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Micromerchants face liquidity challenges, often running out of digital money needed to make transactions and struggling to quickly rebalance and replenish it. Host Amee Parbhoo talks with Andrew Milne, CEO of Kuunda, to hear how Kuunda provides seamless liquidity solutions to agents, micromerchants, and consumers.
Fintech has the power to build a more inclusive world. Fintech for the People is about the innovators who are developing fintech solutions that reach the people who’ve been left behind. In each episode, we’ll hear from innovators who are creating financial solutions that bring every person the financial tools they need to grow their business, support their family, and build their community. Together, we’ll learn how fintech looks different in spaces and places where basic financial services are a luxury — and how solutions to address these challenges require a different level of creativity, empathy, and execution.
Fintech for the People is an Accion podcast hosted by Amee Parbhoo, Managing Partner of Accion Venture Lab – an early-stage investor in inclusive fintech startups. Learn more about Accion Venture Lab here. Episodes will be released in seasons, on a weekly schedule.
Amee Parbhooam (00:12):
(silence).
Amee Parbhooam (00:12):
Welcome to FinTech for the People. I'm Kuunda Parbhooam, your host and the Managing Partner of Accion Venture Lab. If you're tuning in for the first time, Accion Venture Lab is a global, early stage investor in startups that are bringing affordable well designed financial services to underserved people around the world. This is our second season of FinTech for the People and we'll be showcasing six of our portfolio companies that are all innovating around the hottest topic in FinTech, embedded finance. Specifically, we'll be talking to them about how they use embedded finance to serve the unmet needs of small businesses around the world. We'll be discussing each founder's entrepreneurial journeys, the innovative products they're building and how they believe embedded finance could change how small businesses access finance.
Amee Parbhooam (01:02):
With that, I'd like to introduce our first guest Andy Milne. Andy is CEO of Kuunda, an API based embedded lender, which provides liquidity services to agents, micro merchants and consumers across the world. It's wonderful to have you join us, Andy.
Andy Milne (01:18):
Thanks, Amee. It's great to be here.
Amee Parbhooam (01:20):
Great. Well, before we dig into what you're building at Kuunda, I'd love to hear more about your journey as an entrepreneur. Would you tell us more about your background and how you ended up becoming a founder?
Andy Milne (01:31):
Absolutely. So Kuunda is actually my fourth startup that I've been involved in as one of the sort of founding team members. So it started in 1999, so a long time ago, and I've always been involved in businesses that took specialized services and wrap technology around them. So our first business was actually a internet business. Wasn't mobile phones in those days, and it was in the healthcare sector. So we built out an insurance health and wellness platform on the internet in South Africa. Our clients there were Virgin health clubs and insurance companies. Virgin group actually ended up buying that business. So that was the first step of really understanding the power of technology.
Andy Milne (02:14):
When I left the Virgin group, I then launched one of south Africa's first telemedicine businesses. And we launched that in about six, seven African markets, including South Africa, as well as Indonesia.
Andy Milne (02:25):
So my first foray of taking technology into Asia was Indonesia. That business itself, we sold to MMI Holdings, which is South Africa's third largest insurance company. And by that stage, we had sort of added microinsurance health savings accounts and health loans to the product, not just providing pure telemedicine. And that's how I then ended up sort of again, stayed with that business probably around five years after MMI invested in the business and bought it out.
Andy Milne (02:55):
And then I was approached to join Zoona, the Zambia and Malawi payments business, where I now moved from the sort of healthcare and the telemedicine and the microinsurance experience into payments. And that's where I was lucky enough to work with and meet my two co-founders Morne and Sam. And when we left, we all left quite at similar times to [inaudible 00:03:17]. We were approached to put a team in place with the [inaudible 00:03:21] group. And at that stage, Sam had been in the DRC, had built out the first iteration of a liquidity platform and we came together and said, "Let's give it 12 months working for [inaudible 00:03:33] and see if we can build out a business that can solve liquidity in not just for mobile money agents, but for sort of micro merchants agents and then eventually see if we can solve some liquidity for consumers as well."
