Exclusive: With three years of runway left, Kippa explains why it exited agency banking

When Kippa announced an $8.4m raise in September 2022, the argument for KippaPay, its agency banking business, was clear: 500k merchants who used Kippa for bookkeeping and inventory management could make extra money. The theory was that these merchants would easily double as agents, meaning Kippa would get into the segment with already guaranteed agents. It was a sensible strategy considering that 60% of Nigerian agent outlets operate agency businesses alongside their existing ones. Yet, Kippa has pulled back one year after it began its push into agency banking.

Per Techpoint Africa, OPay and Moniepoint account for 57% of agents in the market, making them market leaders—many agents often work for multiple fintechs or banks. It is a keenly contested space.

“I would say this very clearly that competition is not why this decision was made,” said Kennedy Ekezie-Joseph, Kippa’s CEO. “As an ecosystem, we’re not yet at the point of maturity where competition can kill any startup. I do not know any startup that has died because they were outcompeted.”

Kippa’s Origin Story

Kippa was launched in June 2021 by co-founders Kennedy Ekezie-Joseph, Duke Ekezie and Jephthah Uche and received funding from Target Global, Saison Capital and other VC firms. While the company started by offering bookkeeping services to Small and Medium Businesses (SMBs), Ekezie said the goal was always to add other services.

In September 2022, it launched Kippa Start, a business registration platform for SMEs. KippaPay, its agency banking offering, was the pièce de résistance and was launched after Kippa secured a super agent licence. “The super agent licence allows merchants and typical neighbourhood shops who already use our bookkeeping app into a one-stop-shop for essential financial services for their customers,” Ekezie-Joseph told Techcrunch in 2022.

But Kippa is beating a retreat from agency banking after the 500,000 merchants it acquired by 2022 struggled as the Nigerian economy slowed. According to Ekezie-Joseph, the inability of SMBs to weather such difficulties shows how much work still needs to be done to support them. His view emphasises the difficulty of building a business that supports small businesses in Nigeria. With many SMBs especially vulnerable to macroeconomic shocks, the companies that serve them are in a race to squeeze as much value from them before they fail.

“We had a significant focus on profitable merchants in tier-two cities, but the past six months have been horrendous for them. Socioeconomic fluctuations have exposed the volatility of this segment,” said Ekezie-Joseph. Kippa’s decision to retreat from agency banking will cost 40 employees their jobs. The company says it will not need to cut more jobs as it confirmed that it will shutter Kippa Start.

Ekezie-Joseph said the decision to shut down KippaPay was down to a mix of factors: the struggles of SMEs, Naira devaluation and a market that evolved while the company was executing its thesis.

How Naira devaluation affected Kippa’s agency banking push

One of the costs in agency banking is hardware cost. Agents use POS terminals that are either given to them for free by the banks or fintechs, or buy these terminals at 15-20% of their actual cost. This arrangement makes it easier for fintechs to sign on agents; fintechs then recoup the cost of the devices from the agent’s transactions. It assumes that agents will facilitate enough transactions to make the free or subsidised POS terminal worth it, so it is a volume game from the jump.

While the early entrants had a favorable FX regime to buy these terminals and years to build up supply, Kippa entered the market in late 2022. By 2023, the Naira devaluation brought new challenges. “Every agency banking player buys its terminals in US dollars at a fixed cost,” said Ekezie-Joesph. “We bought our terminals when the dollar was N465 to the dollar, and as of today, the dollar is ₦1,100.” With the exchange rate figures provided by Ekezie-Joseph, a POS terminal from a Chinese e-commerce website quoted at $70 went from ₦32,550 to ₦77,000 today.

There are other costs, like managing relationships and providing support. While aggregators –individuals or businesses that help you recruit, train and manage agents–help in parts of the process, there’s still work to be done in acquiring them. According to one person familiar with the agent banking market, one of the market leaders had 6,000 relationship managers in 2022.

For Kippa, which earns Naira revenues, a circular problem emerged: it needed to deploy more terminals to raise its revenues, but that would increase its cost. The only way out was to pass on some of the cost to customers.

Price sensitivity and macroeconomic challenges affected Kippa’s thesis

In June 2023, Kippa raised the prices it charged on transfers, and it quickly learned how price-sensitive the market is. “We tried to increase our prices to ₦35 to grow margins when devaluation kicked in. But the amount of backlash the price increase was met with and the threat of user churn made us revert to ₦25.”

Agents, who often work for multiple platforms and can easily switch, are hard to put in a box and can control their own prices. In July, Nigeria’s agent banking association announced a controversial price hike; while financial services providers held prices steady, the agents wanted customers to pay more.

Beyond this, Ekezie-Joseph said that the hundreds of thousands of merchants Kippa was banking on to double as agents had problems with their primary businesses. Nigeria’s infamous cash crunch in the first quarter and double-digit inflation affected economic activity. The fuel subsidy removal, which was to herald other reforms, has been unpopular and slowed the appetite for further reforms.

Late to the party?

Being late to the agent banking party increases the scale of difficulty for any new entrant into agency banking. In theory, agents move to the company that offers the best price. Yet an agency banking expert said market leaders have the pockets to defend their market share and often offer promotions or lower costs whenever a new player enters the market. They can also continue to offer their terminals for free for the foreseeable future, secure in the knowledge that they now have the type of volumes to absorb these costs.

In the end, Kippa is back to where it started, with a bookkeeping app that helped it attract new users. According to Ekezie-Joseph, Kippa will keep building valuable products and services for merchants on top of its bookkeeping offering. So far, it has shut down two of its early offerings. Only time will tell what comes next.