:55] - On Paystack's customer intimacy and product roadmap.

[19:44] - As always, a reflective conversation between Justin Norman and Sayo Folawiyo on this episode’s topic.

This episode also commences a new conversational series, launching the first week of January, and we are proud to introduce MFS Africa as the sponsor of the entirety of the series. 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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Shola [00:00]: Hi my name is Shola Akinlade, I’m the co-founder and CEO of Paystack.

Justin [00:18]: I'm not sure Shola and Paystack need any introduction at this point. But in any case...

Shola [00:22]: Paystack is a payments company. We help merchants accept payments from their customers. So think of us as Stripe, but for Africa.

Justin [00:29]: And Paystack, of course, had some big news in October 2020.

News clips [00:32]: To big news in tech. Stripe, a US fintech company, acquired Paystack, who does the same thing here in Nigeria.

Stripe is acquiring Nigerian payments company Paystack.

Stripe has acquired a Nigerian startup Paystack.

You guys just acquired Paystack.

Justin [00:47]: This is Stripe's largest acquisition to date and an incredibly meaningful acquisition for the African tech ecosystem. Not only is it a major exit we've all been waiting for but a significant endorsement from Stripe,. A hearty, hearty congratulations go out to Shola, Ezra, and the entire Paystack team, and we're incredibly grateful to Shola and Matt Henderson, Stripe's head of the EMEA region for taking the time to speak with us and to go deeper into what this acquisition means for Paystack, its merchants and the African tech ecosystem.

Justin [01:14]: Before we get into it - we're excited to share that this episode commences a ten-episode conversational series that we'll be launching the first week of January. And we are proud to introduce MFS Africa as the sponsor for the entirety of this series. MFS Africa, much like Paystack, is doing the hard work to make digital commerce easier on the continent. The MFS Africa Hub creates interoperability across carriers and borders and connects over 200 million mobile wallets on the continent through one API. MFS Africa's competition is with cash, and throughout this series, we'll hear from others who are digitizing, better organizing, and aggregating analog and fragmented industries. I sat down with MFS Africa's Deputy CEO Rachel Balsham to talk about the importance of this kind of infrastructure.

Rachel [01:54]: A scenario we'd like to reference a lot is, the founder of the next Spotify, for instance, might be sitting in Zambia and to get that product to market, they don't just have to go and get a meeting with MTN Zambia and integrate to MTN Zambia, and then they have to do the same thing with Airtel Zambia, but in order to take payments from somebody in Mozambique, they have to go over and integrate to Vodacom Mozambique., and that's just an unfair burden in terms of the friction to get to market that you don't see elsewhere. We see a lot of digital commerce and digital financial services launching across Africa, but really when you look a little bit more closely, you see they're happening in Kenya and they're happening in Nigeria and they're happening in Ghana. And that's because it's just as much work to integrate to M-Pesa in Kenya and get, you know, 20, 30 million users as it is to integrate to Moov in Togo and get, you know, 2 million users. And so that means that if you're coming at this from a perspective where integrating to the mobile money system is part of your business model, you're always going to limit yourself to those large, crowded markets. You're always going to leave out these small countries and that interoperability that the MFS Africa hub offers is really critical for any enterprise that needs to make payments or collections to end-users, it's really critical for them to be able to scale.

Justin [03:19]: Stay tuned for later in the show, where we'll hear a bit more about the impact and second-order effects of a more robust and interoperable payments infrastructure.

VO [03:29]: You're listening to The Flip. The podcast exploring contextually relevant stories from entrepreneurs around Africa.

Justin [03:39]: Welcome back to The Flip, I'm your host, Justin Norman. Let's start our story of the Stripe acquisition of Paystack in the Winter of 2016 - Paystack becomes the first Nigerian company to participate in the famed Y Combinator accelerator program - a program that 7 years earlier, Stripe co-founder Patrick Collison participated in, as well. Shola gets introduced to Patrick in San Francisco.

