MTN Group, Africa’s largest mobile network operator, said it has signed a Memorandum of Understanding for minority investment by Mastercard into its fintech business.
The deal pushes the valuation of the fintech business to $5.2 billion on a cash and debt-free basis. That valuation is almost 40 percent of MTN’s total market value, according to Reuters.
MTN says the signing of the definitive investment agreements would happen in the very near term as it approaches finalisation of customary due diligence.
The deal follows Mastercard’s plans to increase its position in the booming fintech industry in Africa and position itself in a market where adoption of new payment channels has spurred new strategic alliances within the ecosystem. While Mastercard continues to pull its weight in the card payment industry, it is struggling to reach the low-end of the payment market.
It also comes at a time when MTN and other telecommunication companies with fintech businesses are planning to let them run as independent business units. MTN Group’s shares jumped by 7.41 percent on Monday morning as news of the deal with Mastercard broke.
“We are focused on the continued execution of our Ambition 2025, which remains relevant in the current macroeconomic volatility and presents attractive scope for growth,” said Ralph Mupita, CEO of MTN Group. “As we manage the challenges in our operating environment, as well as the near-term impacts on our top-line and margins, we maintain our medium-term guidance.”
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Mastercard has been strategic in its investment in recent times in Africa as competition grows in the fintech industry. The biggest competition in Africa has come from new payment channels such as mobile money, which has seen significant adoption. The payment system provider also faces competition from its closest rival Visa, which has been making inroads on the continent since 2011.
“I am more than overjoyed at this. Visa didn’t get it right with Fundamo but Mastercard is doing the right thing,” said Osaretin Victor Asemota, growth partner at AnD Ventures and Africa partner for Alta Global Ventures.
The latest deal with MTN is the second one the payment card manufacturer is making in telecom operators heavily invested in the African fintech ecosystem. In 2021, Mastercard and Airtel Africa extended commercial agreements and signed a new commercial framework worth around $100 million, which will deepen their partnerships across numerous geographies and areas including card issuance, payment gateway, payment processing, merchant acceptance and remittance solutions, amongst others.
Nevertheless, experts say Mastercard’s choice of stake in telco-led fintech companies may be a masterstroke and perhaps position it as the winner of the African payment market. First, at a valuation of $5.3 billion, MTN’s fintech business, MoMo, automatically becomes Africa’s most valued fintech company. Flutterwave, which raised its valuation to $3 billion after it raised $250 million in February 2022, held that position.
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“It is strategic in the sense that MTN is pan-African and processes a lot of low-end transactions. So I will think Mastercard wants to have insight on such development because on the high-end transactions Mastercard has penetration, but on the low end transactions like mobile money I think there is still a lot of work to be done. Visa did it with the acquisition of Fundamo for micro-payments. I’m not sure how that turned out,” said Oo Nwonye, co-founder and CEO of Callbase.
MTN had in 2022 hired JP Morgan Chase to assist it on the planned separation of its fintech unit. The company has since had significant growth in its fintech revenue. The volume or transactions increased by 37 percent to 8.3 billion in the first half of the year. The volume was carried out by 61 million active MoMo customers. Overall, fintech contributes 9.3 percent to MTN Group total service revenue. The company’s plan is to generate over 20 percent service revenue from fintech.
