It’s only been six months since Naspers – the South African-headquartered multinational made famous through its early investment in Tencent – listed its internet asset division Prosus on the Euronext in Amsterdam. But the near full-time investor has been very active in the past few months.
PayU, a subsidiary of Prosus, is focused on consolidating and managing all fintech and payment-related investments under the Naspers umbrella. And it has been busy deploying capital of late. A recent investment made in February was in Dot, an offline-to-online merchant platform that provides digital solutions to brick and mortar outlets. Dot received $8 million in seed funding from PayU, China’s Fosun RZ Capital, Info Edge Venture and others.
Naspers’ fintech arm also led the $11 million financing round in Indian wealthtech firm Fisdom in October last year and bought payment company Red Dot (yes, different to Dot) and iyzico in the summer of 2019.
“Naspers wants to build a platform for fintech companies,” said Fady Abdel-Nour, head of M&A at Naspers fintech arm PayU.
In an interview with FinanceAsia, Abdel-Nour explains how Naspers plans to achieve this vision through PayU, his views on the opportunities in India and Southeast Asia, and why he is cautiously excited by cryptocurrencies.
The interview with Abdel-Nour has been edited for brevity and clarity.
Q What are the differences between Naspers, Prosus Ventures and PayU’s investments?
A The parent company Naspers focuses on South Africa investment. Prosus Ventures invests more broadly, while the brand PayU eyes only payment and fintech investments. There is less operational differentiation as one management team will go through the entire investment process.
Naspers wants to build platform companies. We learn from our investments in one market and apply the experiences in another. When it comes to fintech, we use that principle primarily around payments.
I think there is push for payment companies to go beyond just payments and move into other financial services. PayU tries to be the leading fintech investor globally, that is also why we put all payment investments into one entity.
Q Are you planning to merge some of PayU’s portfolio companies in the future?
A When we acquire a company, we evaluate the strength of the brand and the market. For a lot of companies, we immediately tweak the branding after the acquisition, to make sure the brand is stronger.
So over time, I think a lot of these companies, especially the ones that are PayU wholly owned, will become a part of a new brand. But we make the decision on a case-by-case basis.
Q What do you value most in a fintech startup?
A In general, we are looking for investments that will help financial inclusion, giving access to people to services they haven’t had before. That is PayU’s main goal: to create a world without financial borders.
We are keen to assess how fintech startups leverage technology and data to solve problems. There are a lot of companies using business model innovation to tackle financial services problems. But we really think that only data can help achieve this. We are very technology-focused investors, and we are looking for entrepreneurs to use it to solve problems.
Another thing that we look for is the strength of the entrepreneur. It might sound a little clichéd, but I think it is very important. When we acquire companies, we regularly ask the entrepreneurs to roll over their stake and offer them exits down the road. We want them to still behave like an entrepreneur.
Q What is your average investment amount?
A We are very flexible in our investment mandate. We do everything from a million to several billion dollars. We don’t usually buy control straight away. For some companies, we start off as a minority shareholder before moving to majority or full control.
We don’t really have a fixed holding period, it’s permanent capital. I think that is part of the reason why portfolio companies like to partner with us, because there is no exit pressure when we come in. A lot of the themes we invest in require lots of capital over the long run, and we are happy to be that capital partner as the company evolves.
Q Is it easier for you to build a fintech platform with a majority stake in your portfolio companies?
A I think it is easier to rebrand and integrate when you have control of a company. So, a lot of times, especially in what has traditionally been our core business of payments, we do control transactions.
As we make investments in broader financial services, you may see us starting off with minority stakes and then over time going to control state.
In some areas of fintech, we are not ready to buy control yet, as we are still learning more about them and wish to test the water. But I think, over time, the goal is to have everything under the same umbrella – it’s easier to integrate brands when you have control in the company.
Q Which is your area of speciality?
A Payment is where we have good expertise, and also in credit. For example, Fisdom is our first investment in wealthtech, which we made an $8 million investment in October last year. If things go well, we will probably step up that investment. That is an example of where we are just starting.
We haven’t made any investments in insuretech, as an example, but we are spending a lot of time deciding whether there are interesting things to do. So, we wouldn’t do a majority transaction in insuretech now.
Another is cryptocurrency. I think the entire industry is very nascent. We have made a few investments, but we don’t feel the need to acquire those companies. I think we can invest in them and see how they grow and whether they become truly disruptive innovations.
Q What do you think about cryptocurrency?
A We had made three or four investments in cryptocurrency because we think that, and blockchain, are areas with tremendous potential. We will give small cheque sizes with good partners – unlike wealth management where you might see us conduct larger transactions in the near term. We won’t do a $100 million deal in crypto anytime soon.
Q Isn’t regulation a huge barrier to entry in the fintech space?
A I think that is a critical point. You will take regulatory risk in almost all fintech investments you make. So, we spend a lot of time understanding the policy in markets like India, where we have a strong presence.
I wouldn't see regulation as necessarily a hurdle to making returns, it's just a parameter. Credit, for example, is highly regulated but it also has phenomenal return potential. You need to know the rules, understand the regulators’ view and work with it.
Q Why do you have a lot of exposure to India?
A There are probably more than 3,000 tech startups in India, and there are 800 new startups coming in every year. It is a fantastic opportunity. PayU is already very strong in the India payments market. So, our ability to create synergies with new investments, and to help portfolio companies, is also very strong.
We see huge growth potential in India. The penetration rate on financial services is still low.
Q What about other regions in Asia?
A We’ve been spending a lot of time on Southeast Asia recently; it is probably the region where we see the next wave.
I think penetration rates of financial services in a lot of these markets are at levels that are close to India. So, you're seeing still a lot of cash transactions, low penetration in credit, mobile, insurance, funding and wealth management. But you're also seeing rapidly rising incomes in the Philippines and Indonesia, for example.
It's a less competitive market from an investment standpoint than both China and India where you're seeing a lot of capital deployed. I think we're just starting to see significant capital going into Southeast Asia. And that's why it's exciting for us.
Q Will we see more fintech investment from you this year?
A We've done a lot of significant transactions through the last half of 2019. So, I think right now we're more in a mode where we're thinking through some of our next steps. We are going to continue to remain active, but I don't think I have something imminent that I can kind of hint out just yet!