Blog 21: Carbon
Offering financial services and flexible payments to those without credit in Nigeria
Company: Carbon provides short-term loan services, initially focused in Nigeria, intended to empower all people with financial access. The company's platform empowers individuals with access to credit, simple payments solutions, high-yield investment opportunities, and easy-to-use tools for personal financial management.
HQ Location & Year Founded: Lagos, Nigeria, 2012
Founder: Chijioke Dozie is a serial entrepreneur and investor across multiple industries. He has worked as an investment professional with Zephyr Management and the International Finance Corporation (IFC), prior to starting Kaizen Venture Partners, which incubated the concept that turned into Carbon. A native of Nigeria, Chijioke studied economics and finance at the University of East Anglia and the University of Reading in the UK, and he holds an MBA from Harvard Business School.
Funds Raised and VC Investors: $13 million from Google for Startups, Kaizen Venture Partners, Net 1 UEPS Technologies
Where did the idea for Carbon originate?
I have worked in private equity with Zephyr Management, as well as for the IFC, covering many sectors including agriculture and manufacturing in Africa. In these roles, I ran into opportunities in consumer finance that were not being adequately addressed, such as the need for extending credit to people, from those working in mines to teachers. In Nigeria, we have a big issue with lack of access to credit for most people as banks simply were not tackling this. My father founded a bank and I know where the dead bodies are. Most bankers see retail deposits as a means to end. Their real business is to give loans to corporations and buy T-bills. I enrolled for my MBA at HBS with this challenge in mind as the key problem that I wanted to tackle.
Post-HBS, I started my company Kaizen. We picked several countries in sub-Saharan Africa where there was a gap in the consumer credit market. We raised funding from the IFC and explored multiple investment opportunities. Out of this grew Carbon, which was a huge opportunity and we decided to focus on this business. Nigeria is a huge country of more than 200 million people, of which only 14 million even have bank accounts. Only 50 million people have a debit card and a meager 300,000 people hold a credit card. The ratio of credit to GDP is just 6%. Almost no one has access to credit.
We started a bank debt collection business in order to better understand the problem and opportunity. We learned that banks were doing a bad job not only of issuing loans, but in collections. Secondly, customers wanted to pay but often couldn’t simply because banks froze their accounts. I also did a little test by calling the bank that father had started requesting a $2,000 personal loan. Now mind you that I had a business with the bank that was pulling in $17,000 in cash flow per day. It took four weeks to get back to him and they finally said that I needed to provide a personal guarantee. I have been able to get credit facilities while living in several foreign countries without even having a a job, but I couldn’t get a loan from bank in my home country that already knew me well.
What is the key problem that Carbon intends to solve?
We started off as a consumer lender. In 2015, we raised a Series A from NASDAQ-listed company NetOne. However, we realized we couldn’t beat banks at their own game without having a branch distribution network or substantial capital. We didn’t have a customer base, so we Pivoted to creating a digital app that would allow loans to anyone around the country who had a cell phone. We got 8,000 new applications per day. It was an exciting, but scary experience. We couldn’t meet our customers in person, verify payslips, etc. New payment processors were coming into the market that could tokenize debit cards and pull repayments on a schedule. A user could login, enter debit card details, go through verification, then tokenize to agree to a direct debit schedule. This was the catalyst that enabled our leap into the digital space. We did this successfully for three years, and then started adding other services. There is still a large market for better and cheaper products versus traditional banks. We offer a savings product with higher interest rates, we allow customers to pay cable, phone and utility bills without charging convenience fees. We don’t charge for checking accounts, peer-to-peer transfers or other services.
How are you most differentiated as a service?
Our vision is to be a digital bank for Africans and the diaspora. We enable customers to have friction-free experiences and we want to be everywhere for customers. A Carbon account should act like a passport that works across borders. Want to enable customers in more ways than a typical financial institution, including insurance. There is now a proliferation of neobanks in Africa and it’s getting very hard to distinguish each one from the other. All have “free” everything. We differentiate with our Buy Now, Pay Later offering of 0% financing for up to 6 months. Our customers can pay any school fees, for example, without a premium. This is a unique selling point.
What are the company’s key accomplishments to date?
We have over three million registered customers and are gaining over 70,000 new each day. Our app has had over two million downloads and revenue is over $1 million a month. Even when we were purely a digital lender, we had 80% repeat rate and a 12x LTV:CAC ratio.
What does the future hold for Carbon?
We are really going to focus on the Buy Now, Pay Later opportunity. We have looked at the broad sub-Saharan retail banking opportunity. The retail market in Nigeria accounted for $150 billion spend in 2019, of which $27 billion was non-essential retail. This market is mostly cash-based and virtually untouched by credit. There is a huge opportunity in Nigeria alone and we want to capture a significant portion of that. We plan to become the biggest retail finance institution in the country. Our long-term goal is to extend this into other markets. People transact everyday. We plan to embed Buy Now, Pay Later and then ultimately also move into issuing credit cards.
The opportunity to democratize access to capital and credit is fundamental to empowering individuals across the world, but the problem is particularly acute in particular markets where banks have proven to be highly risk and innovation averse. Carbon is breaking down barriers in the most populous African country, Nigeria. With founder and CEO Chijioke Dozie’s background in international financial markets, banking and technology, he has the vision to deliver what consumers need. Numerous fintech and neobank companies across Africa such as Carbon are tackling these problems. It will be exciting to watch over the coming years as hundreds of millions of individuals are empowered to earn, spend and live their full lives without the historically unbreakable barriers on how much capital they are able to access in times of need.