Amee Parbhooam (03:47):
That's great. And maybe picking up from that, can you tell us more about Kuunda, what's driving this liquidity challenge for micro merchants and how are you solving it?
Andy Milne (03:57):
As you mentioned in the beginning, we're a B2B embedded finance business. So we will partner with, it's what we call strategic partners who have got either an agent network, an informal retail network, or a network of consumers using digital payment platforms like mobile money. We embed inside their world and solve liquidity because all of these end users, whether it's an agent, informal merchant or a consumer, all run out of e-money at some point in time and then getting access to rebalancing it and replenishing it is sometimes compromised or they don't have enough. All of our users because they're real sort of bottom of the pyramid customers, if you like, they live on two to three days of working capital capability. So they're constantly juggling different requirements, whether it's paying school fees, paying healthcare, buying stock for their businesses and at the same time, having enough e-money to be able to service customers, it's always compromised.
Andy Milne (05:01):
And what we wanted to do was come up with a sort of different way of saying, "How do we fund couple of things differently?" One is instantaneous access to liquidity when you need it. So to do that, we needed to build out our APIs, integrate properly into the mobile money partners systems or payment platforms so that as the end user is doing a transaction, whether it's an agent doing a cash in for a customer or a customer needing to send $5 to their parents in a village somewhere else, if they don't have enough liquidity, how do we do it in real time?
Andy Milne (05:37):
And that's where we've sort of developed a bit of specialization is creating that frictionless access to instantaneous liquidity to fund transactions. And I think that's really the interesting piece of the puzzle for us is when a transaction needs to happen, how do, whether it's an agent doing a cash in or out on top up an informal retailer wanting to buy stock, but doesn't have enough cash to buy the stock or a customer needing to do a consumer transaction, if as they need to do it, we provide that liquidity by letting them go into negative balance. And we do it in a totally frictionless way with our partners.
Amee Parbhooam (06:15):
When you say frictionless, why is that important and what does that look like for Kuunda?
Andy Milne (06:20):
We actually sort of debated this when we first launched, because you always got the temptation to get closer to the customer and have access to them. So we debated whether we were totally seamless inside the strategic partners platform payment platform, or do we create an externalized app, which the end user has to use to be able to get access to the liquidity we're providing. We made the decision when we started that it had to be completely frictionless. Otherwise you won't get the right usage of the product for the end user. So in our world, and I'll use the agent example because it's got an interesting one.
Andy Milne (06:59):
As an agent starts the day by deciding how much liquidity they need to hold in their float account. So say they can afford $20. They go rebalance for $20. They've got $20 in their business float account because they've had a busy day of customers coming for cash ins, airtime sales, bill payment transactions, that float is now down at $2. It's one in the afternoon. Customer comes in for a $4 transaction. The transaction fails on that strategic partners payment platform. And what it does then in the system is the system says, "Would you like to access your overdraft?" The agent just presses one on his phone and then that triggers the calls from the M-Pesa platform to the Kuunda platform. We check if, does the agent qualify, have they registered, do they still have limit, are they in good standing, et cetera? Follow that's affirmative. What we do is we push the $3 to complete the $4 transaction when they only have $1 and this all happens in nanoseconds. So the customer standing in front of the agent doesn't actually even know that they've run out of float.
Andy Milne (08:03):
And then the $3 is transferred into the agent agents account and instantaneously the customer transaction occurs. Then what we've got on top of that is we've got other strikes in the system. So any incoming float to the agent's wallet we take back immediately. So in that environment, that's what we mean by instantaneous. The disbursements are instantaneous to fund a customer transaction and the repayments are also automated. So in Tanzania at the moment we're doing just around about 40,000 disbursements a day and over 92% of them are paid back before nine o'clock at night.
Amee Parbhooam (08:39):
Wow. So super short term extension of credit, but that doesn't even necessarily feel like credit to one of these agents.
