Zambia-based Fintech Startup, Union54, Raises $12m in A Seed Extension Round

The African fintech space has continued to widen its investment attraction, with more startups securing huge funding from investors across the board.

Led by Nigeria, Africa’s burgeoning payment industry is poised to birth more unicorns before the end of 2022, pushing the number above the current five. This is as a result of increasing investments in startups scattered across the continent.

Among the latest with the huge fund-raising news is Union54. The Zambian-based startup has raised $12 million in a seed extension round led by Tiger Global.

The round, which has existing investors such as Vibe VC as participants and new investors – Earl Grey Capital and Packy Mccormick’s Not Boring Capital, comes six months after Union54 announced a $3 million seed round also led by Tiger Global, according to TechCrunch.

Union54, whose API allows African software companies to issue and manage their debit cards without needing a bank or third-party processor, was launched last year in October. It went through the Y Combinator’s 2021 summer batch and has since witnessed significant growth.

The startup said it has issued over half a million virtual debits, processing volumes of transactions reaching double digits in millions of dollars.

In a chat with TechCrunch, CEO Perseus Mlambo disclosed how the company has beaten expectations since launch and how it plans to expand.

Mlambo said 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. But as TechCrunch noted below, solving this problem is not for a card-issuing platform, and poses a challenge for the company.

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.