Facial Recognition Technology Streamlines Transactions in Lagos
On a typical weekday morning in Lagos, a customer’s journey through a fintech app unfolds rapidly. As they initiate a “deposit,” a photo is taken, verified against a national ID database, quickly evaluated, and either approved or rejected—all within seconds. This process, which incurs minimal costs, involves a company named Smile Identity, which earns a small fee for each transaction. By early 2023, Smile Identity had conducted approximately 50 million such checks across the continent, and current figures are significantly higher. While each individual transaction may not sway the market, these aggregated figures highlight a largely overlooked business model in African technology: data as a product.
The Concept of Data as a Product in Africa
The phrase “data as a product” can be stylish yet vague. It specifically refers to companies that collect, structure, package, and sell data either through direct means or via subscription services, distinct from those that use data to build platforms like marketplaces or lending apps. In an optimal economy, this business model operates more like software than a conventional service. The model boasts high gross profit margins, and the marginal cost of each additional verification, credit check, or sector report is nearly zero. Every new customer contributes to a growing dataset, enhancing the business’s value proposition.
Challenges in the African Data Market
However, the reality in Africa presents a more complex picture. Only a handful of market segments have successfully generated businesses with substantial recurring revenues and defensible competitive advantages. Many others have attracted investment and launched products, only to discover that their intended customers either do not exist or are unwilling to pay what it takes to make the model sustainable. The disparity between successful ventures and those struggling to find traction is currently broader than the gap between emerging sectors like fintech and edtech. For investors treating “African data companies” as a monolithic opportunity, the risks are markedly different.
Identity Verification: A Leading Success Story
The most prominent success story in this space is identity verification. Founded in 2017 and based in Lagos, Smile Identity has secured approximately $31 million in funding, including a $20 million Series B round in 2023. Its client base includes banks, fintech firms, mobile money operators, and an expanding array of sectors, such as agriculture and e-commerce. In the year leading up to its Series B, the company doubled its customer count and tripled its revenue. Competitors like Youverify and Dojah also operate in this space, transforming a regulatory requirement into a consistent revenue stream.
The Economics of Identity Verification
The economics within this segment are advantageous for three main reasons. First, the buyers—banks and fintechs—are regulated entities that conduct verifications out of necessity mandated by central banks. Compliance budgets are more stable than typical marketing or R&D expenditures. Second, these verifications lead to frequent operational decisions, allowing for recurring revenues rather than lengthy contract negotiations. Finally, the cost per verification is low enough that a fintech company can afford to pay several cents per check, even when onboarding a million new users, which cumulatively translates into real business growth.
Alternative Credit Models in Africa
Just below this tier is Indicina, also headquartered in Lagos. Indicina provides alternative credit assessments for lenders navigating the inadequacies of financial institutions in less populated regions. With only 14% of Nigeria’s adult population covered by credit bureaus, a substantial majority remain invisible to traditional underwriting methods. Indicina analyzes bank statements using machine learning models to generate credit scores. By 2022, the company served approximately 120 clients, including notable firms like Polaris Bank and CreditDirect, processing around $3 billion in loan applications.
The Transition to Business Intelligence
In 2017, the founders of Stears aimed to create a Bloomberg-like service for Africa, initially offering a $100 annual subscription for consumer insights. After raising $3.3 million in seed funding in 2022, corporate clients began to comprise over 75% of their sales, a significant increase from 45% the previous year. By late 2023, Stears recognized that its individual subscriber model was a distraction and realigned its focus exclusively on providing business-to-business intelligence for organizations operating within Africa. While lucrative, this transition poses challenges, as buyers engage in strategic decision-making rather than everyday operational assessments, making the business model less reliant on recurring data consumption.
Investors Must Navigate Data Challenges Carefully
For prospective data entrepreneurs and investors, a clear pattern emerges. Successful data-as-a-product businesses cater to regulated buyers with stable compliance budgets, focusing on frequent operational decisions rather than infrequent strategic choices. Moreover, the pricing model must allow for small-scale transactions, ensuring the company can thrive on numerous low-cost interactions. If any of these conditions falter, the founders may face unexpected challenges in understanding customer willingness to pay.
As the African data landscape evolves, these emerging entrepreneurs are laying the groundwork for sustainable enterprises while delineating the disparity between what corporate buyers are willing to invest and what the broader market can afford. Investors should take note of these nuances for a more informed approach to engagement in this dynamic sector.