Shola [04:00]: I was just in San Francisco, I got introduced to Patrick and he just said, you know what, anytime you're in town just let me know and we can grab lunch at Stripe. And so I was in San Francisco and I told him I was around and he invited me to the office. And to be honest, we didn't talk about Paystack. I was literally just asking questions around what is this, how do you do this, how do you handle this, you know?

Justin [04:20]: Shola wasn't actively fundraising for Paystack, but then the next day, he gets a message on WhatsApp from Patrick - "Would you be interested in having Stripe invest in Paystack?"

Shola [04:29]: I wasn't fundraising, I think at that point I was already thinking about the next level or the next phase of Paystack, but I was also just worried about getting distracted with running a Series A process. I'm one of those founders that really doesn’t like fundraising, so when Stripe asked, I was just like, you know what, I'm happy to have a conversation. And, it was a very short process, and the deals were really very founder-friendly. So it was just like, you know what, this is a good partner, let's do it.

Justin [05:00]: Stripe went on to lead Paystack's $8 million Series A - the round was announced in August 2018 and joined by Visa, Tencent, follow on investment from YC and others. And Stripe as a strategic investor became a super valuable resource for Paystack.

Shola [05:14]: When I started and when I was going to do the Series A, one thing I really wanted help with was how do I scale Paystack from where it is to where it needs to be. And a lot of that company scaling, I know like investors can help, but I just felt more comfortable with Stripe. Even things like, I'm trying to hire a head of engineering, what should the interview questions be? Before then I would literally check Google, you know like “How do you… interview questions for engineering manager”. But you know all that didn't really need to matter again because this is a company that has hired multiple editors and managers. I could get a sense of what their rubric looked like and some of those things, so those are very tactical things that give us some very strong competitive advantages.

Justin [06:01]: So as the relationship between Stripe and Paystack continued on - as both companies grew substantially during that time frame, Shola and his team began to explore what the next phase of Paystack will look like.

Shola [06:12]: We've done our Series A and of course at some point, you know, just like how the funding life cycle is, at some point we had to do a Series B. Of course I hadn't been, I tried to be very capital efficient, you know, and all that but ultimately it got to a point where we needed to think about what was the next phase of Paystack going to look like? You know, what are the partners that are going to work with you?

Justin [06:32]: And what better partner for Stripe for Africa than Stripe?

Shola [06:35]: And of course there were lots of options, but it became very obvious that Stripe will be a very good partner because the incentives are really, really aligned. Like Stripe is trying to do exactly the same thing. Like there's no, there's no misalignment in one way. There was also an advantage we could get from a speed perspective because we had already also spent a lot of time figuring out a lot of things at Paystack, we've been very careful and we've learnt a lot, but we were ready to start putting on the accelerator and just moving faster. And it became clear that with some of these things Stripe will be the best partner to help us as we think about accelerating on that part.

Justin [07:17]: And as the two teams continued to work together, the idea of an acquisition came to be organically - and unfortunately for the sake of this podcast episode, not as interestingly as we would have hoped.

Shola [07:27]: Yeah, sadly, there's no like interesting story and this angle. It was just like a very natural evolution and natural conversation of having spent a lot of time working together. They were already my largest investors. So it was, it was really a natural progression.

Justin [07:42]: So why now?

Shola [07:43]: But from the why now, I would say like it was natural. It was like, you know, there are multiple ways we can go, Paystack is in a great place, this is a great partner. Why not? So it was more of like why not now, why delay it.

Justin [08:10]: So while it was clear from Paystack's point of view that Stripe was the partner for Paystack, Stripe too saw clearly that Paystack was the partner for them as they sought out to expand into Africa.

Matt [08:19]: Stripe is in 31 countries in Europe.

Justin [08:22]: That's Matt Henderson, Stripe's business lead for Europe, the Middle East, and Africa.

Matt [08:26]: Just in the last sort of 12 to 15 months we've launched around 13 countries in Europe, so we're growing very rapidly, but we hadn't yet gone to the Middle East or Africa.

Justin [08:38]: Very explicitly, Paystack and Africa fit into Stripe's global vision.

