Nigerian Start Up Paystack Acquired in $200M+ Deal
The African internet economy is expanding at a rapid rate, with online commerce on the continent growing 21% year-over-year, 75% faster than the global average. Nigerian start up tech company, Paystack, has been a leading force in the online commerce industry. Recently, Stripe, a technology company that provides business with software to accept payments and manage their business online, acquired Paystack in a deal worth more than $200 million. It is the biggest startup acquisition to come out of Nigeria to date.
Paystack was founded in 2015 by Shola Akinlade and Ezra Olubi, two software developers and longtime friends. Today, the tech company boasts more than 60,000 customers in Nigeria and Ghana, including small businesses, larger corporations, fin techs, educational institutions and online betting companies. These business use Paystack to securely collect online and offline payments, launch new business models, and deepen customer relationships. The tech company already processes more than half of all online transactions in Nigeria. The new deal, which will still allow for Paystack to operate independently, will give the company a lot more fuel (or investment) to build out further in Nigeria and also expand to other markets. When Stripe first approached Paystack, the company was not for sale according to CEO Akinlade. “For us, it’s about the mission. I’m driven by the mission to accelerate payments on the continent, and I am convinced that Stripe will help us get there faster. It is a very natural move,” he told Tech Crunch.
(Photo: Brent Franson for Paystack)
The start up company had been on Stripe’s radar for some time before they acquired it. Just like it’s U.S. counterpart, Paystack went through the Y Combinator, the tech startup accelerator where companies like Dropbox and Airbnb were incubated, and was the first Nigerian company to get into the world famous incubator. In 2018, Stripe led an $8 million funding round for Paystack, with others participating, including Visa and Tencent.
While acquiring Paystack after investing in it was a big move for the company, people shouldn’t read too much into it in terms of Stripe’s bigger acquisition policy according to Stripe co-founder and CEO, Patrick Collison. “When we invest in startups we’re not trying to tie them up with complicated strategic investments,” Collison said. “We try to understand the broader ecosystem, and keep our eyes pointed outwards and see where we can help.” There are no other plans to acquire other companies or operations in the region simply to expand Stripe’s footprint. The interest in Paystack derived from how well they had built the company and not just where they are located.
“A lot of companies have been, let’s say, heavily influenced by Stripe,” Collison told Tech Crunch. “But with Paystack, clearly they’ve put a lot of original thinking into how to do things better. There are some details of Stripe that we consider mistakes, but we can see that Paystack ‘gets it,’ it’s clear from the site and from the product sensibilities, and that has nothing to do with them being in Africa or African.”
Stripe maintains a strong line in the detection and prevention of fraud and other financial crimes that may take place in its business of digital transactions. The company has developed an extensive platform of fraud protection tools, but even so incidents may fall through the cracks. Last month, Stripe was ordered to pay $120,000 in a case in Massachusetts after failing to protect users in a $15 million cryptocurrency scam. Bringing on a business from Nigeria could give the company a different kind of risk exposure. Nigeria has the biggest economy in Africa, but according to research from Transparency International, it is also one of the more corrupt countries on the continent.
In relation, it has a very contentious approach to law and order. In the past couple of weeks Nigeria has been consumed by protests with demonstrators calling for the dissolution of the country’s Special Anti-Robbery Squad (SARS), after several accusations of brutality, extortion, and torture. While Nigeria committed to ending SARS, aggression against protestors only increased. Stripe and Paystack had postponed the original announcement in part due to the situation in the country.
While the issue of SARS continues to be worked though and hopefully soon resolved, Paystack’s acquisition goes against the grain of those themes. Paystack reveals how talented people in the region are identifying problems in the market and creating technology to help fix them. Improving how people can transact in turn improving economic outcomes in general.
Paystack’s initial beginnings took place when one day Akinlade built a quick way of integrating a card transaction into a web page for fun. The simplicity of how it worked pushed him and his co-founder to think of how to develop that into something others could use. “We’re still very early in the Paystack payments ecosystem, which is super broken,” said Akinlade. The company currently provides a payments API (application programming interface), and makes revenue every time a transaction is made using it. While it’s not clear what’s next on Paystack’s radar, there is a wide range of accounting, fraud, card, cash advance, and other services that could be built to expand the business. “Most of what we will be building in Africa has not been built yet,” said Akinlade, making the opportunities very promising.