Wave, Backed by Sequoia, Engages in African Mobile-Money Battle with Telcos

A few weeks ago, mobile money agents in Ivory Coast halted service for Wave Mobile Money Inc. in an attempt to stymie the growth of the young fintech company. Wave Mobile Money has been rapidly gaining market share across West Africa, and the agents' move is seen as an attempt to slow down its growth.

The agents who enable unbanked people to store and send money through cellphones were unhappy with their commissions and expected the suspension to severely cripple the company’s business. Instead, Wave had one of its best weeks since launching three years ago in West Africa’s third-biggest economy. “Transactions spiked for a couple of hours,” said Katier Bamba, the company’s general manager for Ivory Coast.

The money transfer app was not affected because, unlike telecommunications companies which use intermediaries to manage agents, Wave maintains direct relationships with individual agents. This allowed it to continue doing business as usual.

This isn't the first time that the five-year-old fintech has disrupted the industry. When Wave first launched in Senegal in 2018, it took on the local unit of French telecommunications giant Orange SA, forcing the latter to cut prices to compete.

Wave has more subscribers in Senegal than any other country.

The rest of West Africa includes Ivory Coast, Guinea, Mali, Guinea Bissau, Sierra Leone and Gambia.

Wave is expanding its services with a new e-money license, becoming the first non-telco, non-bank to facilitate small-and-medium sized lending in eight countries in Francophone West Africa. With this new license, Wave will be able to issue micro-credit and virtual credit cards, independent of a financial institution.

The mobile money wars in the region are heating up, with companies vying for a share of the market.

M-Pesa, the original mobile transfer operator, has made all of this possible. Launched in Kenya in 2007, the Safaricom Plc product is how people across the continent do business. However, in contrast to East Africa, where M-Pesa revolutionized the market, West Africa was until recently far less competitive. Wave spotted an opportunity.

In Senegal, only 17% of people have a bank account, but nearly half of adults use mobile money services. In West Africa, mobile money usage saw a 60% increase over the previous year, hitting $239.3 billion in transactions. But with more players competing, the market is getting tighter.

Dakar's downtown commercial district is a showcase for the changing national market for mobile money. The red-and-white logo for YUP, the Société Générale SA app, reflects the cancellation of its service earlier this year. The orange of Kash-Kash, the app launched by a local fast-food entrepreneur, represents the app's failure to take off. Wave's trademark sky blue is also represented in the district.

In 2021, Wave co-founders Drew Durbin and Lincoln Quirk raised $200 million from investors including Sequoia, Stripe, Founders Fund and Paretch Africa in order to take control of the market. This was on top of the half-billion dollars they made selling their first company, the remittance startup Sendwave, to Worldremit. Wave soon became the most-used app in Senegal, and with a $1.7 billion valuation, Francophone West Africa’s first and only unicorn.

The future of the company may depend on how soon it can turn a profit. In June, amid a global slowdown in investment, Wave fired 15% of its staff in Mali, Burkina Faso and Uganda, and pared back an aggressive plan for expansion. The following month, it took a 90 million euro syndicated loan from the World Bank Group’s International Finance Corp. It also quietly expanded into Gambia.

The battle to reduce transaction fees has had other costs. In April, Orange's Middle East and Africa Chairman, Alioune Ndiaye, accused Wave of destroying 20,000 jobs in Senegal by reducing mobile money agents' take-home earnings. Additionally, mobile money operators' aggressive focus on smartphone users has created concern that poorer users might be left behind.

"App users are seen as high-value customers, so there's a race to get them," said Ashley Onyango, head of financial inclusion at GSMA.

The question of how Wave will continue to expand beyond its partnerships with four of Senegal's biggest banks is a more immediate one. Clues might be found in its new financial services or arrangements with Auchan Holding SA and Casino Guichard-Perrachon SA, two of the country's largest supermarkets.

While it's clear that fintechs like Wave will shape the future of money in Africa, it's not yet clear how exactly they'll do so.

Souleymane Gning, founder of digital broker Assuraf Assurance, observes that once you have a client base, you can easily add other services, such as insurance, e-commerce, entertainment platforms, or even education. He notes that cash-in, cash-out by itself is not profitable; otherwise, it would just be an ATM.