Union54 raised $12 million in a seed extension round. Existing and new investors in the financing round include Earl Grey Capital and Packy Mccormick.
The seed round of $3 million was announced by Union54, a company that allows African software companies to issue and manage their debit cards without needing a bank or third-party processor.
The company was launched last year by the Union54 founders, who went through lengthy processes to issue debit cards for their previous startup and challenger bank, Zazu.
Over half a million virtual debit cards have been issued by Union54 since its launch in October. The company claims to have processed volumes that have reached double digits in millions of dollars.
Union54's revenue in its first month was less than $3,000, according to CEO Perseus Mlambo. The company's revenue increased by 600% in November.
There is a lot of interest in the number of people who want to have debit cards and this is not going to stop anytime soon, according to Mlambo.
Our interactions with customers and potential customers have shown us that the real problem we are tackling isn't the ease of issuing cards, but the broader problem.
Mlambo said Union54 has customers from multiple African countries. Union54 realized that some of the pressing challenges they face include longer settlement times for card transactions and difficulty in getting dollars.
A card issuing platform isn't in a good position to tackle these issues. Creating a different payment application for Africa will be an audacious task. Union54 intends to create a card scheme.
Payment networks linked to payment cards are called card schemes. Any bank can become a member. Union Pay, Visa, and Mastercard are the most popular card schemes.
Amex, Discover and American Express are some of the other schemes in the U.Sm. In South Africa, the distribution of cards with Visa is more than double that of Mastercard.
Domestic card schemes are more popular in Africa than in the rest of the world. Verve, the largest domestic card scheme developed by Interswitch, controls more than half of the market in Nigeria.
Tiger Global leads $3M round in Zambia’s Union54 for its card-issuing API
Union54 wants to create an alternative to Mastercard. Mlambo gave more insight into why the company chose to ply this route. Recent global events like Visa and Mastercard pulling out from Russia, leaving China's UnionPay to fill in the void, have made it clear that payments are a politicized endeavor.
The purpose of creating another card network is an inspiration. We are vulnerable and hostage to any political decisions that might affect trade on the continent. Mlambo, who founded the company with his spouse and COO, said they would not have access to their funds if anything happened.
Number two is that the card networks are not suitable for African merchants because they take three days for a local card and seven days for an international card. As the world realigns itself, we need to get to a point where we have a payments route that needs to be developed for local use.
There are questions about whether Africa's market needs another card scheme, considering how merchants have run their businesses with the two dominant players all these years. The answer is affirmative if recent developments show what the market is saying. The South African Reserve Bank proposed a domestic card scheme to go head-to-head against Visa and Mastercard.
Mlambo said that Union54 has gotten in touch with three central banks to explore how settlement agreements would work with a new card scheme.
In 2020 we hosted African Renaissance Conference with @wizaj and @mwiyas and that turned into how can we position Zambia as the city on the hill for African interests. ARC2022 is coming soon with plenty of announcements. https://t.co/8fId7hz6iH
— Perseus Mlambo (@perseusmlambo) January 13, 2022
The company has learned over the past few months that developing a card scheme is not a technical problem as it is a trust problem. Merchants don't lose money across currency conversions and consumers trust the card itself are crucial to making this work. Nine central banks are expected to establish this framework by the end of the year, with a pilot by Q2 2023.
The card is a representation of that trust. The CEO said that they wanted to understand and agree on a common framework for the paperwork that documents that trust.
We have invested a lot of time and effort to understand what needs to happen. We want to do a test transaction in the next 18 months. We want to have at least nine member banks participate in this scheme by the end of the year.
The impact of a new card scheme is not known at the moment. Mlambo believes that if Union54 can reach an agreement with participating central banks and issue its own domestic and continental debit card, it can shorten settlement time and integrate more local payments native to the region.
Tiger Global is earning its stripes in Africa
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