In 2016, two graduates of Brown University in Providence, Rhode Island, conceived a mobile phone-based money transfer and payments service App known as Wave, launching in Senegal two years later. It picked up steam and expanded to Cote D’Ivoire in 2021.
Within four years of operation, Wave Mobile Money has disrupted the industry in both countries through a combination of innovative technology and extremely low transaction fees, rising to become Francophone Africa’s first unicorn at a valuation of $1.7 billion and with half of the mobile money accounts in Senegal.
The vision of co-founders, Drew Durbin and Lincoln Quirk, is to “bring radically inclusive and affordable financial products and services to west Africa, where there is still a big gap in financial inclusion,” Rashmi Pillai, Head of Public Policy at Wave, tells Quartz.
Wave disrupted mobile money in the region
The digital financial company erased the old ways of sending and receiving money and came up with an easier and cheaper method that has taken both countries by storm.
“It is a well-thought-out product that is solving a lot of problems for people involved in informal financial transactions in this part of the continent. The market foresight is phenomenal,” says Momar Ndao, president of Consumers Association of Senegal (ASCOSEN).
While other companies rely on USSD codes which are dialed on mobile phones by users to transfer and receive funds, Wave deployed QR code technology—on cards and in app—which are simply scanned by an agent to complete a transaction.
“The barcodes make it easier to carry out transactions. We still have a huge population that cannot read and write. Dialing USSD codes and following instructions was difficult for many. My mother, for example, used to send her grandchildren to do her mobile money transfers, but now she takes her plastic card and goes to the agent to carry out her transactions,” says Aisha Gueye, a Dakar based restaurateur.
“Even those who can read and write like myself find the QR code effortless and faster to operate than USSD codes,” she says.
Wave provides subscribers with a spray-printed bar code card—the size of a bank card—which stores account information. Alternatively, users can download the QR code from the company’s App and create their account. However, phone numbers are still used for identity authentication, and confirmation of transactions when using the card.
Prior to Wave’s arrival in Senegal, French telecoms giant, Orange, was the exclusive mobile money operator in the west African country of 18 million people. More than 50% of adults in Senegal have two or more mobile money accounts, according to GSM Association, a professional organization for mobile network operators.
Wave’s 1% rule
“We were paying fees between 6 and 10 % for sending and receiving money and for payment of utility bills. We had no choice because that was the only option available. However, when Wave entered the scene everything changed,” says Bernard Zio, a Cote D’Ivoire-based architect.
Wave imposed a flat fee of 1% for sending funds and zero fees for receiving and settling of utility bills. Initially spurned by many as hype, the measure persisted until it subverted the entire market, forcing competitors to follow suit.
Orange Money and MTN Money quickly adjusted their fees to 1%, in Senegal and Cote D’Ivoire, to avoid losing old and new customers amid the sensation Wave had created in the markets. Orange said the company had to reduce its fees by 80% to keep pace with the new trend.
It is one of the most remarkable and effective disruptions happening on the continent in recent years, says Stanislas Akueson, economic research analyst at University of Lome in Togo.
“Every startup in Africa needs to take a leaf out of Wave’s book. The lessons from these events are worthwhile. Everything was against the company when it arrived in 2018. Its competitors had already gained a foothold in the market, but Wave was able to carve out a space for itself by doing what others were not doing. Wave saw what the big players did not see, and that is what all startups must aim at,” he says.
As expected, the upheaval sparked some conflicts, notably in Senegal, where some locals initially held a rally in Dakar to protest against the “exorbitant fees” they had been paying for money transfers, with some activists accusing the authorities of failing to protect consumers.
“If they can reduce their fees to 1% that means they could have done so long ago and still remain in business. We had been paying exorbitant fees for nothing. The protest was meant to voice our anger not only against the company but also against the government for negligence,” says Abdoulaye Dia, a former member of M23, an influential civil society organization in Senegal.
“We want to see more of this, where newcomers crush monopolies and bring down the costs of goods and services to the delight of all.”
