Co-founder and CEO, Interswitch
“If you know you only have one opportunity, the way you use it is quite different but if you felt you could squander this one and get another opportunity, then your approach will be different.”
For Mitchell Elegbe, the journey to building one of Nigeria’s most respected businesses, Interswitch, was driven by the passion to solve a social problem. He encountered the problem years ago in his youth when he tried to withdraw money from an ATM while abroad when his card was seized and he was left stranded.
“I made up my mind that one day I would conquer this problem,” recalls Elegbe.
When he returned to Nigeria, he noticed how the issue of getting money out from banks was creating a social menace. At the time, there weren’t many bank branches available and the only way one could withdraw funds was to physically go into a bank and wait to be served. This could often take up to three to four hours. The tedious wait times invariably led to clients taking out much more than they needed to avoid a repeat journey.
“This was usually on weekends, typically on Friday, when people wanted to have enough money to spend, and if you [knew] Nigeria at the time, spraying cash was the norm. What this did was create a lucrative business for robbers. So, it was normal for people to attack you on Fridays because they [knew] there was a lot of money at home,” says Elegbe.
This was Elegbe’s mountain. The next question he needed to figure out was how lucrative the solution was and at what price point people were willing to pay to have it. As a result, he developed an approach which he terms as “the Tropical Savannah method” and one that forms the bedrock of Interswitch’s success.
“You have the Silicon Valley method and then the Tropical Savannah method and there is a key difference. What you find is that people get money and they buy market shares and they don’t tell you if that market they are buying will end up paying for the services. In Africa, where you have the Tropical Savannah, you don’t give free things and take it back.
“If all I need is a sachet of water, don’t give me a bottle of coke for free. Let me pay for my sachet of water. The day you start giving coke for free then get ready to sustain it. If you tell me you can’t give me coke anymore and I need to start paying for it, people will stop because the best I can pay for is the water because that is what I can afford,” says Elegbe.
In other words, you need to design your services to meet people at their point of need in the Tropical Savannah. Otherwise, at that point where you are now ready to monetize from your customers, you will not be able to.
“This is why a lot of fintechs are suffering and that is what is happening globally and why the valuations are crashing. In the Tropical Savannah, prove your model and show that there is somebody to pay for it at a price point that will make it profitable and then you can begin to scale.”
That method allowed Interswitch to raise only $500,000 against an initial $1 million target and still turn a profit in the first year of business.
“Sometimes in life you get just one opportunity and you need to grab that one. If you know you only have one opportunity, the way you use it is quite different but if you felt you could squander this one and get another opportunity, then your approach will be different. With Interswitch, I knew there was no way we could go back to people to ask for more money. Because if they could give us $1 million, they would have. So we had to make the money; we had to work.”
And with that, Interswitch was able to disrupt the traditional cash-based payments system at a time when Nigeria’s banks were still struggling to open enough branches to meet customer demand.
“I did not think we were creating anything fantastic because the process of making cash available via ATM was already well-established in other parts of the world. The challenge we had in Nigeria was that the infrastructure was not there. Power was a big problem, telecoms was not where it should be, and when we started in 2002, the GSM license was not where it should also be,” says Elegbe.
What that meant was Elegbe had to take a bet on the future.
“So, we basically made a bet that we were going to build an online real time payment infrastructure and we were going to make a bet that we can manage and design out the challenges of power and that telecoms will improve because if people were spending hundreds of millions of dollars to get a GSM license, it only makes sense that I could do a good job with those licenses. So, the bet was to attempt to create an online real-time payment infrastructure.”
That is exactly what they did and that bet has paid off significantly. From attracting a $200 million investment from Visa who took a 20% stake in the business, which pushed the company into unicorn status to the recent injection of $110 million joint investment from LeapFrog Investments and Tana Africa Capital to scale its digital payment services across the continent, Interswitch has been at the helm of democratizing cash transactions to 200 million Nigerians over the past two decades.
“The vision at that time was to leapfrog and to take Nigeria where it was at a very backward stage to a stage where it was more advanced. So, we wanted to create enough innovation to drive the penetration and adoption for electronic money and to that extent we were able to achieve that,” says Elegbe.
For Elegbe, the goal was never to become a unicorn. In fact, he did not even know what that term meant.
“I only began to know about the term unicorn when someday we got to know that Interswitch was now being described as a unicorn. In all my years running Interswitch, unicorn was never the goal for me. It was more of the ability to take one problem at a time, solve it, see the impact it was having on people and be encouraged by the problem we are solving.”
“In our case we began to hear about the unicorn thing when Visa invested in us [to] a valuation that was about a billion dollars. The objective was to just keep solving problems and getting joy when you see the problem solved. The idea of a unicorn is knowing that you are a billion-dollar valued business but for me it is just a mark and means nothing. Sooner or later everybody will get there. The real issue is what impact are you making with the technology that you have deployed,” says Elegbe.