Sources indicate that Nigerian digital bank FairMoney is in talks to buy Umba for a $20M all-stock deal.
According to sources who spoke with TechCrunch, FairMoney, a digital bank with its headquarters in Paris and operations in Lagos, is in talks to buy Umba, a credit-led digital bank that offers financial services and payroll to clients in Kenya and Nigeria, for $20 million in all-stock.
This indicates that FairMoney wants to increase the number of people using its services by entering new markets, particularly Kenya. However, it also highlights the difficulties that African fintechs face in an extremely competitive global startup market: $20 million all-share would be about the same as Umba’s total amount of capital collected from foreign investors.
FairMoney in talks to buy Umba is confidential
Since the information is confidential, the sources, who asked to remain anonymous, said that acquisition talks are still in their early stages. Prior to publication, FairMoney and Umba did not reply to requests for comment.
In 2018, Tiernan Kennedy and Barry O’Mahony established Umba in San Francisco to serve emerging nations as a credit-led digital bank. It offers clients in Nigeria and Kenya financial services such as loans, current accounts, savings accounts, fixed deposit accounts, and bill payments.
According to PitchBook data, the digital bank has raised about $20 million in fundraising thus far. ACT Ventures, Lux Capital, Palm Drive Capital, Banana Capital, Lachy Groom, co-founder of Monzo, Costanoa Ventures, and Streamlined Ventures are among its investors.
Meanwhile, FairMoney has received somewhat more than $57 million, according to PitchBook, with support from organizations like Tiger Global, DST, Speedinvest, and others. It was previously appraised after a bridge round last year at a range of $400 million to $500 million.
FairMoney, which is most recognized in Nigeria for its loan services, has been searching for more growth opportunities. FairMoney made a bold move to enter India as its second market in 2020, but other than providing a momentum report in 2021, the company has not provided any additional information regarding the state of that business since.
FairMoney has been growing its product line as well. Six years ago, the startup’s name-brand app debuted in Nigeria as a digital lender. Other financial services, including debit cards, transfers, and payments, have been offered since then. It claims to have more than six million retail clients.
One of FairMoney’s prior acquisitions was PayForce, a Nigerian merchant payment firm called CrowdForce sponsored by YC, which it acquired for $15–20 million in cash and stock.
“We see ourselves as a retail bank, but the line between merchants and retail is often blurry,” FairMoney CEO Laurin Hainy told TechCrunch in an interview last year around the PayForce acquisition. “We’ve thought about the merchant space more and more, and we see a lot of potential synergies between what PayForce and we have built independently.”
Prior to expanding its product line to include business banking services and merchant finance in Kenya and Nigeria, Umba was primarily a retail digital bank in that nation. Over a million downloads of the Google Play app are shown, but the number of users who have registered and are actively using the app is not revealed.
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It’s possible that FairMoney won’t base its acquisition of Umba only on user base or product selection. One reason is that it’s unlikely that Umba would have achieved major traction and volumes in the last four months given that it only recently launched merchant and business-facing solutions. Given that Umba acquired its microfinance license in 2022 by purchasing a majority stake in Daraja Microfinance Bank, FairMoney is probably more interested in this license. Umba is able to provide banking services in Kenya thanks to this license.
In Kenya, getting a license to operate a microfinance bank might be difficult. Kenya only has fourteen microfinance bank licenses, compared to over 600 in Nigeria. Acquiring Umba would allow FairMoney to enter Kenya more quickly by avoiding the drawn-out licensing procedure that took Umba three years. As a result, FairMoney may use an acquisition to introduce its services in Kenya by utilizing Umba’s current infrastructure or by combining both fintech skills.
Although Umba wasn’t actively looking to sell, according to sources, it might find FairMoney’s offer alluring, especially considering its current financial situation. An investor presentation deck that TechCrunch was able to obtain details about the fintech’s $335,000 in income and $1.54 million in expenses between January and June 2023.
Furthermore, Umba looked for additional funding last December after successfully closing a $15 million Series A funding round at a $60 million value in February 2022. At a $25 million value, it ultimately raised a $1.55 million bridging round, matching FairMoney’s offer. The sources claim that the fintech may be thinking about other solutions.
Tens of millions of dollars in venture capital investments were drawn to digital banks and challenger banks in Africa during the fintech boom, which prompted the development of several firms with intentions to take on established incumbents.
The story has changed since then. VC capital is still scarce, and many of the large wagers are not paying off as expected. Companies are missing growth objectives and encountering difficult unit economics. More talks about M&A have resulted from that. Only last month, Vella Finance, a SME-focused financial service provider, was bought by Nigerian neobank Carbon. Furthermore, if FairMoney is successful in acquiring Umba, it will be its second purchase in the previous two years.
