“We believe that e-payment will be the next big thing in Africa,” said Hossam Abou Moussa, investment principle at Actis, a private equity firm specializing in emerging markets.
Actis announced Tuesday its 100 percent management buy-out of the Mediterranean Smart Cards Company (MSCC), which has provided smart card payment processing services to banks across Africa since its establishment in 2001.
Although the $30 million deal “was not so big,” Moussa told Daily News Egypt, it represents huge potential and will augment Actis’ role in the development of the payment card industry in Africa.
“Africa is the final frontier in the payment card industry,” Moussa said.
The firm says a third of Egyptian banks currently outsource their card processing to MSCC, of which Actis is now the majority shareholder. MSCC’s management team, led by Hoda Shoukry, has also invested for a stake in the business, according to a statement.
The $30 million will be taken from Actis’ Emerging Markets 3 fund, which is valued at $2.9 billion, Moussa explained. The fund invests primarily in four sectors: financial institutions, consumer businesses, industry and business services.
The management structure will undergo a change, with Paul Edwards taking on the position of executive chairman. Before joining the company, Edwards spent time as group chief executive of MTN, a major African telecommunications operator.
Hoda Shoukry, who previously held the position of managing director of MSCC, will undertake the role of CEO.
This recent deal comes on the heels of Actis’ 9.3 percent purchase of Commercial International Bank (CIB) worth $244 million in July 2009, making it the largest single investor in CIB.
On the continent, Actis has over $1.5 billion in funds under management in 17 countries.
Why MSCC?
Through the acquisition, Actis will have access to the wide market penetration that MSCC established in addition to its services. Out of the 300 major banks in Africa, MSCC already works with 80.
MSCC works closely with the government and local banks and merchants to build up security infrastructure, expand e-payment networks, get services online, and to educate the population about what e-payment can do for them.
Thanks to this, Moussa firmly believes that the acquisition will further allow banks to use more of their own human and financial capital to focus on other core issues.
A bank needs a large number of cards to justify spending money on an IT platform, which small banks are unable to do, he explained. Thus, “they need to outsource operations such as payment card processing services,” he said.
“Without MSCC, smaller banks would be unable to issue internationally recognized credit cards, and consumers spending reach would be limited.”
Outsourcing such a service also prevents banks from having to follow the rapid evolutions in the IT platforms, allowing them to continually offer the most modern technology.
“In the end, it is easier and more efficient” not to perform this service in-house, he noted. As a result, there is demand in a market with serious potential.
Payment cards in Africa
Moussa underscored the importance of this deal given that there is a “40 percent growth rate in payment card use in Africa.”
He continued, “On average card holders on the continent use payment cards once a month.”
In Egypt, he affirmed, payment card penetration currently sits at 10-15 percent. “This is an opportunity,” he said with optimism.
“Given that such a large portion of the population in Egypt is much younger, it means that more bank accounts will be opened in the future,” which is crucial, as possessing a bank account is a necessary condition for obtaining a payment card, he added.
“A second important point is the growth of the Egyptian economy,” he continued, which has been near 4.7 percent in the past year.
With it, the middle class will expand in tandem, and this will lead to more payment card demand and use, he explained.
For MSCC’s current and future strategy, Egypt and Nigeria are the top markets as well as South Africa. “But the whole continent is our focus,” Moussa pointed out.
While infrastructure remains an obstacle to payment card acceptance and penetration, Moussa pointed out that it is a case of “what comes first? The chicken or the egg?”
Points of sale and ATM availability need to increase as does card issuance, he said, and the establishment of one is dependent on the other.
“Education about the benefits of payment cards needs to increase, as well,” Moussa indicated.
Indeed, payment card penetration has yet to catch up to levels found in the West and beyond, but taking a look at the telecommunications boom is instructive, he said. “I think that the payment card industry in Africa will grow at about the same rate that the telecommunications rate grew on the continent. …In the next five to 10 years, the same rate of growth can be experienced.”
Like in the telecommunications sector, the same challenges will continue to be confronted: inadequate infrastructure and distribution.
“But through the services provided by MSCC, banks will have more resources to correct those obstacles,” Moussa asserted.