Andy Milne (08:49):
Totally. And with that product in particular, it's the only sort of revenue accretive liquidity solution we've kind of come across in the market. So if we've got a dynamic pricing table, so that depending on, we only fund transactions that earn the agent commission and we always make sure that the charge we charge them is less than the commission they make. So if they use their own float, they make a hundred percent commission. If they use our float, they make less commission, but they're still making money. So there's actually no risk for that product to the agent to use it. It just, they, instead of turning customers' way and creating a bad experience, they're now servicing more and more customers.
Amee Parbhooam (09:29):
Yeah. Which is, I think such a powerful part of your model versus when people talk about embedded finance these days, the first thing that comes to mind is buy now, pay later for consumers and effectively what you're doing is kind of a buy now, pay later for credit, for micro merchants and for agents.
Andy Milne (09:48):
That's exactly right. You can't get it a hundred percent, right all the time. It depends on the ecosystem you're working with in terms of your partners. But what we do try and do is spend a lot of time in the user flows to make sure that we're funding specific transactions. So it's really, it takes a lot of work. You can't get it right a hundred percent of, I'm sorry. We do have a term loan product in the market for agents as well, where they need working capital in cash. That's less controlled, but we still have the auto strikes in place. So we've got these complimentary products of fund transactions versus a term loan that gives them access to working capital, which gives them more flexibility of how to use that product.
Amee Parbhooam (10:30):
That's great. I'd love to hear how you think about embedded finance. That's what we're talking about this season, particularly as it pertains to small businesses and you work on the very low end of those small businesses with these micro merchants, but what does embedded finance mean to you?
Andy Milne (10:48):
It's obviously at its most base level, it needs to be totally embedded into your partners environment and their ecosystem. So for us, it's about saying your partners have spent a massive amount of money creating these channels. They've got payment systems. How do you provide a totally embedded experience to the end users so they actually don't even know that you exist? It's totally, totally seamless. And also we're not a lending institution per se. We're almost like the connective tissue between a strategic partner, which would be an M-Pesa and a bank partner, which would be in Tanzania case it's FINCA. And then we manage the, we built the platform. We build the product, we do the integrations into M-Pesa system. We set up the dispersment wallet, the collection wallet and the fees wallet. We then go to a bank partner and provide them with a one stop solution, fully developed low management system with gamification referral systems, sort of CRM management in terms of designing messages.
Andy Milne (11:51):
We've got segmentation, we've got the data insights and all of that doesn't need any development from our bank partners. So it's literally, we're switching the lights on for them to be able to do this sort of high velocity liquidity solutions for our strategic partners. And our model is also a revenue share model. So we're not like a SAS where you secure the, put the partner, you charge for use. We actually take risk with the bank partner in terms of credit risk and revenue risk. And so we're totally committed and aligned to growing the products because if we don't grow the products with the strategic partner on behalf of the bank, then we obviously wouldn't make any returns ourselves.
Amee Parbhooam (12:36):
I want to stick with the strategic partners for a second. You've had a lot of experience working with telcos. as primary partners. What made you decide to work with telcos as a strategic partner and how do you see your partnership approach evolving?
Andy Milne (12:51):
That is a really good question. And telcos are not the easiest partners to work with. The telcos have invested millions and millions of dollars in years, building up agent networks, customer bases, and transactional volumes. And if you think around it, if it's a small network, small customer base, very few transactions, there's unlikely to be a liquidity challenge. So it was a pretty much chosen for us to start with mobile network telcos and the mobile money operators. They've got the scale, particularly in east Africa and they have the biggest challenge of liquidity. So if we're going to solve liquidity, go to where the biggest challenge is. And so that's the starting point.
Andy Milne (13:30):
At the same time, you've got this emerging market of digital players trying to solve the sort of the whole spectrum of the informal sector sort of value chain, particularly in the retail sector and there, we do see an opportunity to be the embedded finance partner of businesses that don't have the capabilities, the scoring, the data capabilities to do that themselves. And it takes a lot of time to build out a platform. I mean, we've been going for four years. We're in two markets and it's taken four years to really build up a very, very comprehensive understanding of the market, but also the technology behind it and the credit scoring and the algorithms. We're handling, at this point in time, over 25 million lines of data per day, because our algorithms get fed every day by transactional data coming in from every partner. So to do that, you have to start with the scale solution as I said, but we're very, very excited in developing sort of more digital partnerships outside of just the telco operators.
