aYo Holdings: 11 Million and Counting for aYo

The microinsurance model is coming into play across Africa and causing major disruption in a market that has, until recently, struggled to penetrate beyond South Africa because of barriers to entry including cost, risk, data, economic stability, and scalability.

 Microinsurance – aimed at the low or irregular income individuals to protect against unexpected shocks to income – has always been considered the viable approach for Africa. Short terms, low premiums, simple commitments, no paperwork – it suits the market perfectly. But accessing the number of people needed to make it commercially sustainable has been a hurdle.

 This is where aYo Holdings – a JV between MTN and MMI – has started to gain traction. By utilising life licenses held by MMI across Africa, distributed by the industry leading subscriber base of MTN – the continent’s largest telco – aYo has found a recipe for quick growth by combining technologies of two of the biggest and best.

 Add in a new CEO keen to disrupt and move insurance on the continent to a new level, and you are looking at a solid investment case that not only has the potential to change the industry for the better but also delivers incredible value for customers and helps break down the barriers for those that may have been previously excluded from the industry.

 But implementing an innovation like this in a meaningful way is not easy, despite its ingenious model – especially during a global pandemic when markets and businesses have been turned upside down.

 For Marius Botha – an insurance industry veteran who has senior management experience from Stangen, African Bank and Munich Re – the challenge was too tempting to pass up. He joined aYo in September 2020 with Africa, and the world, still battling the crippling Covid-19 virus.

 “I’ve never been into a MTN office as the offices have been closed with restrictions on the number of staff going back,” he smiles.

 Asked what is attractive about aYo right now, Botha is clear: The chance to disrupt.

 “Along came this opportunity to join MTN, and their vision for disrupting financial services across Africa excites me for two reasons. First, it is a significantly larger scope in role compared to previous management roles, and second, it’s at the forefront of new generation insurance business models. If I reflect back, I had days in my previous roles where I was worried about being disrupted by the new digital platforms and getting stuck in a traditional insurance model that initially faces a slow starvation and then sudden death. The MTN opportunity is closer to where insurance will go in future and so it is an exciting opportunity to get involved and be part of what I believe will change insurance engagement and behaviour going forward.”

 YOY GROWTH

 aYo was founded in 2017 and grew quickly with consumers open and willing to participate in a model with zero paperwork and minimal interactions. Uganda, Zambia and Ghana are currently the key markets. The idea is driven through USSD technology which is still prevalent on the continent. Today, the company has 11 million customers and has paid out more than R15 million in claims across its hospital and life policies on offer.

 “It’s phenomenal growth and the team deserves great credit,” enthuses Botha. “It is a micro insurance business model at this stage, and you need scale in order for the model to work out. The unique customer numbers continue to grow fast as we enter new countries and markets. If you compare that to the opportunity which is the MTN subscriber base, the number is actually very small and so there is massive opportunity for growth. The key challenge for us, in a business model where it’s about high volume-low margin, is to make sure you pick the right technology solutions and build for reuse capability despite unique requirements and needs across different markets.”

 By deducting small premiums from airtime and mobile money wallets, aYo breaks a financial barrier to entry. By offering hospital and life cover only, the company is focussing on what is required and not pushing products or add-on services on clients that do not need it.

 “Our ability to deliver insurance products via mobile money, with no paperwork, with small premiums and small transactions, submitting claims via mobile phones – it’s all powerful in the segment below the low-income segment. It’s an enabler for individuals with low income or those who are entrepreneurs with irregular forms of income. That is the big restriction with traditional forms of insurance – affordability and accessibility,” details Botha.

 In December, when the announcement of aYo reaching 10 million customers was formalised, aYo was already preparing to move to new shores in search of further growth. Soon the company will launch in a new west African market, before exploring opportunities to develop the MTN subscriber base further across the continent. For Botha, it’s all about getting the technology right.

 “The scaling challenge is very interesting,” he says. “To some extent, what I’m managing is more of a platform business and IT shop rather than a traditional insurance company and that is why I’m enjoying it. Coming from a professional actuarial background, this is scale and challenges on a whole different level. It’s not about the complexity of the insurance product, it’s more about the complexity in the technology stack, scaling strategy, and the requirement to be available 24/7 – every second you are down on a production incident is lost revenue. You don’t necessarily have that dynamic in a traditional insurance model with lower volumes.”

 With the technology stack standing up to demands to date, and operations across Uganda, Zambia and Ghana all running smoothly, the company is looking to the future with hunger.

 “11 million is a great milestone but still a small drop in the ocean,” Botha smiles. “Our ambition and vision is to really become a unicorn and target 50 million or 100 million customers on the platform and that would be powerful, making us the largest insurer in Africa.”

