FairMoney, a digital bank headquartered in Paris but based in Lagos, is currently in talks to acquire Umba, a credit-led digital bank that provides payroll and financial services to customers in Nigeria and Kenya. Sources have indicated to TechCrunch that the acquisition would be an all-stock deal valued at $20 million.
“The potential acquisition by FairMoney shows its interest in growing its customer base by expanding into more countries, particularly Kenya,” said our source. “However, this also highlights the challenges facing African fintechs in a tough global market, as a $20 million all-share deal would be roughly equivalent to the amount Umba has received from outside investors.”
The talks are currently in the early stages, and sources have requested anonymity for the confidential nature of the discussions. Neither FairMoney nor Umba have provided a comment on the potential acquisition.
Originally founded in San Francisco in 2018 by Tiernan Kennedy and Barry O’Mahony, Umba was launched as a credit-led digital bank focused on emerging markets. Its services include loans, current accounts, savings accounts, fixed deposit accounts, and bill payments for customers in Nigeria and Kenya.
According to PitchBook data, Umba has raised approximately $20 million in funding to date. Investors include Costanoa Ventures, Monzo co-founder Tom Blomfield, Lachy Groom, ACT Ventures, Lux Capital, Palm Drive Capital, Banana Capital, and Streamlined Ventures.
On the other hand, FairMoney has received backing from Tiger Global, DST, Speedinvest, and others, with a total of $57 million raised, according to PitchBook. In a bridge round last year, the startup had an estimated valuation of $400 million to $500 million.
While FairMoney is predominantly known for its lending services in Nigeria, the company has been actively seeking opportunities for further expansion. In 2020, FairMoney entered the Indian market, in addition to its operations in Nigeria, but there haven’t been any significant updates on its progress in India since then.
FairMoney has also been diversifying its product offerings, expanding beyond digital lending. The company launched its eponymous app as a digital lending platform in Nigeria six years ago. Since then, it has added debit cards, transfers, and payments to its range of financial services. Currently, FairMoney boasts over six million retail customers.
“While we see ourselves primarily as a retail bank, the line between merchants and retail can often be blurry,” explained FairMoney CEO Laurin Hainy in an interview last year regarding the company’s acquisition of PayForce, a sub-brand of Nigerian merchant payment service CrowdForce. “We’ve been paying more attention to the merchant space, and we see a lot of potential synergies between PayForce and FairMoney.”
Similarly, Umba began as a digital bank targeting retail customers in Nigeria before expanding its services to include merchant financing and business banking products in both Nigeria and Kenya. According to Google Play, the app has been downloaded over one million times, although the number of registered and active users remains undisclosed.
The potential acquisition by FairMoney of Umba may not solely depend on the bank’s user numbers and product offerings. Interestingly, Umba only recently launched its business and merchant-facing services in the last four months, making it unlikely to have gained significant traction and volume in such a short time. Instead, FairMoney could be more interested in Umba’s microfinance license, obtained through the acquisition of a majority shareholding in Daraja Microfinance Bank in 2022. This license allows Umba to provide banking services in Kenya.
Obtaining a microfinance bank license in Kenya can be a challenging and lengthy process, as opposed to Nigeria, which has over 600 microfinance bank licenses. With the potential acquisition of Umba, FairMoney could streamline its entry into Kenya, bypassing the licensing process that took Umba three years to complete. This could mean that FairMoney will leverage Umba’s existing infrastructure or combine both companies’ capabilities to launch its services in Kenya.
According to sources, Umba was not actively seeking a sale, but they may consider FairMoney’s offer attractive, especially given their current financial situation. Based on an investor pitch deck obtained by TechCrunch, Umba generated $335,000 in revenue between January and June 2023, but incurred $1.54 million in expenses during the same time frame.
After receiving a Series A funding round of $15 million at a valuation of $60 million in February 2022, Umba sought additional funding in December 2022. However, the company ultimately raised a $1.55 million bridge round at a $25 million valuation, which is in alignment with FairMoney’s offer. Our sources indicate that Umba may currently be exploring other options aside from the potential acquisition by FairMoney.
As the fintech industry continues to boom in Africa, digital and challenger banks have attracted significant investments and emerged as competitive players, with the goal of challenging traditional incumbents. However, VC funding has begun to tighten, and many companies are failing to meet growth expectations and facing difficulties with their finances. This has led to increased conversations around mergers and acquisitions.
Just this month, Nigerian neobank Carbon acquired Vella Finance, a provider of SME-focused banking services. If FairMoney succeeds in acquiring Umba, it would mark the second acquisition in two years for the company, demonstrating its commitment to expanding and diversifying its offerings.
