Our Investment in PayJoy – Deepening Smartphone Penetration… Democratizing Access

A lot has been said over the years about the importance of enabling people to participate in the growing digital economy that is enabled by the internet.  The value proposition is clear: give people cost effective and dependable access to the internet and they will have a good shot at significantly improving their lives. No wonder that in 2016, the United Nations declared access to the internet a basic human right.

Access to the internet cannot be overemphasized; in 2018, global internet-influenced retail sales rose to $2.84 trillion and is expected to rise to $3.45 trillion in 2019. An estimated 1.92 billion people are expected to carry out commerce online in 2019. However, more than 750 million Africans are currently excluded because they are not connected to the internet. These Africans are cut off from the opportunities that internet access enables to potentially earn an income, educate their families, and access digital goods and services to improve their lives and communities.

Almost half the world remains digitally unconnected. In Africa for example, internet penetration is at 37.3%, making it the lowest globally, significantly distant from its counterparts in Asia, Middle East and Latin America which have penetration rates of 51.8%, 67.2% and 67.5% respectively. With only 56.8% global internet penetration, it means that over 3.3 billion people do not have access to the internet, let alone access to affordable data.

In thinking about the challenge of internet connectivity in Africa, there are a number of factors that we believe are important. Firstly, gross under investment in most African countries over decades has meant that mobile connectivity will be the nearly exclusive way that Africans come online. Mobile telecommunication companies have invested billions of dollars in expanding and improving the quality of mobile connectivity to African – we estimate around 70-80% of all Africans now live in an area that is covered by a mobile network signal. In addition, data from Facebook and other popular online services show that internet connected Africans are predominantly accessing these services from a mobile phone.

Secondly, for those able to get online, the cost of getting online (as a percentage of per capita income) has been decreasing, rapidly. Data from the Alliance for Affordable Internet on mobile data costs shows that on average the cost of 1GB of mobile data has dropped from around 12.5% to 8.8% of GNI per capita from 2015 to 2017 and it continues to improve. In Egypt, Ethiopia, Kenya, Nigeria and South Africa, the affordability of mobile data over this period has improved by over 50%.     

Finally, the affordability of internet-capable mobile devices is a significant factor that limits the uptake of smart phones for access to the internet. A recent report by GSMA found the cost of the handset to be the highest perceived barrier to mobile phone ownership across many emerging markets. The cost (and hence affordability) of these phones has been improving – the same GSMA report found that the average selling price of a smartphone in Africa decreased by about 20% across Africa from 2008 to 2017. Nevertheless, the average smartphone still costs between $100 and $200 in many emerging markets, price levels that are still unaffordable for large segments of the population with limited to no access to asset financing products that are traditionally available in developed economies to support the purchase of these devices. Many people in developed economies are very surprised to learn that the typical African consumer has to pay the entire amount upfront to purchase a smartphone. Unlocking product financing has, in our view, been an integral first step to solving for several contiguous problems, viz, access to credit (finance), access to quality mobile devices, access to the internet, and most importantly, offering Africans optionality to improve their personal and professional lives. Africa cannot afford to be the dumping ground for feature compromised devices that worsen the total cost of ownership while luring users with the promise of a cheap device.

Payjoy enables people who lack credit (or credit history) to gain access to smartphone financing, thus improving [quality] smartphone penetration in emerging markets including Africa, India, Latin America and SE Asia. The company’s full-stack platform pulls together an ecosystem of OEMs, Resellers, Finance Companies and Telcos through partnerships that enable it to provide a seamless product. It currently has partnerships with Samsung (India), ITOCHU (Indonesia), Boabab (Cote d’Ivoire), MTN (Nigeria, Zambia) and a number of others including Apple, Verizon and Qualcomm. PayJoy’s locking technology embedded in the operating system also enables the smartphone to act as collateral for both phone financing and micro-lending thereby further democratizing access to smart phones and internet and opening up opportunities that were previously inaccessible to the middle to lower income segments of the relevant economy, thus assisting them to move out of poverty.

Doug Ricket, the CEO and co-founder of PayJoy, is one of those founders we adore. Since meeting him almost 5 years ago, we have been impressed by his relentless focus on unlocking product finance. He has gained a deep understanding and attachment to this problem through his work at Google, D.light and the Peace Corps. PayJoy for him is not just another bright idea, it is a problem he is deeply committed to solving. Payjoy believes the time is now and we strongly agree.

We have built, and continue to build, a portfolio of symbiotic investments in companies that support our investment theses of fragility, lift, lubricants and organizing the offline. To illustrate, our investment in, an ethically responsible small-check lender focused on serving the underbanked and unbanked population in Africa and elsewhere by offering unsecured loans with loan decision underwriting in 60 seconds or less, is an example of how we looked to build a full-stack approach to financial inclusion in Africa. Our investment in Payjoy solves the consumer’s ability to access smartphone-secured credit that allows them to manage cashflow, build a credit history, and create life optionality by accessing internet services via better quality devices. Another [undisclosed] investment of ours is addressing inclusion by solving the fundamental issues around network access and elasticity through material cost reduction in service providers’ capex and opex.

