In an effort to grow its African fintech company, MTN signed a Memorandum of Understanding for minority investment by Mastercard in its mobile money division.
The transaction raises the fintech company’s cash and debt-free worth to $5.2 billion. According to Reuters, this figure represents over 40% of MTN’s total market value.
Since the COVID-19 crisis, the telecoms firm has worked to narrowly focus on Africa and build industries like payments, messaging, e-commerce, and cloud computing to seize growth and compete with Vodacom’s expanding regional footprint.
MTN claims that as it nears the completion of routine due diligence, the signing of the formal investment agreements will take place very soon.
The agreement is in line with Mastercard’s aims to strengthen its position in Africa’s burgeoning fintech sector and to gain ground in a region where the adoption of new payment channels has led to the formation of new strategic relationships within the ecosystem. While Mastercard is still contributing to the card payment sector, it is having difficulty competing at the low-end of the payment market.
This transaction also comes at a time when MTN and other telecommunications firms with fintech operations intend to allow them to operate as separate corporate entities. As soon as word of the agreement with Mastercard became public, MTN Group’s shares increased by 7.41% on Monday morning.
Ralph Mupita, CEO of MTN Group, stated, “We are focused on the continuation of our Ambition 2025, which remains relevant in the current macroeconomic turbulence and provides excellent opportunity for development. “We maintain our medium-term guidance as we manage the challenges in our operating environment, as well as the near-term impacts on our top line and margins.”
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Mastercard’s investments in Africa
As competition in the fintech sector increases, Mastercard has recently made key investments in Africa. In Africa, new payment methods like mobile money, which have gained substantial traction, have posed the largest threat. The supplier of payment systems is also up against competition from Visa, its closest rival, which has been expanding across Africa since 2011.”I couldn’t be happier about this. Mastercard is acting appropriately, however Visa didn’t handle Fundamo correctly, according to Osaretin Victor Asemota, a growth partner at AnD Ventures and an Africa partner for Alta Global Ventures.
The most recent agreement with MTN is the second that the provider of payment cards has made with telecom companies with significant investments in the African fintech sector. By signing a new commercial framework worth about $100 million in 2021, Mastercard and Airtel Africa will strengthen their partnerships across a variety of geographies and industries, including card issuance, payment gateway, payment processing, merchant acceptance, and remittance solutions, among others.
Mastercard has also begun to finance essential fintech businesses. Through the $200 million Mastercard Foundation Africa Growth Fund (MFAGF), which was established in 2022 in collaboration with Mennonite Economic Development Associates, Investisseurs & Partenairas, and Entrepreneurial Solutions Partners, it does this. MFAGF is a Fund-of-Funds that makes investments in African investment vehicles that help small and medium-sized businesses in sub-Saharan Africa that are in the early stages of growth.
Two investments have already been made by the MFAGF. The first was a $2.2 million investment in Aruma Capital Management, an early-stage growth equity and gender lens investment fund with headquarters in Lagos and a female founder and leadership team. Targeting crucial industries including healthcare, fintech, renewable energy, and basic commodities, Aruwa Capital intends to invest in women-focused small and expanding enterprises in Nigeria and Ghana.
Additionally, Mastercard oversaw a $10 million investment in Inyati Capital, a Cape Town-based financier of developing African software startups. Inyati Capital will make investments in tech firms that use their goods and services to address some of Africa’s most urgent problems, including poverty, inequality, and climate change.
However, analysts claim that Mastercard’s decision to invest in telco-led fintech startups may be a stroke of genius and may position it as the victor of the African payment sector. First off, MoMo, a fintech division of MTN, is now the most valuable fintech business in Africa with a valuation of $5.3 billion. In February 2022, Flutterwave secured $250 million in funding, increasing its worth to $3 billion.
In order to help it with the anticipated split of its fintech subsidiary, MTN has recruited JP Morgan Chase in 2022. Since then, the company’s fintech business has grown significantly. In the first half of the year, there were 8.3 billion transactions, a 37 percent rise. 61 million MoMo consumers that are currently active handled the volume. Fintech makes for 9.3% of the overall service income for MTN Group. The corporation intends for fintech to account for more than 20% of service revenue.