Zambian card-issuing fintech Union54 has raised $12 million in a seed extension round led by Tiger Global. Other participating investors in this financing round include existing ones such as Vibe VC and new investors Earl Grey Capital and Packy Mccormick’s Not Boring Capital.
It’s been only six months since Union54, whose API allows African software companies to issue and manage their debit cards without needing a bank or third-party processor, announced its seed round of $3 million, also led by Tiger Global.
Union54 founders launched the company last year when they went through painstaking processes to issue debit cards for their previous startup and challenger bank, Zazu.
Since its launch in October and participation in Y Combinator’s summer batch 2021 earlier, Union54 has grown to issue slightly over half a million virtual debit cards to its customers. The company also claims to have processed volumes now reaching double digits in millions of dollars.
CEO Perseus Mlambo disclosed to TechCrunch that Union54’s revenue in its first month (October) was a little less than $3,000. In November, the company’s revenue increased by 600% and has subsequently grown 50% month-on-month.
“What this is telling us is that there’s very much real interest in the number of people who want to have debit cards and this is not going to stop anytime soon,” Mlambo said in an interview.
“What’s more, our interactions with customers and potential customers have shown us that the real problem we are tackling isn’t the ease of issuing cards — rather, it’s much broader than we could have imagined.”
Mlambo says Union54 has customers from multiple African countries (he didn’t place an exact number). And based on several interactions with them, Union54 has realized that some of the pressing challenges they face include longer settlement time for card transactions and the difficulty in sourcing dollars.
A card-issuing platform isn’t in the best position to tackle these issues head-on. Doing so will require creating a different payment application for Africa, and that’s an audacious task of its own. Yet, that’s what Union54 intends to accomplish 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 become a member. The most popular card schemes globally are Union Pay, Visa and Mastercard.
In the U.S., there are other schemes such as Amex, Discover and American Express. But in Africa, Visa and Mastercard dominate the market share; for example, in South Africa, the distribution of cardholders with Visa is 51% compared to Mastercard’s 48%.
There are very few markets where domestic card schemes edge out the pair in Africa. Nigeria is one such market where, per Statista, local labels such as Verve, the largest domestic card scheme 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 merchants solve their settlement and sourcing issues, Mlambo offered more insight into why the company chose to ply this route. According to him, recent global events like Visa and Mastercard pulling out from Russia, leaving China’s UnionPay to fill in the void, have made it evident that payments are a politicized endeavor.
“The purpose of creating another card network is an inspiration of what’s happening right now. Number one, we’re vulnerable and hostage to any political decisions that might affect trade on the continent. And if anything were to happen, we would wake up and would not have access to our funds,” said Mlambo, who founded the company with his spouse and COO Alessandra Martini.
“Number two, when you think about the card networks today, they’re not fit for African merchants because settlement is often taking three days for a local debit card, maybe it’s taking over seven days for an international debit card. There’s a significant opportunity as the world realigns itself; we need to get to a point where we’ve got a payments route that needs to be developed locally for local use.”
There are questions on whether Africa’s market needs another card scheme, considering how merchants have run their businesses with the two dominant players all these years. If recent developments indicate what the market is saying, then the answer is in the affirmative. For one, last year, the South African Reserve Bank (SARB) proposed a domestic card scheme to go head-to-head against Visa and Mastercard in the country.
Mlambo also added that through his and a few colleagues’ work via the African Renaissance Conference, Union54 has gotten in touch with three central banks keen to explore how settlement agreements would work with a new card scheme.
Meanwhile, the company has learned these past few months that developing a card scheme is not a technical problem so much as it is a trust problem. Trusting that merchants will get settled on time, that merchants don’t lose money across currency conversions and that consumers trust the card itself are crucial to making this work. The company plans to get nine central banks to establish this framework by the end of the year toward a pilot by Q2 2023.
“Ultimately, the card is a physical manifestation of that trust. By going through Central Banks, we want to understand and agree on a common framework for the paperwork that documents that cements that trust,” the CEO said.
“We’ve invested a lot of time and effort to understand what needs to happen and when. So our goal is that in the next 18 months, we should be able to do a test transaction. We’ve set ourselves to target the end of this year to have at least nine member banks join to participate in this scheme.”
The impact of a new card scheme, for now, is theorized at best. But Mlambo believes that if Union54 can reach an agreement with participating central banks and issue its own domestic and continental debit card, it can shorten settlement time and integrate more local payments native to the region.