How Platforms and Payments Are Driving Trade in Africa – Nigerian CommunicationWeek

Africa is now one of the fastest-growing consumer markets in the world. According to Economist Intelligence, the continent will be the world’s second-fastest-growing major region in 2024, behind Asia.

E-commerce has experienced phenomenal growth rates worldwide in the past decade, with e-commerce sales expected to grow to US$7 trillion globally this year. Across Africa, the retail landscape is undergoing a significant shift as contactless payments and mobile money become widely integrated. Consumers in many African countries are increasingly adopting these transaction methods.

This SeerBit white paper focuses on Sub-Saharan Africa (SSA), which is undoubtedly one of the smallest e-commerce regions in the world but has significant growth potential.

The growth of e-commerce in Africa

The COVID-19 pandemic has accelerated a significant digital transformation across Africa, with demand for digital payments seeing significant and sustained growth. The result? Digital payments have become a significant feature of the continent’s financial landscape.

One of the most important developments in alternative payment methods in Africa continues to be the rise of mobile money. The phenomenal growth of mobile money can be attributed to three key factors: increased access to technology, challenges in accessing traditional financial services, and the rise of contactless payments due to the pandemic.

This is especially true in sub-Saharan Africa, where 144 mobile money providers are at the forefront of transforming consumer transactions. Notably, key players such as M-Pesa (Safaricom), MoMo (MTN) and Orange Money dominate market share, according to Statista.

It is worth noting that there are 171 active mobile money service providers in the region, indicating the growing influence and acceptance of mobile money in the African financial landscape.

The secret to Africa’s shift toward more e-commerce sales is also the faster growth of B2B sales, which is embedding online sales on top of the region’s existing network of informal retailers rather than replacing them. B2B e-commerce platforms in sub-Saharan Africa have thrived because they have overcome consumer confidence and logistical challenges by partnering with and leveraging informal markets rather than bypassing those sales channels. This has allowed B2B platforms to deliver goods to remote regions, far beyond urban areas.

Cross-border transactions have also played a key role in driving e-commerce. They account for more than half of all e-commerce transaction volumes in sub-Saharan Africa. A portion of this cross-border volume in sub-Saharan Africa comes from consumers accessing growing domestic African e-commerce players beyond their local borders, such as Jumia (Nigeria), Kilimall (Kenya), and Takealot (South Africa). Domestic e-commerce provision in sub-Saharan Africa is in its early days. Nevertheless, this presents an opportunity for sub-Saharan Africa to develop its own large players in the market and strengthen the continent’s connection to the rest of the world.

Challenges to the Development of E-Commerce in Africa

Uneven connection throughout the region
Sub-Saharan Africa is home to more than a billion people, many of whom live in low- and lower-middle-income countries. This vast population is not uniformly connected to the internet, and there is some evidence that not all users are making the most of their connection.

High inflation limits consumer spending
Rising inflation means that individuals have less discretionary income and spend less money on splurges or “luxury” products. Price is becoming a major decision-making factor for many consumers. Across Africa, this can also mean seeking out retailers and informal markets that primarily deal in cash to secure goods at lower prices.

Functionality limits user adoption
According to The State of Instant and Inclusive Payment Systems In Africa – SIIPS 2022 report, functionality issues undermine trust.

Lack of inclusivity translates into suboptimal usage. Consumer research in Kenya, Nigeria, Ghana, Tanzania, Zambia, the Democratic Republic of Congo, and Egypt suggests that many end users use digital payments only for limited purposes, such as sending and receiving money between friends and family. Consumer-to-merchant payments remain under-digitized, with only 44 percent of individual respondents making P2B payments digitally.

The role of payment platforms
Across Sub-Saharan Africa, a digital payments revolution is quietly unfolding. Driven by the rise of mobile phones, the drive for financial inclusion and a push for digital transformation, alternative payment methods are quickly gaining welcome popularity. Traditional banking infrastructure often struggles to reach the vast unbanked and underbanked populations, but these innovative solutions are filling the gap, offering financial services to a much wider segment.

For example, according to the Global Findex Database (World Bank), in the region only three percent of the population has access to a credit card, while mobile phones are spreading rapidly, reaching a 75 percent penetration rate, making alternative payment methods ideally suited to the specific needs of sub-Saharan Africa.

As Aida Diarra, senior vice president and head of Visa in Sub-Saharan Africa, says: “The fact that 261 million people currently lack access to financial services – coupled with the fact that fewer than two million businesses accept digital payments – creates an environment where innovation must play a role in driving financial inclusion and trade across the continent.”

Sub-Saharan Africa is currently considered the global epicenter of mobile money, accounting for 48 percent of the global share of registered accounts. In 2022, the region had 763 million mobile money accounts, out of 1.6 billion accounts worldwide. Moreover, this trend increased dramatically with the high number of new account registrations in 2022, as the region accounted for 59 percent of all new accounts registered globally.

Mobile money services have gained widespread acceptance across the continent, with countries like Kenya and Ghana leading the way. In Kenya, for example, mobile money platforms have revolutionized the way people transact, with transactions made via mobile wallets accounting for a significant percentage of the country’s GDP. This success can be attributed to the high penetration of mobile phones, limited traditional banking infrastructure, and the affordability and convenience of mobile money services.

As the e-commerce sector becomes increasingly competitive, retailers must adapt their approach to provide greater value to their core audiences, local e-commerce solutions and closer engagement with younger generations of consumers.

Application

The payments landscape in Sub-Saharan Africa is undergoing a dynamic transformation, driven by innovation, alternative solutions and dynamic new market players. However, a critical gap remains. The infrastructure, regulations and the entire payments ecosystem have not yet fully matured to support the optimal development of payment services and remittance flows across the region.

Still, e-commerce in Africa is a work in progress. Estimates suggest there are some 264 e-commerce start-ups across the continent, operating in at least 23 countries. This suggests significant job creation potential – as many as three million by 2025. These jobs will be directly in online marketplaces, in supporting services and in spin-off businesses.