Kappa Pay, a US-based fintech company has announced a $2.1 M pre-seed funding. This is expected to help Kappa Pay to solidify its footprint in Africa and bolster its ambition to create a seamless African fintech platform.
Kappa Pay announced its achievement in an online statement:
We are excited to announce that Kappa just closed a $2.1m pre-seed round led by Morningside with participation from Lake Partners. Moving money in and out of Africa remains a massive challenge that has held back African businesses and consumers for decades. We are building Kappa to fix that.
One of our co-founders Blaise was studying as a first-year candidate at HBS in March 2020 when the pandemic hit. For the rest of his MBA program, he studied remotely from Cameroon, his home country. At home, Blaise saw that his friends who import and export goods had a difficult time making payments and getting paid. Money transfer apps like Wise or PayPal are unavailable to them, while international wires are prohibitively expensive and slow. Whilst remittance apps have made it easier to move money into Africa, they aren’t designed for businesses and do not support the bidirectional flows required by most merchants. To work around these limitations, businesses typically go through black-market intermediaries who collect local currency in Cameroon and use affiliates in the US to pay out USD. Fees range from 5 to 20% and reliability and security are major concerns.
Speaking to importers and exporters, we quickly realized how dysfunctional the entire financial value chain was — built on top of legacy systems and beset by punitive costs and delays. Unlike in other parts of the world, Africa’s manufacturing sector is yet to take off. As a result Africans import almost everything — from food to garments to consumer electronics like phones, tablets, and computers — to the tune of about $600 billion per year. These importers must make payment to their global suppliers in the US, China, Europe, and elsewhere. Usually, their only options are banks or the black market.
Going through banks is an onerous and time-consuming process. Poor customer service, high transaction costs, and unfavorable exchange rates are the norm. Transactions that should take a few days end up taking weeks and cost merchants up to 9% in fees. For merchants looking to make frequent payments on an expedited basis, this presents a huge problem. The situation is equally dire for individuals. In one experience, a friend wanted to pay for an online course that cost $2000. After completing reams of paperwork and depositing the money at his local bank, the institution still had not sent the money a month later. These examples are true not just for our friends, but also for millions of people and enterprises across Africa and Southeast Asia who must send or receive money from abroad.
While modern remittance apps have facilitated inbound money transfer, African businesses and consumers ultimately need reliable bidirectional payment methods to connect them to the rest of the world economy. Kappa is setting out to build the infrastructure to do that — designed for ultra-low cost, near-instant local and cross-border transfers.
Building financial infrastructure is hard — especially in a fragmented market like Africa. With Mick and the team at Morningside we’re incredibly excited to have the right backers on board to do that.
Kappa Pay’s Online Announcement