 CROSSING AFRICA

 Currently, aYo is busy ramping up efforts to finish a roll out in Côte d’Ivoire. The company has completed technical integration and is looking to quickly market and promote offerings to the large MTN subscriber base in the country. In 2020, MTN Group’s Côte d’Ivoire arm announced it would see a rise in revenue of around 5-10% thanks to a jump in internet traffic of 35% as the company’s 12 million local subscribers tried to stay up to date with news and advice around the pandemic.

 Further down the line, aYo has its eyes on other countries where the perfect recipe of a strong MTN subscriber base and MMI licenses could cook up further growth.

 “Nigeria is one of MTN’s largest OpCos and they have done phenomenally well there during Covid-19 in terms of growth of customers and subscribers. The challenge with Nigeria, from a regulatory point of view, is that the market is more restrictive, relative to other markets,” says Botha.

 The largest economy in Africa represents a golden opportunity and, according to Botha, there is a need for the aYo offering. But a different structure would be required as to operate in the same way, collecting premiums via airtime or mobile money, would require aYo or MTN to obtain a banking license. The team is busy exploring what can be done, engaging with regulators in Nigeria, and preparing to jump through the necessary hoops.

As for MTN’s home in South Africa, insurance penetration is much higher, and the traditional insurance offering is more established with financial inclusion further ahead of the rest of the continent. “It is a possibility but I’m not sure from a strategic optionality point of view if it is the best one for aYo to pursue at this stage,” admits Botha. “What’s really powerful from an aYo perspective is the ability to disrupt markets with a low insurance penetration. I do foresee that we can be disruptive in the SA market as there is still outcomes where consumers end up paying a lot for very basic insurance products. If we are going to hit the SA market, that is the space we would look at – the space where people don’t have access and where people need a more affordable product.

 “MTN is a federated system and each market operates on its own, with its own strategic projects that they focus on so we have to negotiate with each individual MTN OpCo to negotiate access to their platforms. While some markets are smaller, they are lower hanging fruit which we will hope to tick the box on a lot quicker before we look at South Africa.”

 COVID: SHOT IN THE ARM

 Insurance as an industry has something of a bad reputation in Africa. Away from South Africa, the industry has failed – for a long time – to reach individuals because of cost, education and industry understanding, and risk for providers. But the Covid pandemic has moved the importance of mitigating economic shocks – including loos of income – to the forefront of the minds of many. For those where a single person can be the sole source of income for an entire extended family, protecting against unforeseen circumstances is now of clear importance. While the pandemic has been damaging in so many ways, for aYo this renewed focus on the industry and the benefits it can provide has been a form of solace. 

 “It was positive with digital engagement,” says Botha. “It forced many consumers, who in the past may have felt face-to-face conversations were more trustworthy, to participate with digital engagement.”

 Of course, during hard lockdown, the sales force was unable to get out and distribute, but the digital nature of this fintech business allowed for continued operation.

 “It had a positive impact in terms of the awareness of the value of insurance because for many customers in Africa, where they rely on community support groups, it is a foreign concept to outsource that support to an independent party. So, insurance as a concept and consumer education is a big thing we need to focus on. Covid has forced people to look at the potential of an external shock that could, for the unprepared, exacerbate the cycle of poverty in life. For many African consumers, Covid impacted them with the loss of productive capability – they were not able to generate business income and were not necessarily able to work remotely if their work is more manual.

 “Customers started realising the value of having insurance cover as you can get a claims pay out after hospitalisation and that protects you from having to take a knock on income,” says Botha.

 A secondary development which also played into the hands of aYo was the increasing rate of ‘down selecting’ insurance cover. Consumers actively looked for alternative options as household finances were put under pressure. What they found in aYo was a product of an equal quality but at a much more suitable price and with greater flexibility.

 “People were down-selecting their insurance cover but they were realising that they didn’t have to go to a traditional insurer. They could get the same cover but for cheaper through a different player, a non-traditional platform but with a strong brand that has association with MTN,” says Botha.

 One of the challenges set by Covid has been cultural. How can you build and maintain a company ethos with people fragmented, never meeting one another, unable to attend offices? “It’s very hard to keep engagement levels high,” admits Botha.

 “I am cognisant of the fact that our busines model is conducive for people to work from home but it’s very hard for new people coming in to find that sense of identity and culture. I am experiencing it for myself from a MTN perspective. We will have a hybrid model and I think it will be hard for people to go back to no flexibility – I don’t think a five-day office job will still be the norm.”

 SIMPLICITY RULES

 Focussing on USSD technology for its roll out, aYo has been able to keep its processes extremely simple at consumer level. This has aided its growth significantly and displays clearly the strategy of seeking out a particular demographic within chosen markets.

 “MTN as a telco does need to transform its own business model,” highlights Botha. “It’s no longer a voice dominated mobile telephony company; it’s a data company and is increasingly becoming a financial services company. MTN is unique in that it has the largest subscriber base in Africa and a dominant position with lower income or informal or irregular income customers, so they could launch traditional insurance propositions in partnership with a traditional insurer, but they wouldn’t necessarily be serving their core customer base.”