Matt [08:41]: The vision for us is very global. So we're committed to trying to address as much of the global opportunity as possible. So we always knew we wanted to be operating in Africa and it was just a question of how. And the more that we got to know the team at Paystack and witness their success, the more we felt that there would be no better way to be operating in Africa than to be doing so working with Paystack. The team is so strong at Paystack, but also it's just a great culture fit and a great fit for Stripe, as well.

Justin [09:11]: While Stripe wants to take over the world, for many other global businesses, the world doesn't always include Africa. So why does it for Stripe?

Matt [09:17]: We’re just tremendously bullish on Africa. So, you know, it's 17% of the world's population but only 2% of the population of people making online transactions. So there's this huge runway, and from a timing perspective, the internet economy is taking off in such a huge way.

Justin [09:35]: For Stripe, a focus on the African continent fits into a lot of the themes and vision for the company globally - including globalization from a commerce perspective, the pan-African narrative, and increasing the GDP of the Internet.

Matt [09:46]: We really have conviction that this is going to be a very large and impactful business in the future. We also are, I think, really energized about the way that building Internet economic infrastructure, the way that it has effects on the rest of the market. And then globalization as a trend, including globalization within the continent, just means that we think it's a great time, it's clearly a time of great growth for Paystack and Stripe and we're also really just committed to invest and expand and do more in the region. So both the timing of the huge opportunity and the huge progress that's being made in Africa right now, coincided with the timing of our growth path as we expand around the world.

Justin [10:38]: So what does the near term look like for Paystack now that they are part of Stripe? Just from an organizational perspective, Paystack will remain an independent brand and team.

Matt [10:47]: It's different than a team within a company or a division within a company. This is, as we've expressed, more a situation where we think they’re executing so well as an independent company that we want to give them the autonomy to continue moving very, very fast and operating as an executive team, rather than operating as a sort of divisional manager team.

Justin [11:11]: And for Shola as CEO of Paystack, his priorities for the company, its merchants and the region start with three things.

Shola [11:17]: We have a very strong clarity on where we're going to from here. The three big things we're focused on, the first one is just rapidly expanding across the continent. Second one is building software and services for the continent. And then the final one is reliability.

Justin [11:35]: Let's unpack that a bit.

Shola [11:36]: Someone asked me and said, what is the next feature we're going to build at Paystack. And I said, you know what, the next feature is Paystack, because I feel like we built Paystack and we spent a lot of time building it, but we're going to have to figure out how to rebuild Paystack in a way where we can redo it in every country. And Paystack sometimes and when I think about expansion and when I talk about expansion, people are like, oh, but there are already people in the market, blah, blah, blah. I'm like, yo, the truth is that when we think about expansion at Paystack, we're not trying to take away business from anybody. We're trying to create our own opportunities, we’re trying to unlock the markets, you know? When we launched Paystack in Nigeria and when you compare to the five-year journey Paystack is now doing five times more than what Nigeria as a country was doing before we launched.

Justin [12:26]: Let us remember, international commerce and cross-border payments is still extremely hard and cumbersome.

Shola [12:32]: It is not going to be easy because there's so many dependencies. And this is like, if you think about what it takes to move money from one person's bank account in one country to someone else's bank account in another country, it is going to be a lot of, they're going to be a lot of moving parts. And I think our work and our commitment is to figure out how to figure it out, you know, and building all the tools, everything we need to do to make it work, even empowering our people internally, making it easy for people to serve people and all that.

Justin [13:06]: And it's hard and cumbersome not only in Africa but around the world.

Matt [13:09]: We talked to tons of even billion-dollar companies let alone startups just starting out that may be based in Ireland and they're selling into Europe, but not yet to Asia or Africa or perhaps not even yet to the USA. We speak to startups in Singapore and Malaysia that aren't yet selling into Europe. Part of the reason why they're not doing that is there's fixed costs, there's overheads that make it slow and hard and expensive to get up and running in a way where you're selling into customers all over the world.