As an Africa-focused VC firm, from inception we have been very thoughtful about how to invest to protect and empower the fragile African consumer and SME. Antifragility should underscore the pursuit of prosperity. We are of the view that, through syndicated educational content, our network of portfolio companies can foster financial wellness in an environment where there has been chatter about abusive consumer behavior AND predatory lending practices leading to debates as to whose role it is to ensure microloan borrowers responsibly use credit. For Payjoy, the platform ensures credit is specifically used to finance (new and preowned) smart phones which, in turn, we believe can significantly improve standards of living. The locking technology, which turns the smartphone into collateral, also ensures that microloan borrowers are disciplined in the size of loans they secure, in making timely repayments to avoid restricted access to their phones, and spiraling into a debt trap.

One important driver for us, in spreading financial wellness to populations that may never have access to credit otherwise, is to ensure that the feedback loop between access to credit, good repayment behavior and rewards, including but not limited to better financing terms, is relatively short. We are working with our portfolio companies to ensure empathy and enforcement are engineered into their platforms. This will benefit the many and concurrently ensure the abusive few are course-corrected in short order.

Making quality smartphones more affordable will be a major step towards improving internet penetration in Africa and emerging countries. This, in turn, will sponsor full access to the world of tech-enabled products and services leading to professional and personal lift and financial inclusion, amongst several other benefits. We look forward to working with an experienced and committed team and supportive co-investors to make this future a reality.

We are pleased to be participating in this financing with our co-investors including Greylock Partners, Union Square Ventures and Core Innovation Capital. We look forward to working with Doug, Mark, Gib and the Payjoy team to deepen smartphone penetration across emerging markets, unlock collateralized financing for the bottom and middle of the pyramid, and increase access to previously unreached communities while helping spread financial wellness.

Congratulations to Riby on the EFinA Financial Inclusion Grant

Congratulations to our portfolio company Riby Finance Limited for being a recipient of the EFinA $2 million financial inclusion grant. This is a testament to the company’s ongoing hard work to drive the banked population significantly higher whilst building a strong and sustainable business.

At EchoVC, one of our investment theses is organizing the offline and then bringing the offline online. So we are always keen on partnering with businesses that can elegantly automate offline behavior. Group lending and savings is one of such behaviors. We had thought deeply about the best approaches to automating this and then we met Salami Abolore, the founder and CEO of Riby Finance Limited.

Salami has an unmistakable aura of passion, resilience and determination to solve the specific problems of the underbanked and unbanked using the existing group culture. Faced with a personal problem of financial management and access to loans himself, Salami created an offline group amongst his friends in a bid to encourage joint savings (and access to credit whenever the need arose), with the aim of promoting and digitizing savings, lending and investing amongst peers. This mission birthed Riby.

Riby distinctly operates in a highly fragmented marketplace of cooperative banking with the bulk of its target market being at the bottom of the pyramid. Starting with Nigeria, with less than 5% of adults having access to credit cards or bank loans, and 40 million people unbanked, Riby’s objective is to introduce and deploy the culture and practice of being banked to the millions of Nigerian adults currently financially excluded by allowing them to save, borrow and invest with ease.

Riby does this by strategically positioning itself as an aggregator platform where members of cooperative societies have a line of sight into their activities and can access short-to-medium term loans or grants from commercial banks, DFIs, development banks, not-for-profit organizations, etc, who, in the same vein, get high-value insights into disbursements of loans or grants to the final beneficiaries. As an example, one of Riby’s products has powered the group lending activities of a notable government entity enabling it to attain the status of being the second highest micro-lender in Africa.

According to EFinA research conducted in 2018, 75% of the adult population saved via informal structures (groups and cooperatives) and family and friends and 100% of the population borrowed from the same. While a lot has been done with regards to ensuring global financial inclusion, access to finance still remains a major inhibitor to economic growth. With at least 50 million adults in Nigeria being financially excluded, and a 4.3% credit penetration from banks in Nigeria, Riby has a large target market to which it can provide a viable alternative whilst championing the high-impact cause to increase financial inclusion.

We have always believed that in this nascent tech environment, industry winners in the near-term will be those who have chosen to first refactor rather than disrupt. Hence, by taking offline behaviour and replicating it online, Riby is not attempting change the decades-old tradition of communal savings but instead, optimizing and scaling it to ensure that its products are accessible and usable across the various age cadres and literacy levels.

We are incredibly excited to support Salami and the Riby team as they grow to become a centralised repository of financial data and a lending and savings platform for cooperatives and societies. We look forward to working together to onboard ten million unbanked Nigerians!