Commercial Investment Landscape in Branchless Banking

This blog post summarizes a quick review of commercial investments in mobile financial services and branchless banking. We focused our review on equity deals between 2005 and 2010 involving mobile payment companies, agent companies, payment platforms and others providers that we knew were targeting the financially excluded in developing countries. We looked at press releases and other publicly-available sources for information on deal sizes and structures. We also included a few notable deals involving banks such as Telenor’s acquisition of Tameer Microfinance Bank in Pakistan and the creation of BanKO by Globe Telecom and others in the Philippines. The dataset is available upon request. 

Here are a few basic findings:

• 47 deals with USD 400 M in cumulative volume between 2005 and 2010
• Average deal size of USD 7 M with the largest number of deals under USD 4 M
• Most investments were in technology companies but new opportunities are emerging
• International Finance Corporation (IFC) was the most active investor globally
• India was the most active market Click on images for clearer view

47 deals with USD 400 M in cumulative volume between 2005 and 2010. Whether USD 400 M is sizeable or not depends on your perspective. It is sizeable if you consider that grant funding to companies in branchless banking between 2005 and 2010 totaled well below USD 100 M. From the perspective of those of you watching the larger payments or mobile money environment, the total size might be small, but there are a number of additional factors to keep in mind. First, a large share of the USD 400 M is attributed to a single deal – Obopay’s deal at USD 139 M. In fact, investments made into four firms – Obopay, Cointel, FINO, and Monitise – account for 60% of volume. Second, there are roughly 15 deals with an amount that was not publicly available or disclosed to us. Lastly, USD 400 M is not the complete figure of private investments made into mobile financial services or branchless banking. That figure is significantly higher if you consider internal investments made by mobile network operators, banks and others into their implementations. Average deal size of USD 7 M with the largest number of deals under USD 4 M. The average deal size is USD 7 M, when we exclude the Obopay deal at USD 139 M. Some investors might consider an average deal size of USD 7-10 M reasonable especially if it is for a single technology solution for a single market. Firms such as FINO and others that offer more than technology to include services such as agent network management have accumulated investments that are above the average. What does it mean that the largest number of individual deals were under USD 4M? On the one hand, it might reflect that we are in the early stages, there are not a lot of successes so investors are treading carefully, not willing to make big bets. On the other hand, it might just reflect the lack of capacity in most investors to accurately assess the quality of their investments.

Most investments were in technology companies but new opportunities are emerging. It is not surprising that most of the equity deals we found involved technology firms, those who offer a payments platform, a mobile technology solution and so on. These companies are of a scale and at a stage where they can more easily accept private equity type investments than established players like mobile network operators or banks. However, new investment opportunities are emerging that go beyond these technology firms. Technology/agent companies like FINO, ALW and others are one category of firms. Joint ventures established as subsidiaries between banks and mobile network operators are another category of firms emerging in markets like India, Brazil and elsewhere.

International Finance Corporation (IFC) was the most active investor globally. While Africa Enterprise Challenge Fund (AECF), IFC and Overseas Private Investment Corporation (OPIC) have struck deals in multiple markets, IFC has been the most active investor globally. The average size of deals for IFC has been USD 8 M and in most cases it has not been the sole investor. IFC’s first two deals in this space were in 2007 with investments in WIZZIT and FINO. IFC’s largest investment in this space has been to FINO totaling close to USD 30 M in two separate deals. While they don’t show up in multiple countries, a number of well known private equity and technology investors could be considered active in this space with one or more deals: Sequoia, Draper Fisher Juvretson, Kleiner Perkins, Legatum, Intel Capital and Microsoft.

India was the most active market. We were able to find 18 deals involving 24 different investors with Indian firms. Investors included “blue chip” private equity firms. Firms like Sequoia, Legatum, Draper Fisher, Kleiner Perkins, Helion Ventures each have two deals to their name. There may have been exits in India. For instance, we know that Legatum exited FINO in December 2009 via a secondary sale. But we don’t have all the details and it might be premature to draw any conclusions.

- Kabir Kumar