Justin [13:40]: So back to Shola's point about creating new opportunities and unlocking new markets. We will likely see pan-African expansion of other startups and tech companies on the back of Paystack's expansion. Just as Stripe has experienced with their merchants.

Matt [13:52]: When we launched a new country - and I'm remembering an Irish user, Glofox, that sold software to help gyms and yoga studios and such - when we launched Stripe in Mexico and Malaysia, Glofox, launched their business in those countries shortly thereafter. It wasn't just Glofox, it was thousands of Stripe businesses that did the same. And so what has been happening is that as we've pursued our global expansion, that's also expanded the proportion of our customers’ businesses that is international as well because they've followed us into these countries.

Justin [14:28]: And we've already seen how this is happening with Paystack in Nigeria.

Matt [14:31]: One of the things that was really impressive and left an impression on me when I spoke to the Paystack team and heard about some of their users is the degree that they are even more like disproportionately helping to open up a bigger market for their users. So you get Paystack users that weren't previously able to sell to customers on the other side of Lagos, let alone the rest of Nigeria or into Ghana or to customers elsewhere in Africa or into the rest of the world. And so, the more and more that we can reduce the barriers of entry to all the amazing developer and creator talent that is around the world and Africa and elsewhere, the more that I think people will be able to build amazing things.

Justin [15:19]: And this kind of empowerment of merchants and facilitation of their ability to grow their businesses is how Paystack defines what will make this acquisition a success.

Shola [15:27]: So I think success for me is the amount of opportunity we cannot lock in the continent. So the good thing about it is that it's no longer a zero-sum game. It's not like we fail or succeed. It’s like, how successful are we going to be? Are we going to be slightly successful or very successful? And that is going to depend on the amount of prosperity, the amount of opportunity we can unlock for people in the continent.

Justin [15:55]: What's made Paystack so well positioned to do this is the extent to which they are great at listening to their customers.

Shola [16:00]: We care a lot about customer intimacy, and so we just build with our customers. We give them what they want. And so we don't get carried away to be honest, like when people ask me, oh, what is the most innovative feature that you just launched? I was like, I don't know, I just made our refunds faster. You know, I remember it used to be five days, it’s now instant. The answers are very simple because from where we sit, we have merchants and our merchants tell us things, you know. And the direct answer is we just listen to our customers and we just give them what they want.

Justin [16:34]: So while Stripe can help from their experience, the roadmap for Paystack is going to be specific to the opportunities for merchants in Africa.

Shola [16:41]: Yes, Stripe has the experience, they have all that, but to be clear, like our relationship with them, even after the acquisition, it has nothing to do with the roadmap. But surprisingly, our roadmap is very similar. Even before the acquisition I was like yo, have they been looking at my roadmap, you know? So it's actually very similar, and so don't be surprised if there're similar things. But I think this is just a full independently executing for our customers and just giving them what they want and what they need.

Justin [17:12]: And now, the ability for Paystack to do all of that, to achieve their mission, is greatly accelerated by this acquisition and by joining the Stripe family.

Shola [17:19]: When people ask me what I'm trying to do with my life, you know, I like to say it's those three things. Number one, figure out how to make payments and commerce work in the continent. Number two, figure out how to just build a great place where people can do great work because I know, and I'm convinced that a lot of the things that we achieved in the last a hundred years, like amazing things that we achieved, you know, it was because people just had like the opportunity to do good work and it did it. And when I think of Paystack, I'm thinking of that place where we can just find great people, super motivated people, and just help them. And then the third part is empowering businesses, making it easy for people to start and scale businesses in the continent, giving tools and services, just being that platform that will do all we can, advocate for businesses and just make it work. Yeah, so those are the things we're trying to do.

Justin [18:20]: Before our retrospective conversation with The Flip's b-mic Sayo Folawiyo, here's a quick word from MFS Africa. Earlier in the show, we talked about the importance of platform interoperability for scale - and I spoke to talk to Dare Okoudjou, MFS Africa’s Founder and CEO, about what the future of payments and fintech might look like.

