B2B Payment Flows: The Africa Opportunity
Africa now accounts for 70% of the world’s $1 trillion mobile money market, with mPesa — the mobile phone-based money transfer service and darling of mobile money in Africa — boasting 51 million customers across seven African countries. In many African markets, mobile money is leading the way for consumer payments, with Kenya’s mobile money transaction volumes growing by 39% to $701 billion in 2021.
Yet, despite the success of mobile wallets such as mPesa, and the substantial flow of capital into payments innovations, there are still many untapped opportunities across Africa. Some of the opportunities we at LocalGlobe are excited about include B2B foreign exchange, spend management and payable/receivables automation.
Emerging markets continue to leapfrog innovation in payments
Mobile money remains one of the fastest-growing payment segments in emerging markets but there are others too. Payment gateways such as Flutterwave and Paystack enable African merchants to receive consumer payments using various methods, similar to Stripe or Ayden in developed markets, via a single payment API.
We’ve seen a similar rise for Moniepoint (formerly TeamApt), the payment aggregator with a particular focus on offline payments. Offline payments are one of the biggest challenges for merchants in markets such as Nigeria, where for the most part, cash remains king. Since its launch in 2015, today Moniepoint has processed payments for over 500,000 merchants, some of which also serve as ‘human ATMs’ through their agent network, helping over a million customers across the country pay cash into bank accounts or receive cash locally when needed.
Moniepoint’s combination of digital technology and offline distribution highlights the need for hybrid models to drive financial inclusion across Africa. Our portfolio company, Rapyd, has a similar model in Latam. The company started by developing a network of cash endpoints so that Rappi, which offers online delivery in Latam, could pay their delivery drivers in cash. Today the company integrates the world’s many payment networks and technologies into a single platform.
African payments 2.0 — Opportunities for growth, inclusion and innovation
Much of the innovation within the payments space in emerging markets has centred on peer-to-peer, cross-border, or consumer-to-merchant payments. Furthermore, cash shortages have plagued Nigeria, Africa’s largest economy, since the beginning of the year, due to a Central Bank of Nigeria directive reducing notes in circulation. This has created a fundamental shift in the adoption of electronic payments.
The next wave of opportunity will come from companies innovating B2B payment flows, which are still fraught with challenges like the inability to accurately track transactions, theft, counterfeiting and fraud.
Here are three areas that we’re particularly excited about.
- Expense & spend management
Tracking and controlling spending is essential for companies to thrive, so businesses spend significant time manually reconciling payments and expenses. Companies including Brex and Ramp have pioneered spend management in the US and Europe. We are starting to see similar companies emerge within Africa, such as Sava and Bujeti. However, one critical nuance of the local market is low credit card penetration — less than 5%. Additionally, in Africa, there is a need to combine mobile wallets and bank account integrations in one platform, given the high usage of mobile payments in markets such as Kenya.
There is another potential opportunity for spend management businesses that combine various datasets is to serve as a credit engine for lenders, providing access to key credit data they previously would not have had access to.
2. Payable/receivables automation
B2B payments have largely happened offline — in cash, direct bank transfers or paper cheques. In 2022, 60% of B2B payments in Nigeria were done using cash. Cash-based transactions are riddled with inefficiencies, including fraud, theft, lack of data, and slow processing — all of which give rise to poor cash flow management. This is not unique to Africa. In the US, for example, where we’ve invested in Melio, paper cheques remain the primary means of payment.
Companies like Duplo enable African businesses to make and receive digital payments. These companies are also collecting data that they could share with credit providers or even offer credit themselves in the future. There are currently no major credit bureaus and banks struggle to access this information given the scale of the informal economy, making lending extremely difficult for most financial institutions.
3. Foreign exchange
Africa’s trade with the rest of the world increased by 11.3% in 2020, reaching a total of $595.7 billion, with export and import growing significantly. Although this suggests an increasing rate of cross-border trade in Africa, the continent has still not even scratched the surface of its potential. When it comes to cross-border trade, one of the biggest challenges remains B2B cross-border payments, particularly because local currencies are less liquid than those in developed markets.
We’ve partnered with Wise since its inception, which now offers B2B FX and is a pioneer in the global remittance market. In Africa, we’re seeing some interesting companies emerge leveraging stablecoins to address the liquidity and currency restriction issues in markets such as Nigeria. Companies within this space include Verto FX, Waza, Ceviant and Aza.
The need for innovation to tackle challenges within B2B payments in Africa is significant, particularly given the size of these markets. As payment innovation continues, we expect more businesses to emerge across the continent.
If you’re working on something in the space, please get in touch (yvonne@localglobe.vc). Also, big thanks to my colleagues and friends who read drafts and shared their thoughts on this post.