However, Orange said its previous fees were in conformity with the price range authorized by the authorities—regulators and finance ministries. Those fees happened to be the standard across the region, where Moov Money of Maroc Telecom also operates.
Using risk capital to achieve long-term vision
Is the 1% margin profitable? Wave’s detractors claim it is impossible to cover operational costs and still have a positive cash flow while working at 1%.
Moreover, the ripple effect of the 1% rule has thrown more than 20,000 local mobile money distributors out of business in Senegal, according to reports.
“When the transaction fees were between 6 and 10% we used to earn a tangible commission that helped grow our business. Now, with everybody reverting to 1% we are practically working at a loss,” says Dakar-based mobile money agent Sidiki Diallo.
“Most of my friends have abandoned the business. I hope things will change but if not I will say goodbye to mobile money and start selling phones.”
For a few days in June 2022, some distributors in Cote D’Ivoire’s cities of Abidjan and Yamoussoukro stopped operating Wave for the same profitability concerns. “Many agents stopped serving Wave’s products because of the low commission. It dragged on for a few days but we are told improvement measures are in the pipeline. What really intrigued me was that people kept coming and asking when the service would resume. It shows they love it,” according to Yao Serge, a distributor based in Abidjan.
So, is the 1% margin really profitable? Wave claims “we are using risk capital to achieve a big long-term vision. That corporate vision includes plans to offer merchant payments, bulk payments, microcredit, insurance, and more, in partnership with other institutions, according to Pillai.
“1% of all of these payments flowing through an entire economy is not an unprofitable business,” she says.
While some skeptics still believe in their predictions about the imminent demise of Wave, the future looks bright for the four-year-old fintech company.
Last September, Wave raised over $200 million in the biggest Series A funding ever realized in French-speaking Africa, putting its post-money valuation above the $1 billion threshold at $1.7 billion.
Venture capital firms such as Sequoia heritage, Stripe, Founders fund, Ribbit capital, Partech Africa, and former CEO of Y Combinator, Sam Altman, participated in the funding, intended for new product development and market expansion. Wave has launched in Mali and Uganda.
Electronic money institution
“When startups rely on their big competitors to provide some of their services to clients they often suffer restrictions which can hamper their growth,” says Akueson.
Wave briefly suffered that fate in 2021 when Orange, following a commercial dispute, suspended its collaboration with the startup, which affected the possibility of purchasing airtime on Wave’s app.
“That incident exposed the vulnerability of Wave in the fintech sector. Its dependence on its competitors kept it at the disposal of those it is competing with. This is sometimes inevitable for new companies but it could delay your takeoff,” says Maxwell Degni, former programmer at Consultech, an Ivorian IT services company specializing in the integration of solutions.
That takeoff can now happen after Wave obtained a groundbreaking approval to operate as a financial institution.
Last April, the company was granted an Electronic Money Institution (EME) license by BCEAO.
We are now “the first non-banking structure, non-telecommunications operator, to be granted the license to establish electronic money,” the company said.
Mobile money to drive financial inclusion
Financial inclusion is currently a top priority for governments across sub-Saharan Africa, where about 350 million adults are still unbanked, according to the World Bank. Mobile money services can help reduce that gigantic gap, many experts say.
Kenyan-founded M-Pesa, the most successful mobile money service in the world, has more than 50 million active accounts across its operating areas of Kenya, Tanzania, South Africa, Afghanistan, Lesotho, DRC, Ghana, Mozambique, Egypt, and Ethiopia.
About $495 billion in mobile money transactions were processed in 2020, an increase of 23% over the previous year, according to GSMA. In 2021, mobile money users made 36.7 billion transactions across the continent worth $697.7 billion—more than half of that amount took place in east Africa, according to Statista.com.
With 6 million active accounts in Senegal so far—about half of the market share—and a skyrocketing customer base in Cote D’Ivoire, Wave appears to have ridden out the storms that engulf most start-ups in their infancy.
“Ultimately, I think the takeaway here is: building a product that clearly resonates with potential customers. It creates quick connection and gives rise to smooth adoption,” says Akueson.