Andy Milne (14:36):
And we're starting to do that. I mean, Pakistan in particular is a very, very interesting market where the mobile money space is still quite fragmented. Whereas the sector that's six, the digitizing it at the quickest is really that last mile eCommerce delivery space. And there's a lot of really good players out there who don't have embedded finance capabilities. So we're having conversations with them to say, "We've got a solution, we understand the market, we understand how to score it. Let's partner and build out liquidity solutions for your retailers." And ultimately then the retailers customers.
Amee Parbhooam (15:12):
You often hear, they want to build this in house. They want to do it themselves and start to offer lending to their retailers on their own. But what makes them come to you and want to plug into Kuunda?
Andy Milne (15:26):
Some people will try it and some people will realize it's incredibly hard, not just building out the platform, doing the scoring and building a product, but also managing either license or balance sheet. But you are going to have people that will try it. Some will do well, some will fail. But what we are seeing is a lot of these, their core, it's not their core business. They do need to diversify revenue streams. We get that, but we're sort of going to these players and saying, "There's no cost of CapEx. There's no cost of OPEX. You don't need to worry about the balance sheet because we manage that with the bank partners that we've got and you don't have to build any technology that's going to distract your teams from your core business," which is signing up acquiring merchants and giving them a great experience and being able to deliver the goods that they're ordering from you on time.
Andy Milne (16:17):
So what we are seeing is you do have this constant thing, "Well, we are thinking about doing it," but as businesses start to realize the complexity of doing it and the need to focus on their core competency, we're quite confident that we'll secure quite a number of partners in this space versus the work we're already doing with the telcos and the mobile money operators.
Amee Parbhooam (16:42):
Let's talk about your success thus far. I mean, how do you measure it? What have been your outcomes so far?
Andy Milne (16:48):
We chose Tanzania as our first market. So in December, 2019, we launched with M-Pesa with the first product and we kind of said to ourselves, and we bootstrapped the business until the end of last year when we did the seed grant. And we're great believers in products need time to find market product market fit. And we wanted to launch with a large market with multiple products before going into, to look for some seed capital. So we started in Tanzania with the overdraft product, which is for agents. That has had over 90,000 agents use the product since we launched. We have about 39 to 40,000 active agents per month. As I said earlier, we're doing about between 38 to 45,000 disbursements per day, depending on the time of month. And that product itself, we've dispersed over 130 million dollars. And what's quite interesting with that is we've only used about $350,000 of capital from the bank for that product because its velocity is just so crazy.
Andy Milne (17:52):
And then about 12 months after launching their overdraft, we noticed with the agent networks that whilst float financing was a real issue for the 140,000 active agents in Tanzania with M-Pesa, we noticed that sort of 70 to 80,000 also had a working capital requirement. So we then built out our term loan product, which has also been incredibly successful. So there we've done over 350,000 disbursements. We're about 18 million dollars of loans dispersed. Those are much more longer term so seven, 14 and 30. Also with auto strikes and that's now starting to scale up nicely.
Andy Milne (18:28):
And then at the beginning of this year, we secured the consumer overdraft product in Tanzania. And now currently we last month, sorry. End of may. We had 850,000 active customers on the platform and next, this month in June and July, we'll go over [inaudible 00:18:45] 1.2 million active. So we're starting to see some great growth in Tanzania. And then in Pakistan we've launched a retailer version of the overdraft product with OneLoad, the largest bill payment provider in Pakistan. And we've credit scored, I think just over 35,000 retailers.
Amee Parbhooam (19:03):
Incredible numbers and traction for a seed company. It's really, really incredible to hear that. And what's your vision for the future? Where do you see Kuunda in five years?
