Startup Stories

The Traction Series: Mama Money and the Reduction of Remittance Costs

A lot of coverage is given to South African startups after they have been successful and what they are planning on doing going forward, but very little focus is given to the detail of the hard grind, the mistakes and the difficulties that come with the early stages of a startup. In the Traction Series, I chat to startups about their early days to get a sense of what that pre-traction journey is really like.

For this piece, I had a chat with Mathieu from Mama Money. Mama Money is now well known as a leading remittance provider from South Africa to 10 countries in Africa and Asia at a far lower cost than traditional remittance providers. This however wasn’t always the case. Matt and his co-founder Raphael’s story starts in early 2011 on a beach in Mozambique, with Matt marvelling at the splendour of Raphael’s big yellow van that he was travelling in, having bought it to drive down from Rwanda to AfrikaBurn. Before Matt knew it, he had joined Raph on his trip in Judy, as the bus was named, through Malawi, Tanzania and eventually up to Raph’s house in Kigali, throwing around business ideas all the while, including some gems like a prawn fishing restaurant in Cape Town – glad they didn’t go for any of that option! The two became close friends along the way.

Raph, Matt and the famous Judy

Fast forward a year and Matt was over in Italy, visiting a lady in Rome that he had also met in Mozambique. Raph happened to be in Rome at the time and met up with Matt to explain the problem he had noticed in his work (Raph was an aid worker for the UN at the time). South Africa, Raph explained, although having a huge population of African migrants (c. 1.6m according to Stats SA), had the highest remittance cost (the cost of sending money back to their home countries) in the world – averaging some 12% – 14% of each payment made from South Africa to the SADC region. The migrants’ families were spending this remittance money on basic essentials like food and healthcare, so this massive remittance cost was having a huge drag on the livelihood of these families – a problem Raph believed that he and Matt needed to solve. A year later, in Cape Town, the pair set about to do exactly that.

Getting Going

So what do you do when you know you want to solve a remittance problem using a mobile platform, and your founding duo has no financial background and no software development skills? Most people give up right there, but when you feel deeply enough about a problem and are really determined to solve it, you put your head down and figure out a way forward. First thing they did was call on a guy they knew called David Glass from Electrum. David has a fascinating story himself, working in various software companies focusing on digital payments, before branching out himself and starting Electrum, which is now one of the most successful pan African fin tech startups in the country, but back then was just starting out (sounds like a good episode 2 for this series…). So they meet with David who says great, love the idea – how’s the Reserve Bank license application progressing? Erm you need what? Yes, all companies offering remittance services at the time needed to operate under an authorized dealer license, which only banks had. The result was that you couldn’t enter the market without piggybacking on a bank’s license, which was very prohibitive in terms of innovation. It was at this stage of talking to Mathieu that I realized one their biggest advantages early on was one I wouldn’t have initially thought of – that they didn’t have a financial background. If either of them did, they would have known how regulated the sector was, spoken to some guys in the industry and been so demotivated by the thought of all that red tape that they wouldn’t have even got started. But without knowing that, the guys ploughed on and achieved what not many would have thought possible.

So we need a Reserve Bank License…

Unperturbed by this requirement for a licence, the guys got hold of a lawyer specialising in matters involving the Reserve Bank, who crucially opened the door to a meeting with the right people at the Reserve Bank, which was no mean feat in itself. Matt explains “The SA Reserve Bank was coming under pressure from the World Bank to reduce the cost of remittances, given they were the highest in the world at the time. So when we met with them, the stars really aligned for us in that they informed us they had just changed the legislation to allow for application for independent licenses”. It was interesting to hear Matt give credit to an element of luck at this point. Most successful startup stories you hear, the founders talk about their hustle and ingenuity in getting everything done. Sure that’s important, but luck plays a vital role in most startup’s lives, and Matt gives credit to that.

