Africa’s e-commerce space is rising, thanks to the growing labour force, rising internet connectivity, continued urbanization, and the increasing power of super platforms like Jumia, Glovo, Uber and Sendy. Mobile payment technology, digital wallet, open banking and real-time payments play an essential role in the growth of the continent’s internet economy, estimated to grow at 28.5% compound annual growth rate of the continent’s internet population since 2000.
Dentsu Advertising Agency’s report dubbed E-commerce Like Never Before underscores the importance of fintech in providing backbone infrastructure that allows customers and businesses to transfer and receive funds. Pioneered by local telco networks, mobile payments have done well in serving their countries, like M-pesa and MTN MoMo. However, their local implementation’s complexity has been their Achilles heel preventing their scale, calling for fintechs, the most funded startup sector, to step up to offer more comprehensive packaged offering than just pure, simple payments.
Partnerships between African fintech giants and global payment players are already proving to be a great avenue to connect local merchants with customers from other countries within the region and on a worldwide scale. For instance, the partnership between Flutterwave and PayPal is opening doors for African Merchants to receive and make global payments, opening up the local e-commerce space to an international clientele at an additional fee of $0.3.
With research showing that customers are willing to overlook complexity and challenges if they deem new payment forms useful, what more could Africa’s fintechs to grow the continent’s e-commerce space?
Startups in the African lending space like Branch, who use machine learning algorithms to analyze data from users’ smartphones to determine creditworthiness, could potentially vet for credit purchases in real-time, overcoming cash constraints in completing transactions. Similarly, Tala which, uses mobile phone behaviour to access risk and creditworthiness before lending, could outsource the loan and creditworthiness, lifting the constraints of payment and vetting for e-commerce players.
Building credit solutions for e-commerce players will be an great addition to current lending services extended to small businesses, through allowing businesses to access goods via credit. For instance, it would complete the access of goods and services by funding the demand side, boosting financial inclusion for buyers on the e-commerce space.
With big tech like Facebook eyeing the local e-commerce space through Facebook Marketplace, and a thriving number of small businesses using social media pages to sell, credit checkouts with accessed risk could be the missing piece to increase spending e-commerce in Kenya and Africa.
Bridging the E-Commerce Trust Gap
Trust is still one of the biggest impediments to scaling e-commerce in the continent. A survey by Geopoll conducted in Kenya, Uganda, South Africa, Nigeria and Ghana shows that trust is keeping consumers from shopping online, followed by unsupported payment methods and high shipping costs.
According to the Dentsu report, the persistence of trust issues is forcing operators in the e-commerce space to opt for cash on delivery, despite availability of other payment options. As a result, cash on delivery remains the most common form of payment in e-commerce for Sub-Saharan Africa. The distrust is particularly lucid in countries like Kenya, where mobile money is the second preferred option after cash, despite its popularity.
Providing credit services for e-commerce checkout be the missing piece in boosting trust towards online shopping spaces. Players like Mobicred are already taking up that space, providing shoppers and option to buy now and pay later.
Fintech would play a great great role in mediating trust, and furthering the financial inclusion necessary to deepen e-commerce penetration in Africa. Its efforts however, will also require infrastructure investments and bridging digital gaps in less developed countries.