Andy Milne (19:13):
We really want to progress into this concept of transactional on demand based lending. So as digital ecosystems become more and more advanced, we really want to get closer and closer to that real time instantaneous access to liquidity on transaction based requirements rather than consumption based. So we want to sort of really position ourselves as a leader in that space. We obviously have to. We're a digital financial services sort of business. We're busy with rollouts whilst we're live in two markets, we've secured rollouts for M-Pesa in the DRC and Mozambique. We have [inaudible 00:19:53] money. We're going into Malawi, Zambia, Uganda, also the DRC and Nigeria and we're busy closing out to partnership with a local player in Egypt as well. So all of these are sort of in play at this point in time and so there's a very real potential that within the next 24 months, we'll be in eight to 10 African markets. And I'd love to see us in one or two more Asia markets as well.
Andy Milne (20:21):
I think the products that we've built out over the last sort of two and a half years are also relevant in Latin and central America. So if we can find the right partner, I mean we're a collaborative business so we need, the way we look at our world is we need a strategic partner who has a liquidity need. We build the products with them and then we go and secure bank partners so we're really capital wide business. Our tech is highly scaled and tested. So it's really about finding those strategic partners because we've got the track record and the data now to be able to show a bank, but it's a good model and they can make a good return on it as the balance sheet provider in this sort of very digital nano liquidity world.
Amee Parbhooam (21:07):
Incredibly exciting to hear the plans into the future. Just one last question for me, Andy. As a multi-time founder, you've learned what works and I imagine what doesn't work in an early stage company. What principles have you brought to Kuunda in building out especially a high quality team?
Andy Milne (21:27):
I mean, the first thing is time, I spoke about that. Businesses need time and you got to carve out the capacity to give time rather than rushing things. Resilience. And I've been in business for a long time. That resilience particularly in the startup environment is hugely, hugely important, not just mental resilience, but just resilience of managing the complexity of a startup. And then I think it comes down to ensuring the partners you bring in that you work with are highly, highly complimentary skill sets. So if you look at Sam, Morne and I is, I've got a lot of experience in the commercial space. I've launched businesses, I do business development so I'm very strong in that area. Morne is one of the top data scientists and credit scoring people in this sort of nano space. And then Sam's an incredible product person. So three starting people, very, very complimentary.
Andy Milne (22:27):
I've done, outside of launching businesses, I've done a lot of mentoring of startups over the last sort of five years. And what I often see is they'll typically be very strong in data or very strong product. They might not have the commercial experience and capabilities and very few of them have all three. So I think making sure that if you are building out a product lead business, which we are, is you've got to be super strong in product. If you're in the digital space, the product can't be sustainable without really, really deep data analytics. And because we're a lending platform, you need the credit scoring and the IP around the credit scoring. And then you got to wrap that around some sort of commercial framework that can allow the business to scale properly. And then it's obviously, it's sort of building out that vision so that you can recruit the right teams.
Andy Milne (23:21):
We've got people all over the world. Now we've got a data and finance team in Cape Town. We've got teams and terms in India and Pakistan. We're building out an operational hub in Nairobi in Kenya to manage the sort of Africa markets. If you can't build out a vision that attracts really great people to join you, you're not going to be able to create a sustainable business long term.
Amee Parbhooam (23:44):
That's great, great advice for any founder getting started, especially, I mean, to your point of product data and business development, I mean, for embedded finance, those three elements are critical, but super thank you so much, Andy, for this great conversation. Really inspiring to hear all that you've achieved in a short period of time, but thanks so much for joining us.
Andy Milne (24:06):
Yeah. Thanks a lot, Amee and thanks for supporting us, too.
Amee Parbhooam (24:12):
Tune in next week when we travel to Indonesia to hear from Mir Haque, founder and CEO of Fairbanc. Fairbanc is a tech provider that integrates with corporate partners like fast moving consumer goods companies to provide their end customers, which are mom and pop retailers with a simple embedded buy now, pay later solution.
Speaker 3 (24:33):
We're injecting liquidity into a system, making it healthier, right, where before without liquidity, the system wasn't able to meet the consumer demand [inaudible 00:24:46] were buying far less what they could sell. And we're capturing that Delta through liquidity. And so entire ecosystem is benefiting from it.
Speaker 3 (24:55):
(silence)