Dare [18:38]: Everything will be fintech. We will get to a point where domestic P2P will be free, I think we are getting close to that, so will be general payment. People will take it for granted and largely by the work that people like us are doing, people will end up taking the payments for granted. So what will matter will be what is the payment for, what is around the payments? And I do think that, you know, some sectors can now benefit from the progress that we've been able to do in payment in FinTech in general. If you take education, if you take healthcare, if you take agriculture, those are three sectors that if we put the same amount of energy and brainpower that we are putting right now in cracking payments or stitching together fintech, a whole lot more opportunities will be created. We will see even bigger and more successful companies provided that the payment layers is solved, and using the payments as a mechanism or slick payment to catalyze other sectors.

Justin [19:44]: As always, my b-mic Sayo and I sat down for a retrospective conversation on this topic - we look at this episode as archival. Things need to have a record, and it's part of The Flip's mandate to be the recordkeeper. And while there was a lot of speculation about this deal - the deal terms, the timing… speculation that we don’t endorse, nor wish to perpetuate - we do believe it’s our role to address this topic and these questions from a founders point of view. Take a listen.

Justin [20:08]: I think, so this is going to be actually a little bit of a boring episode.

Sayo[20:11]: It is, it is. It's a boring episode. It's delightfully boring. Love it. It's archival.

Justin[20:17]: Yeah, it's not as exciting when your two friends who have been dating for eight years get engaged.

Sayo [20:23]: It's not, you’re so right. That's a really nice way of putting it.

Justin [20:27]: Because this episode is delightfully boring, we can do our job to speculate a little bit about what this means, what this means for the ecosystem. We always talk about big exits, like, is this the sort of big exit that changes things or, you know, what big things happen hereafter. And then on the soft perspective is just like, Shola and Ezra as role models, two Nigerian guys who didn't leave the country for university and went on to, you know, build a business that gets acquired for $200 million. And what significance just from a soft intangible perspective does this acquisition have on the ecosystem, as well? Do you have thoughts?

Sayo [21:06]: I'm not like, never anyway, one for too much hyperbole, but yeah, it's a great step, in that incremental way, in the right direction. I think, yeah, you'll certainly see a bump in people that are more interested in investing, participating, et cetera, et cetera. I wonder, I think that an interesting question is who's next, just for fun to think about. And then in terms of Shola, Ezra, yeah, man. Wonderful, wonderful. Love to see, I’ll say, bad boys kind of making it, and not even making it in that way, but just like getting shit done, making some money, making value. Value - that, I love. Like that's the most important thing of all this for me, as well. It's like you can see great returns creating value and that's a lesson that I think is very important to me in our country, but you know the world over, it's like you can really make money creating value. And I think that's one of the more interesting and important things for me for what these tech guys are doing, especially in Nigeria. So that's extremely exciting for me.

Justin [22:18]: Yeah. What I like about that value creation piece, in particular, is like, both Stripe and Paystack, their business model is so aligned to the incentives of the merchants, as well. Obviously, they only make money if their merchants make money. And so it's entirely the perfect sort of, in our tech ethos, you know, like grow the pie versus sharing pieces of the pie. This is a grow the pie business, and that's what I think is so exciting about this acquisition, in particular, is like they're now sort of expected to demonstrate rapid and exponential growth, right, and that only comes from also growing and investing in the ecosystem as a whole. And so they're really like the perfect type of infrastructure type of business to really have an outsize impact on, or I guess all of these infrastructure businesses, you know, given the incentive structure of their business models, are the perfect types of businesses to really grow the ecosystem in a meaningful way. And this acquisition is just a representation of what they've done thus far and the opportunity in the near term.

Sayo [23:20]: One hundred percent. It'll be interesting to see what shape that takes, you know, what one of those pillars of value come, in what order? How much of it is infrastructure, how much of it is ecosystem? Do you go broad, do you go deeper on specific industries, do you do both at the same time? I think that that stuff is interesting.

