Visa buys Fundamo for $110m

International payment giant Visa scoured the globe before deciding to invest $110 million in Cape Town-based payment solutions company Fundamo, in a bid to lead the mobile money race.

The global payment technology company's deal is expected to turn the world's attention to SA for technological innovations within this space and spur competitor MasterCard to make a similar move.

The New York Stock Exchange-listed company created the first general purpose credit card 50 years ago. However, the action is moving to mobile payment solutions and there has recently been an explosion in virtual wallets, a race in which Visa lagged.

In addition to yesterday's announcement that it would buy Fundamo, for about R743 million, Visa said it was signing a long-term agreement with Monitise, which provides mobile money solutions for financial institutions in developed geographies.

The deals will accelerate Visa's recently-announced strategy to “provide the next generation of payment solutions”, it says in a statement. Fundamo, and its relationship with Monitise, will enable Visa to deliver mobile financial services and payment capabilities to consumers across the globe.

Mobile money is a growth area as cellphone companies seek to offset falling voice revenue, says Portio Research. Last year, about $108.3 billion worth of payments were transacted over cellphones, and this figure is expected to grow to $633 billion by the end of 2014, says the research firm.

In 2009, there were only 81.3 million people using their phones to transact, a number that grew to 116 million last year and is expected to leap to 489.5 million by the end of 2014.

The real growth in the use of mobile money as a payment solution will come from emerging markets, where many people don't have access to bank accounts, which was a key factor in Visa's decision to buy Fundamo.

Fundamo has deployed its payment solution in more than 40 countries, including 27 countries in Africa and the Middle East, and another 10 globally. Its deployments have a base of more than five million registered subscribers and the potential to reach more than 180 million consumers with mobile financial services.

Head of Global Mobile Product Bill Gajda says Visa looked around the world and considered four or five other companies in developed and emerging markets before buying Fundamo.

Visa has been investing significantly in the mobile payment market for five years, but wanted to move strongly into emerging markets, says Gajda. The buyout is a step change for Visa, notes Gajda. “This is our world cup.”

The company has gained “incredible” new capabilities that will expand its presence over the mobile phone in emerging markets, which are some of the highest growth markets in the world, comments Gajda. “It really is the new frontier.”

Visa's target market is the prepaid segment, which accounts for nine out of every 10 people with a cellphone, explains Gajda. He says Fundamo's platform is flexible and can be integrated into any operator or banking system, which was part of the company's appeal.

There are two billion people in the world that have mobile phones, but aren't banked, and that number is “growing every day” as a thousand new subscribers sign up each minute, says Gajda.

Visa will take Fundamo global and invest to expand it into growth markets such as South East Asia and Latin America, notes Gajda.

“It's amazing what a little Cape Town company can do,” says Fundamo COO Aletha Ling. Fundamo wasn't a company that sprung from nowhere overnight, Ling points out. It has been built up over the past decade.

The mobile financial services sector is a growth market, adds Ling. She says Fundamo's technology and customer base made it attractive to Visa.

“Mobile network operators and financial institutions will now be able to take advantage of Fundamo's trusted mobile financial services platform backed by Visa's high standards for security, reliability and scale,” says Hannes van Rensburg, CEO of Fundamo.

Fundamo was privately-held by a group of investors in SA that included Sanlam, Remgro and HBD Venture Capital, which was founded by Mark Shuttleworth in 2000.

Shuttleworth shot to world fame in 1999 when he sold Internet certificate authority Thawte to VeriSign, for $575 million, putting SA's IT sector on the map.

Van Rensburg and the Fundamo management team will continue to manage current and future implementations.

After mobile banking service M-Pesa's sudden and surprising success, everyone is “heavily focused” on opportunities in the mobile money arena in the emerging markets, which is where growth will come from, says Arthur Goldstuck, MD of World Wide Worx.

M-Pesa's achievements “acted as a starter's pistol for the mobile money race,” says Goldstuck. Visa had been falling behind in the new market space and bought Fundamo to get to the front of the pack and lead the race, he says.

Goldstuck says the deal ties in with a vision Visa has had for many years to play in the global payments marketplace. Now competitor MasterCard will have to make a “significant” play in the arena, he adds.

Globally, there has been a proliferation in online payment systems, and virtual solutions are moving into the real world, Goldstuck notes. He points to PayPal moving into stores, and the launch of Facebook's credit solution as examples.

However, while there has been an “explosion” in payment systems, there hasn't been the same movement in the behind-the-scenes technological backbones, he says. Switching cash and clearing payments is complicated, and not as simple as linking a cellphone number to a bank account, Goldstuck points out.

Fundamo is a world leader in the platform space, he says, and Visa bought the company to get its hands on the underlying technology in a bid to gain a large share of the total payment market.

Visa is buying capability, and in turn will expand Fundamo's market presence. “It's a hugely significant deal and speaks volumes about the technical abilities and abilities of South African developers and entrepreneurs.

“It's hard for multinationals to accept the developing world can produce technology that is superior to what they have.”

The deal is “fantastic for SA” and will turn the world's attention to the local technological space, adds Goldstuck.