The Reserve Bank story was one that caught me by surprise as well. Although partly private, the Reserve Bank is largely an organ of state, and although it has a great reputation around the world, I wouldn’t have thought they would have been as accommodating as they were with a young startup like Mama Money who had nothing but an idea and a lot of passion. Handing out independent licences was obviously new territory for the Reserve Bank, so it was important that both parties worked with each other to drive the process together. Matt tells the story “We didn’t have any legacy systems like the other, existing operators that applied for the independent licence, so we told the Reserve Bank to give us the spec of what they wanted, and we would build it exactly like that. The Reserve Bank really liked that about our proposal and worked closely with us as a result. There were some amusing moments early on, like when the inspectors from the Reserve Bank came to our offices and asked firstly where our rate screens were as were required by law at any Bureau de Change outlet (a similar licence category) – we obviously didn’t have screens given ours was a mobile business. Next they asked to check our safe to see if it met their requirements. We obviously didn’t have one of those either being fully mobile. So there were certain areas where we were really breaking new ground in the space and instead of disqualifying us, the regulator went and rewrote the rules to accommodate our offering, which was really impressive from their side. It was all worth the effort, as 18 months after that first meeting we were the first company to be awarded an independent money transfer license.”

Life in Stealth

Some perspective on Mama Money at this point. Matt and Raph were operating on a shoe string budget, and it took 18 months for their licence to get approved – a lifetime to be living without any income. Sure they had savings, but they were also rooming together and sharing a car – this was not a glamorous life, and one guys are generally only willing to live if they truly believe in what they are doing. If Matt and Raphael’s goal had been to build a business as quickly as possible, show aggressive margins and scale for a quick and profitable exit, they probably would have run out of steam well before their licence came in. But they weren’t in it to make a quick buck, they were in it to materially improve the lives of the families of African migrants, and when that is your mission, it is easy to stay motivated every day by constantly interacting with your potential target audience, hearing the stories of real lives and families being affected by how expensive and difficult it is to remit money to African countries. In Matt’s words “we were self-funded, rented a car and stayed together. It was really tough, but at the same time having next to no budget meant we had to be creative about getting things done without money. If we had had a lot of money early on, I don’t think we would have done as much engagement with the community, or learnt to hustle as much as we did, which has turned out crucial to the success of the business”. The press often generically talks about the need for entrepreneurs to be passionate about what they do to succeed, but this has never been clearer to me than the example of Matt and Raphael.

Starting Slow…

The team had had a lot of time in the 18 months to figure out what their initial product launch, or MVP (minimum viable product) would look like, so it was easy – David would finish building the MVP, they’d launch it, and given they had done a tonne of market research, they’d have thousands of customers out the gate right? Not quite. “We actually grew really slowly in the beginning. One of our big mistakes early on was that during our market research phase we had spoken to a lot of Zimbabweans and asked if they had a bank account and they all said yes. We obviously had a limited product at launch and really the only way a client could do their remittances was via EFT, which we thought was fine given our target market all had a bank account. But what we didn’t realise was that these bank accounts generally weren’t their own – a bank account would often be shared between ten people, meaning they didn’t have access to the account to make an EFT, and therefore couldn’t use our product. Those that did have their own accounts had no idea how to do an EFT and used the account to get paid and withdraw cash from and nothing else. We really hadn’t tested this aspect of the product well enough before launch, so we spent a lot of time in the first year educating our clients on how to use internet banking and explaining that they needed their own account to use the product. About a year after the initial launch, we partnered with PEP to enable clients to pay cash at the counter in any PEP store and transfer it straight back home, and we saw our business triple overnight.” The lean startup model of build, get feedback, modify and repeat playing out almost perfectly in this case. “Our biggest learning from this period was that your first port of call didn’t have to be to reinvent the wheel. You just needed to find innovative ways of doing what you wanted to do with what you had available and that is something we have got quite good at over time.”

