Two months into 2021, South African fintech Stitch came out of stealth and raised $4 million in seed funding, allowing it to begin to make inroads into Nigeria some months ago.
Today, Stitch formally announced the expansion into Nigeria and a seed extension of $2 million to go with it; the total seed investment now stands at $6 million.
Investors in the round include existing backers Raba, Firstminute Capital, CRE, Village Global, 500 Fintech, Future Africa, and Norrsken. New investors, mainly executives at global fintechs, participated as well. They include Tom Blomfield, co-founder of Monzo and GoCardless; Matt Robinson, co-founder of GoCardless; Emilie Choi, president and COO of Coinbase; and Charlie Delingpole, founder of ComplyAdvantage.
In February, Stitch launched the typical Plaid playbook used globally by fintech infrastructure players: a data product to help developers and fintechs connect their applications to users’ financial accounts. These businesses can then access their identities, accounts, transaction history and balances with users’ consent.
Because Stitch had just launched from stealth, it felt too early for the company to divulge how many financial accounts it had connected. Nine months in, the company still isn’t enthused about sharing those numbers, though it has been testing a payments product and has made significant progress there.
African fintechs most times rely on card payments, and despite the infrastructure provided by the likes of Yoco, Flutterwave and Paystack, there are still issues around chargeback fees and fraud costs.
In South Africa, Stitch decided to address these issues and help businesses process payments better by soft launching its pay-by-bank feature.
“Once you make the user experience even more frictionless for pay-by-bank, and as tokenizable as card, the choice to use this method over others [particularly for fintechs] is fairly straightforward,” Kiaan Pillay, the co-founder and CEO of Stitch, told TechCrunch.
Pillay says that within six months of its soft launch in South Africa, the company has seen more than 50% month-on-month growth in customer and payments volume across all solutions.
In Nigeria, Stitch has also been testing its payments product instead of its primary data product. According to the CEO, the company had a more compelling use case of the payments product in Nigeria after speaking to over 40 fintechs.
Here’s why: Nigeria has an efficient instant bank settlement system and the option to pay via bank in various fintech applications is relatively standard. The problem, however, is that when customers try to pay via their mobile or internet banking app, they must eventually use their mobile bank application to complete the transaction.
With Stitch, however, users do not need to go through that hassle and can initiate once-off, recurring and user-not-present bank transfers, the company said.
“The opportunity is ripe,” said Pillay, who co-founded Stitch with Natalie Cuthbert and Priyen Pillay. “I think more and more API fintechs are recognizing that paying via credit card interchange comes with a high fee when converting customers onto their platforms. Just this month alone, we’ve seen our inbound requests increase five- to tenfold here in South Africa, and customers are integrating us in Nigeria even as we were previously still in soft launch.”
Now fully live in South Africa and Nigeria, Stitch says it is on track to facilitate $10 million in monthly payments by the end of the year. Some of its clients include Chipper Cash, Paystack, Franc, Sanlam, Yoco and Flexclub.
When open banking startups came into the African fintech scene last year, it seemed there was a race to become Africa’s Plaid. But now, each player has settled in their respective markets -- Pngme in Kenya and Nigeria; Mono in Nigeria and Ghana; Okra in Nigeria, with beta in South Africa and Kenya; and Stitch in South Africa and Nigeria.
It is clear how important Nigeria is as a market for these startups. So how does Stitch plan to acquire customers in a market where other competitors offer the same payments product?
“For a start, we are offering Nigerian businesses who intend to use Stitch free access to the product until the end of 2021,” Benjamin Dada, the country manager of Stitch Nigeria, told TechCrunch.
Dada will spearhead Stitch’s operations in Nigeria. Before joining the company, he was the founder and editor-at-large at Nigerian tech publication Benjamindada.com. The country manager’s fintech experience comes from working at partnerships for Eyowo, a Nigerian digital bank and a brief stint at Tiger Global-backed FairMoney.
While Dada believes the market is big enough to accommodate multiple players, he says the team will try to edge others by developing “inclusive and sustainable” pricing for its customers.
“They will not only be achieving cost savings by accepting account payments, but they can now earn a little more for each payment they accept via Stitch,” he added.
How the company intends to do that is murky for now. What is clear, though, is that the company plans to launch its data solution by the end of November. The seed extension will be integral to that and to seeing more hires join Dada and his team in Lagos, Nigeria.
Blomfield said in a statement that he backed Stitch because he sees the company playing a crucial role in building the infrastructure to enable exponential growth for digital finance companies in Africa.
“I see a lot of potential in African markets, where the wave of digital finance innovation is really beginning to gain momentum, and the Stitch team is getting in at precisely the right time. The team is one of the best I’ve seen globally, and I’m excited to see them continue to grow in Nigeria and beyond.”