Naming your company “money” takes some gall, but for the founders of Kopo Kopo, the gambit looks like it might pay off.
The Nairobi-based payments systems company provides merchants with a platform to accept payments through mobile phones. It takes its name from a corruption of the Krio word for money—kobboh kobboh—and has hitched its wagon, and fortunes, to Safaricom, East Africa’s leading mobile phone operator, and its innovative Mpesa mobile-money service.
And an injection of venture capital funding has turned the Nairobi company into a Silicon Valley darling. It was founded in 2010 by three Americans, who conceived the idea on a whiteboard in a Seattle basement, before bringing it to Kenya. Earlier this month, Javelin Venture Partners, with Accion Venture Lab and existing investor Impact Fund, Vinod Khosla’s emerging market-focused fund, offered $2.6 million in backing. It comes on top of the $725,000 Kopo Kopo received in seed financing from Impact Fund and Switzerland’s Bamboo Finance in the last round of financing, as well as the $130,000 in startup capital raised from friends and family.
To line up behind Safaricom has proved prescient, given that in the six years since the launch of Mpesa in Kenya, nearly three-quarters of Kenya’s adult population has registered themselves as Mpesa users, and nearly a third of the country’s GDP is now transacted through Mpesa. And so the move to mobile money appears unstoppable. Companies such as Kopo Kopo further benefit from a high penetration of mobile usage in Kenya—at 77.2% as of this year—and a weak infrastructure for domestic remittances.
Still, only a fraction of the market is tapped; Kopo Kopo has in the region of 10,000 “merchants,” or small and medium sized business on its platform, against the 300,000 to 400,000 estimated companies that could sign up. The company adds a further 1,500 merchants each month, mainly small and medium-sized businesses. It is working with mobile phone operators Vodacom in Tanzania, and Tigo in Rwanda, to roll out similar platforms there, and has declared itself open to “inquiries from any operator or bank in an emerging market” looking for a similar rollout.
“In Kenya, and even globally, 95% of the world’s businesses are run on paper,” says chief executive Dylan Higgins, a 39-year-old who transplanted his life from Seattle to Nairobi to start the business. “We have seen the inefficiencies of running a business on paper. The best way to [convince merchants in Kenya to adopt an electronic platform] is to leverage the phenomenal success of the Mpesa platform to begin a long-term relationship. It is an entry point.”
Investors have heaped praise on the company, the concept, and the vision. Noah Doyle, partner at Javelin Venture Partners, says that the Kopo Kopo platform succeeds in “unlocking billions in potential demand,” while Khosla goes even further: Kopo Kopo, he says, paves the way for “financial inclusion in the global economy and financial safety in the local context.”
Initially, Kopo Kopo, with 50 employees and new, larger offices on a dusty road in south Nairobi, had planned to set up operations in Kenya as a link between Mpesa and microfinance organizations and savings associations, known in Kenya as SACCOS. However, it didn’t take long before Higgins and his co-founders— Benjamin Lyon, 26, and Tom Bostelmann, 40—realized that their target organizations were not “early adopters” and saw no value in moving between paper and technology. The setback offered the ambitious Americans a lesson in humility, and with it, served up an opportunity far greater than the original business plan would have allowed.
Instead, Kopo Kopo forged a partnership with Safaricom, with which it splits the 1% it takes from each transaction, and began signing up small- and medium-sized business; companies that Higgins says are neglected by the mainstream in Kenya. It issues each merchant with a five-digit number and a SIM card through which they can then accept payments for goods and services from mobile phones through Mpesa. Kopo Kopo then leverages the relationship to provide other services such as remote monitoring and bank integration.
“We saw a massive opportunity: a once-in-a-lifetime opportunity to change the way that business was being done,” says Higgins, who spent 15 years working in the software industry including with outsourcing giant Accenture before starting up a nonprofit. “You have to be humble because the world is going to surprise you and you can’t be hard headed about it.”
Despite the rosy picture painted both on the ground and by investors, Higgins tempers optimism with a dollop of caution. The learning curve has been steep and the company has had to learn to operate in a completely alien environment. Shocks to the system, such as the recent terror attacks on Nairobi’s high-end Westgate mall, have further muddied the picture. So has the unaccounted cost of doing business in an emerging market, known as “friction,” which inhibits companies like Kopo Kopo through opaque licensing rules, regulation structures, and what Higgins terms “exploitation.”
“The ecosystem here is still pretty fragile,” says Higgins. “The Westgate thing did not help. I think it has taken some of the shine off the market. This is not Silicon Valley but I think people were lulled into thinking that for quite some time. In my opinion [Westgate] is the turning point and I am really worried that if the government does not do the right things in response to this, well…it would be a shame.”
But he is hanging on; his Kenyan wife is expecting the couple’s first child and Higgins says opportunities abound, locally and globally. “If you can take all the sparks and the energy here and inspire people, if you can capture that,” he says, “this place will grow very fast.”