THE UNSEXY BUSINESS I AM BULLISH ABOUT

 By mid-2022, there were close to 2,500 fintech companies in Africa, according to a report by McKinsey&Co. Africans today access financial services through multiple channels: traditional banks, informal community cooperatives, fintechs, or mobile money services run by MNOs. And 95% of consumer and business payments still happen in cash (Mastercard) - cash is still king! This fragmentation makes the collection of payments extremely complex.

As a result of this fragmentation, African businesses face a major problem in collecting, reconciling and managing the payments they receive through any of the channels regularly used by a typical middle class African consumer: cash, bank transfer, in-app, mobile money. Based on First Circle Capital portfolio company Credrails’ data: an estimated 40% of transactions among their customers need manual intervention to be reconciled. Finance departments of large and small businesses alike (especially the fast-growing ones!) struggle with account payables and receivables, and related problems such as leakages, inefficient liquidity, gaps in working capital, revenue loss due to poor fx management and operations etc. Poor finance operations eventually reduce the overall credit worthiness of African businesses and tamper their growth prospects.

Technology has great potential to solve the automation and streamlining of finance operations for African businesses, and this is why we, at First Circle Capital, are particularly excited about one particular subsegment of B2B fintech infra, which is widely known in fintech circles as “Office of the CFO”. Sometimes, the driest-sounding businesses are the most lucrative and this is definitely one of those gems! 

WHAT IS OFFICE OF THE CFO?

Office of the CFO, by definition, are fintech businesses addressing various aspects of CFO or finance department operations. They typically help automate various tasks the finance departments deal with daily, monthly, quarterly and annually such as account payables, receivables, expense management, optimization of working capital, liquidity, cross-border revenue booking, pre-funding and many more. They typically charge as a SaaS business model with some potential additional revenue streams from payments, FX, credit enablement.

We divide Office of the CFO into three sub-sub-segments:

1.    Pureplay SaaS – CFO Automation

Typically automating tasks like accounts payables, receivables, expenses and targeting small and medium enterprises. While we see solid adoption trends of these solutions by African enterprises, and particularly financial services players, key risk here is willingness to pay/adopt a SAAS charging model by African SMEs.

2.    Fintech Infrastructure/ APIs for Open Banking

Given the nascency of the African tech ecosystem, we have seen these models struggle to scale and to provide quality service. Open banking regulation has been announced in Kenya and Nigeria but the timing is unclear.

3.    Treasury Management

Target customers are large enterprises with heavy balance sheets, international presence etc. Key challenge is building an effective enterprise sales team and shortening sales cycles. Big opportunity in Africa lies in FX and working capital optimization.

In the diagram posted here, we mapped a few key players in Africa as well as corresponding models that managed to scale in other parts of the world. While there are still challenges to define the right pricing models that African enterprises and SMEs will accept, the sheer scope of the opportunities such as payment collection, reconciliation, FX and working capital optimization make us bullish that the monetization will come. At First Circle Capital we are keen to back more companies and create African leaders in the CFO Office automation space. And Expensya recent exit is yet another proof that African companies can compete and win on a global scene!

Agnes Aistleitner Kisuule Robert Smith Ming S. Kwan Michael Ströck Srinidhii Sreeram Karim Jouini Jihed OTHMANI Clara Wanjiku Odero Teresia Kairu Natu Lauchande Nicole Dunn Ruaan Botha Bart Schaap Brenda Simiyu Marie Heydenreich Clemens Gerteiser Natascha Korvinus Babacar Seck (箫耀宇) Pim Engels Zunaira Javed, CFA Hugues Vincent-Genod Evan Roe Eva Jennifer Abel Susana Garcia-Robles Mobola da-Silva Philip Walker Jack K. Carol Caruso Ziad Mokhtar Samantha Ghiotti Mikko Savolainen Tim Schumacher Jens Hilgers Sonal Premjee Haithem Guizani Tobias Kauer Lars Zimmermann Dr. Felix Schneider Simone Baur