 The product had to be simple, affordable, flexible, and distributable through MTN’s channels. Feature phone usage across Africa remains the dominant technology with smart phone uptake improving but not yet universal. Through a few text steps on a USSD string, customers can very quickly gain life or hospital cover at an affordable price point.

 Claims are equally as easy, but this is where aYo has to demonstrate its technological nous to mitigate against fraud.

 “At claim stage, we would use the network location information we have on the customer – subject to data restrictions that are different in each market – and check where the hospital is relative to the location of the incident to help manage fraud. The claim would then be paid into the same mobile money account. There are no paper requirements, it’s very quick and very easy, and the beauty for the customer is that they can choose as and when they engage with insurance. It’s a single premium with one month or three-month cover. It can be stacked, so if you can afford more you can buy more. If you want to pause, you have full flexibility. For that target market, that is what makes it disruptive. Traditional insurance does not allow for that,” Botha details.

 Asked if the aYo concept has the potential to disrupt beyond life and hospital cover, the new CEO is sure that the industry will, in time, realise radical change as a result of aYo’s success.

 “The vision that I have for the business is that it becomes an insurance platform business in a sense that there is a wider range of product options available to customers. Right now, it is life and hospital cover but we would like short term products and other value added services. Each one of those have unique requirements. The moment we do motor insurance or scooter insurance, the underwriting is very different and you do need information about the vehicle etc. We have to work out, within the constraints of a USSD customer journey, which factors can we collect and use proxies for underwriting as we have to use short engagement journeys. There is a vision to a broader product set but there are a lot of things we need to work out.”

 Employing new and different technologies will also be part of the journey for this fintech. As novel versions of traditional products are added to the portfolio, data and information becomes more important.

 “If you think about home or contents insurance, a lot of homes in Africa are not bricks and mortar buildings,” says Botha. “We have shacks or huts or informal settlements and there is no formal address or postal code to link to your policy. So, we are looking at technologies to give us geolocation capabilities so that we can pinpoint the home regardless of what it is and start building cover models where we can take customers on the journey while we are comfortable with the risk.”

 FUTURE PROOF

 MTN at Group level has made its position clear when it comes to fintech. The company is looking to further enhance its availability to form partnerships with promising offerings. Recently, a new venture was struck with MasterCard to allow users to complete ecommerce transactions. At the end of 2020, MTN increased its shareholding in aYo to75% (subject to regulatory approval) thanks to impressive performance from the insurance business. “It speaks of MTN’s broader vision of disrupting financial services,” confirms Botha.

 He is confident there are many growth paths, but says there is still a need to iron out many things locally in each region before serious moves can be made. 

 “The approach is organic as we can grow in different ways. We can try and attract more customers in an existing market or sell more products to existing customers for a higher average revenue per customer. Or we can look at new markets. It’s hard to have an exact road map as there are so many dynamics that we need to take into account. When are elections in that country, what is the political stability like, what is economic growth like, what is the Covid situation? The extent of hard lockdowns in the different markets we are in varied extensively. We do have a roadmap for the next target opportunities but we have to asses on a balance of factors before we decide on the next project.”

 MTN Mobile Money accounts are highest in Rwanda, Cameroon, Benin and Congo (away from where aYo is already active). With the growth roadmap under wraps for now, Botha will be keen to roll out quickly as other telcos wake up to the possibilities of morphing their offering to include financial services on a larger scale. Competition in the market will be good for the consumer, bringing increased choice and further reductions in pricing, but aYo will look to utilise its scale alongside MTN to achieve first mover advantage in various African markets.

 “I like the concept that there is no guarantee of success here,” says Botha. “To say that you are a platform business with 11 million customers still leaves you with challenges in turning it into genuine profitability because at the moment it has been investment after investment into a technology stack. High volume low margin is not necessarily success. There is still a value component in this challenge where you have to ensure you offer proper value to customers. I’m excited about the challenge of building scale and also driving value for customers in a sustainable way. There are different microinsurance models and large-scale experiments in the market but to some extent this is an investment and a gamble for MTN and it is exciting to be responsible for something like that. It is so different in so many areas and that is really stimulating.”  

 For those at aYo, for the company’s shareholders, and for its customers, it certainly feels like a new dawn for the distribution and design of insurance products. With population growth in Africa remaining high, and the rate of insurance penetration still low, it seems that MTN, MMI and aYo have a major opportunity. Not slowed by Covid, and not scared of crossing borders, this is a company with a continent at its feet.

 “We’re grateful as aYo that despite Covid we have continued to grow month on month. I keep saying to staff that yes it has been a tough year, but you could have been in an organisation that had it tough too. We have positive growth, we have momentum, and we are looking forward to what comes with that,” Botha concludes.