Another interesting story is the reason Mama Money expanded from their first offering in Zimbabwe to their next countries being Nigeria, Ghana and then Kenya. Most companies meticulously plan such expansion, but Mama Money’s road map was literally Zimbabwe and Malawi. “We were growing nicely in Zimbabwe when suddenly there was just no cash to be had, so we had all these customers not doing transfers anymore. It really forced our hand and before we knew it we were live in Nigeria, Ghana and Kenya”. It can’t have been a fun time in the office when you are on the right path with good growth in the country you have launched in and all of a sudden, the entire monetary system seizes up. Fortunately, their ability to be so agile and enter these new markets proved an immediate success, with immigrants from these countries proving extremely hungry for the product.

All startups focus a lot on their sales funnel and how to be front of mind to potential customers when they are looking for what you offer. In Mama Money’s case, they have had huge success from their agent network (now over 700) who educate the market and on-board customers in the countries in which they operate. Building up such a network isn’t easy and Matt explains how they did it. “Nowadays we have a model where we hire what we call a super-agent, who is empowered to do their own recruiting and innovate as they see fit to grow in their market, but in the beginning we were going from township to township, connecting with the respective churches and community centres to find people who needed work in those communities. With the high unemployment rate in South Africa, it wasn’t difficult to find agents, but it was an extremely time-consuming process. As word spread, we hired bigger venues to give presentations in and would hire up to 50 agents at a time. As we scaled up this wasn’t efficient for us either and we came up with the super-agent model, which is now working really well for us.”

Getting big banks to take you seriously

At the same time as they hired their first agents, they were courting local banking partners in their first African countries to come on board. An obvious question is how do you get a bank in another country to take your startup seriously? “We literally reached out to everyone initially and the bigger banks weren’t interested. They didn’t even want to know anything about us or our product. But we found CABS in Zimbabwe (owned by Old Mutual) who liked our story and really got on-board with the partnership. Investec in South Africa were also really supportive and assisted a lot in the early days. Something we realized was that having a licence from the South African Reserve bank really opened a lot of doors in Africa. Everyone in Sub-Saharan Africa knows and respects the Reserve Bank, and once we had the licence everyone started taking us a lot more seriously.”

Maintaining that culture

I always focus a lot on culture in startups and how they maintain this culture as they scale. I truly believe, as many do, that culture is one of the main competitive advantages a startup has – imbuing employees with a true sense of purpose, leading employees to work beyond just a paycheck and often determining the quality of work produced by the team (this can be good or bad – Mama Money are quite unique in that their team was extremely diverse from the get go, having employees from Zimbabwe, Nigeria, Kenya and Ghana to go with their South Africa counterparts. Matt explains that one of his and Raphael’s major focusses as founders is keeping this culture consistent as they grow: “In the beginning there is the natural culture, and people are drawn to you who share your mission and want to be a part of it. But as you scale it gets more difficult to maintain this culture. I’m not having one on one conversations any more with each person in the team on a daily basis for example. We do various things to maintain the culture though. Things like having a cooked lunch together as a team every day. We sit down with people we don’t directly interact with much to break down the barriers between the work areas and really get to know each other. We also have a coach that comes in every day to assist with the cultural differences in the team. We have employees from many different backgrounds, so getting the team to gel is a challenge but something we enjoy working on. Then of course our super-agent model of empowerment really sets the tone for how we do things. People who join our team definitely do resonate with our mission and we look for that in the hiring process.”  Their stated mission of bettering the lives of migrants’ families is not a tag line created by an ad agency to connect with a target market, it’s what kept Matt and Raphael going for the 2 years when they had no income and no product and as such it is core the company philosophy. I’m sure every employee feeds off this energy on a daily basis.

Mama Money have an amazing story, one that illustrates the difficulties of starting a company – even if your mission is a noble one. In December 2017 alone, the team doubled their transaction numbers and the incredible growth continued into January. Any lingering doubt about the validity of what they were doing was completely removed at that point. Now in the final stages of raising their first major funding round, there is no slowing down the Mama Money team as they look to further their mission.  Matt’s personal journey was rounded off in poetic style recently when he got married to the very lady he was visiting in Rome when Raphael met up with him to talk about the initial Mama Money idea. And who was the Rabbi who married them? None other than Raphael himself.


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