Justin [23:45]: Related to investing in the infrastructure, investing in the ecosystem, I asked Shola about that and he said that they don't really have sort of a clear thesis yet around any sort of M&A activity. You know, Stripe obviously has become a big investor and acquirer and maybe Paystack will be down the line. But he was just saying like for now they don't want to pick winners.

Sayo [24:06]: Yeah, for sure. I wouldn't have imagined that that's anywhere on their mind for now. I wouldn't imagine that they would have the same necessity for that kind of strategy in the same way that a Stripe might.

Justin [24:16]: But it's a fair question because one of Stripe's biggest merchants is Shopify, right? So where's the growth going to come from? And I think that invariably growth comes from opening new markets for their existing merchants, but like, we talk about this all the time, there's literal, you know, physical infrastructure that needs to be built for e-commerce. And if one of Stripe's biggest merchants is an e-commerce company, can you imagine the opportunity to invest in, you know, logistics or whatever else to be able to grow that sector, and the second-order effects for Paystack’s business?

Sayo [24:51]: Yeah. Yeah. I mean, for sure. It's totally a fair question.

Justin [24:53]: It's just too soon?

Sayo [24:55]: I would imagine so. I would imagine so. I'd imagine it's too soon. I'd imagine there's still a lot of room to just solve a basic need of a lot of people.

Justin [25:04]: I mean, let's not forget also that Paystack is just in two countries and gave a pilot in South Africa. So their business is just going to grow inevitably by opening new markets. There's probably a lot of low hanging fruit and so all of this other stuff is secondary for that reason.

Sayo [25:21]: Yeah. Yeah, exactly. That's what I would have thought.

Justin [25:24]: Yeah. You know what we should also talk about? There's a lot of private conversations about like, did Paystack sell too early? Like, why now, was it too soon? I'm curious if you have a take on that as a founder.

Sayo [25:38]: I feel like I'm not even the good person to answer that question because I'm kind of like, maybe a bit too in the camp of like, I loved what he said about just being able to focus on what he's building, build a great place for people to work, and being able to focus on that solely. It sounds like the biggest blessing. And if you can do that and come out with some small cash, as well. And in fact, the beginning, so it's not as if there's the end of the money they're going to make, and everybody around them is up because they gave good returns to the investors in a timely manner. I don't know. That sounds like a big win to me. But I think maybe my priorities are kind of a little different in how I see things, but I'm chuffed. I'm so happy for them to be able to just sit, focus, and build in the environment that they want to build in, and I think the winds are aplenty.

Justin [26:32]: Yeah, my take on this also is, when I asked Shola the question why now, his answer was why not now. And if Stripe is literally the perfect partner and the ultimate destination, and if it was an inevitability that Stripe was going to acquire Paystack, why not just get it over with? It just sort of really rang true to me, if this is the perfect outcome, why wait? And, you know, then, like you said, now it's just such a less distracting and distracted time period, and they can just focus on building, which is what Shola has been wanting to do all along.

Sayo [27:06]: Bruh. Can you imagine?

Justin [27:08]: For context, as a percentage of your total work as you're fundraising right now, how much time are you spending fundraising?

Sayo [27:14]: 90 percent.

Justin [27:15]: Yeah. Could you imagine? Shola’s spending 0 percent of his time fundraising.

Sayo [27:20]: Imagine.

Justin [27:21]: And so that can not be overstated, how huge it is that this is just something that they literally never have to worry about anymore.

Sayo [27:29]: Yeah, it cannot be overstated.

Justin [27:39]: That's it for this episode of The Flip. A big thank you goes out to Wiza Jalakasi for first introducing me to Shola, to Amandine and Joel at Paystack, and to Chris at Stripe for helping to bring this episode to life. And as we mentioned at the top of the show, this episode commences a 10-episode conversational series - which will continue the first week of January. If you haven't already, please do hit subscribe on your favorite podcast app, you can also follow us on social media @theflipafrica or join our newsletter on our website, for more updates and content. Thanks as always for listening, and we'll see you next time.