As the CEO of Makeba, a money transfer startup, Yamandou Alexander appreciates a paradox about his slice of the global financial technology industry.
While sending money online to friends and family abroad has never been easier thanks to fintech, building a business to do it in African countries that lack such services can be very difficult.
The strain of creating a remittance business, on a scale of 1 to 10, is “an 11,” Alexander said in an interview with CQ Roll Call. He’s running into preconceived notions about doing business in Africa and how to address concerns such as money laundering. To keep New York-based Makeba afloat, Alexander, 47, took $500,000 out of his own savings.
His struggles contrast starkly with companies working in countries with more advanced payment systems. Ant Group, a Chinese fintech firm, is poised to raise as much as $34 billion in an initial public offering, the largest ever if it succeeds. Last week, U.S. payments firm Melio raised $80 million in private funding.
Makeba is concentrating on remittances that cross international borders, which have been slower to develop than other areas of fintech. Chris McCann, a general partner at Race Capital, a venture firm, last year wrote that “very few remittance startups have broken out,” even as the world demands faster and cheaper payments.
Sherwood Neiss, partner at Crowdfund Capital Advisors, which tracks the federal crowdfunding program, said few remittance businesses have tried to raise money through the program, which allows startups $1.07 million in fundraising per year. Makeba is one of them.
Alexander launched Makeba confident of success. The French-born entrepreneur founded ASG Telecom Services and Solutions, which installed mobile phone lines in Africa starting in the 2000s. In 2005, he went to Cape Verde, an African archipelago in the Atlantic Ocean. The country’s business-friendly climate, including a lack of corruption, impressed him, he said.
Returning to Cape Verde each year helped give Alexander the idea to create Makeba. He envisioned it as similar to PayPal, except the company would serve the African diaspora, referring to the millions of Africans who live abroad, including in the U.S.
Makeba sought to tap into favorable global trends: Smartphone use is growing exponentially in the developing world; there are now 240 million immigrants worldwide; and the value of remittances is growing 3 to 4 percent a year, according to the World Bank. Users would find its approach simple and affordable, Alexander says. Log on to the company’s app or website. Show a state-issued identification. And send a payment or a gift, known as a remittance.
Through smartphones and artificial intelligence, Makeba sought to undercut traditional financial intermediaries by charging less for a traditional bank or money transfer. The fee would be 1 percent for each transfer to foreign currency, compared with a typical rate of 7 to 10 percent, Alexander said. Merchants that rely on the system for payment would be charged a fee of 0.25 percent, as opposed to 2 to 4 percent. With most users lacking access to a bank account, Makeba planned to create the equivalent of a credit score for each customer.
Alexander set up the company’s money transfer operations in Cape Verde, initially hoping for it to have a remittance component by which money could be sent into the country from outside. Residents and merchants in the country use Makeba’s apps to buy and sell online. But after several years, his company has yet to make its first sale on a cross-border remittance.
The disparity with Ant Group’s expected fundraising haul is not lost on Alexander, although he says the IPO will help his company.
“It shows what we’re trying to do can work,” he said.
Alexander said Makeba faces two challenges. The first is complying with governmental mandates. To deter international terrorists, human traffickers and drug dealers, national and regional governments require remittance companies to document their operations and users.
“Governments don’t want us to promote drugs or terrorism. That’s fair,” he said.
His other challenge, and the one that irks him, is educating investors and financial institutions about Africa.
“They’re not familiar with the continent, and bankers are apprehensive,” he said. “They see every country as if it were corrupt … so it’s tough to expand.”
Despite the hardships, Makeba has what analysts call an unbeatable value proposition. Alexander says the company has no competition in Cape Verde and other small African nations. TransferWise, a growing London-based remittance business, has no operations in many smaller African countries.
To raise money, Alexander turned to the federal crowdfunding program established by the Jumpstart Our Business Startups Act of 2012. Makeba amassed $300,000 as of Sept. 26, a figure that surpassed its minimum goal.
After scanning the profiles of the online investors, Alexander said he noticed that two groups of people keep showing up.
“There’s been a lot from the African diaspora, and Asians especially, because Asians, they get it,” Alexander said.
American investor James Beshara plunked down $25,000 on Makeba. Besides founding a crowdfunding business that he sold to Airbnb for an undisclosed sum, Beshara noted in an interview with Alexander on WeFunder, the financial intermediary that hosts Makeba’s crowdfunding sale, that he worked on an international development project in South Africa. Beshara could not be reached for comment.
Alexander says he’ll attract more investors. He said he has agreements with two banks in the U.S. to use Makeba, although he declined to reveal them, and plans to start the remittance side of the company’s operations in the States later this year.