Zambian card-issuing fintech Union54 has raised $12 million in a seed expansion round led by Tiger Global. Other investors participating in this funding round include existing ones such as Vibe VC and new investors Earl Gray Capital and Packy McCormick’s Not Boring Capital.
It’s only been six months since Union54, whose API allows African software companies to issue and manage their debit cards without the need for a bank or third-party processor, announced its $3 million starting round, also led by Tiger Global.
The founders of Union54 launched the company last year as they went through painstaking processes to issue debit cards for their previous startup and challenger bank, Zazu.
Since launching in October and participating in Y Combinator’s 2021 summer batch earlier, Union54 has grown to issue just over half a million virtual debit cards to its customers. The company also claims that processed volumes are now reaching double digits in millions of dollars.
CEO Perseus Mlambo told thenewsupdate that Union54’s first month (October) revenue was just under $3,000. In November, the company’s revenue increased 600% and then grew 50% month-over-month.
“This tells us that there is a lot of interest in the number of people wanting a debit card and this is not going to stop anytime soon,” Mlambo said in an interview.
“In addition, our interactions with customers and potential customers have shown us that the real problem we are tackling is not the ease of issuing cards, but is much broader than we could have imagined.”
Mlambo says Union54 has customers from multiple African countries (he hasn’t posted an exact number). And based on several interactions with them, Union54 has realized that some of the pressing challenges they face are longer settlement times for card transactions and the difficulty of finding dollars.
A card issuing platform is not in the best position to directly address these issues. This requires the creation of another payment application for Africa, and that is a daring task in itself. Yet that is what Union54 aims to achieve by creating its card scheme.
Card schemes are payment networks linked to payment cards, such as debit or credit cards. According to Wiki, any bank or eligible fintech can join. The most popular card schemes worldwide are Union Pay, Visa and Mastercard.
In the US there are other schemes such as Amex, Discover and American Express. But in Africa, Visa and Mastercard dominate the market share; in South Africa, for example, cardholder distribution with Visa is 51% compared to 48% with Mastercard.
There are very few markets where domestic card schemes outperform the couple in Africa. Nigeria is one such market where, according to Statista, local labels such as Verve, the largest domestic card system developed by unicorn fintech Interswitch, control more than half of the market.
Union54 hopes to create a homegrown alternative to Mastercard or Visa. In addition to helping traders solve their settlement and redemption problems, Mlambo provided more insight into why the company chose to go this route. According to him, recent global events such as Visa and Mastercard withdrawing from Russia, leaving China’s UnionPay filling the void, have made it clear that payments are a politicized business.
“The purpose of creating another card network is an inspiration for what is happening right now. First, we are vulnerable and hostage to all political decisions that could affect trade on the continent. And if something happened, we would wake up and have no access to our funds,” said Mlambo, who founded the company with his wife and COO Alessandra Martini.
“Number two, when you think about today’s card networks, they are not suitable for African merchants as settlement often takes three days for a local debit card, maybe more than seven days for an international debit card. There is an important opportunity as the world realigns itself; we need to get to a point where we have a payment route that needs to be developed locally for local use.”
There are questions about whether the African market needs a different card scheme, given the way traders have run their businesses over the years with the two dominant players. If recent developments indicate what the market is saying, the answer is affirmative. For example, last year the South African Reserve Bank (SARB) proposed a domestic card system to compete with Visa and Mastercard in the country.
Mlambo also added that through the work of him and a few colleagues, Union54 came into contact through the African Renaissance Conference with three central banks eager to explore how settlement agreements would work with a new card scheme.
In 2020 we organized African Renaissance Conference with: @wizaj and @mwiyas and that turned into how can we position Zambia as the city on the hill for African interests. ARC2022 is coming soon with plenty of announcements. https://t.co/8fId7hz6iH
— Perseus Mlambo (@perseusmlambo) January 13, 2022
Meanwhile, the company has learned in recent months that developing a map scheme is not a technical issue, but a trust issue. Trusting that merchants will settle on time, that merchants won’t lose money on currency conversions, and that consumers trust the card itself is crucial for this to work. The company plans to get nine central banks to set up this framework by the end of the year, heading towards a pilot by the second quarter of 2023.
“Ultimately, the map is a physical manifestation of that trust. By going through central banks, we want to understand and agree a common framework for the paperwork confirming documents that bolster that confidence,” the CEO said.
“We have invested a lot of time and effort in understanding what needs to be done and when. So our goal is that we should be able to make a test transaction in the next 18 months. We have set ourselves the target of having at least nine member banks participate in this scheme by the end of this year.”
The impact of a new card scheme has been theorized at best for now. But Mlambo believes that if Union54 can reach an agreement with the participating central banks and issue its own domestic and continental debit card, it could reduce settlement time and integrate more local payments originating in the region.