Africa’s e-commerce revolution opens up huge opportunities for businesses

Mobile money services, agency banking and the extension of new financial services to consumers are all helping to build a vibrant e-commerce sector in Africa.


Image : GRAYT

Technology continues to revolutionise entire sectors across Africa, none more so than the emerging e-commerce sector, which is overhauling how the retail industry works and bringing the continent’s hundreds of thousands of small and medium enterprises into contact with a huge potential pool of customers.  

In Lagos in September, TechCabal Media hosted the second edition of its Future of Commerce event in which business leaders, experts, and retail operators across Africa discussed how social media, payments, agent networks, informal trade and social commerce will power the growth of Africa’s e-commerce market. The forum highlighted the creative and innovative ways in which startups and large corporations can bring the informal sector into the e-commerce ecosystem.

E-commerce is big driver of revenue

Kelvin Umechukwu, co-founder and CEO of Bumpa, a business management app that helps business owners create websites, issue invoices, record sales, receive financial reports and manage operations, said that huge opportunities are opening up to SMEs now that social media platforms are seen by many Africans as a legitimate and safe platform to purchase goods.

“We have seen today that when customers want to purchase some goods, they will likely go to social media. It is becoming an inherent part of how a consumer thinks. Social media has captured consumers’ attention… it is just an easy case of merchants wanting to be where the customers are. It has and will continue being a big driver of revenue for businesses, including small business owners, not just in Nigeria, but across Africa and the world.”

Africa is becoming one of the fastest-growing e-commerce markets globally and social commerce – the use of social media platforms to promote and sell products and services – has contributed significantly. According to a Q1 2022 Social Commerce Survey, the social commerce industry in Africa and the Middle East is estimated to grow by 70.3% annually to reach $8bn in 2022. Data from Statista also revealed that sales through social media channels around the world are expected to almost triple by 2025.

Joshua Chibueze, co-founder/CMO of Piggyvest, an automated savings platform that helps customers invest spare money with the promise of interest rates, said social media promotion has helped push the growth of the platform among new and younger audiences.

“It was very important for us to put our business there because we were targeting young people who primarily would go to social media to look for anything. Speaking to how apps can collaborate with social commerce platforms, I think we are beginning to see a lot of those things happen. I think social media on its own cannot scale social commerce. There are still a lot of factors, a lot of things that come into play,” he said.

He said there is a need for collaboration between platforms to strengthen the social commerce sector to reach more customers and increase sales.

Mobile money is the heart of economic growth

At the heart of the continent’s social commerce revolution is the widespread and growing use of mobile money systems to allow for simple and safe financial transactions between customers and vendors.

Nikki Naghavi, executive director for mobile network operators at MFS Africa, said that major telecommunications companies such MTN and Airtel are continuing to dictate the pace when it comes to the uptake of mobile money across the continent. Esigie Aguele, co-founder and CEO of QoreID, said that the explosion in mobile money use is crucial to the coming era of retail growth.   

“We have one of the highest numbers of the young population in Nigeria and almost everybody in Nigeria has a mobile phone before they have a bank account. That’s the expansion, and we are talking about an explosion. It provides financial inclusion in any economy but also opens-up the market for both small, medium, and large-size businesses as well,” he said.

Naghavi said the future of mobile money lies in partnerships between mobile network operators (MNOs) and banks, which will allow for the extension of microloans to mobile customers to allow them to complete transactions. Ali-Kimanthi concurs that there remains a substantial need for banks to ease access to consumer credit.

“Over 90% of the transactions in Kenya pay cash. So, there’s still a huge opportunity for the mobile money sector in Africa,” she said.

MNOs at the event say there is significant scope to offer more sophisticated financial products that will help the retail ecosystem develop.

Fawzia Ali-Kimanthi, acting chief consumer business officer of Kenyan mobile giant Safaricom, said that while millions of Africans are connecting into the ecommerce ecosystem every year, significant challenges remain in customers’ access to more sophisticated financial products that will allow them to transact freely online. MNOs are hopeful that regulatory systems will be liberalised to allow them to provide a greater suite of credit products to consumers.    

“We can use data for credit scoring so that we will be able to innovate and extend the products for what we can provide, from the basic credit products to saving and insurance – the envelope of financial health – to enable us to completely empower our customers through their device.”

The future of agency banking

One trend working hand in hand with the expansion of mobile money to drive the availiability of consumer credit is the extension of agency banking across Africa. Agency banking is a type of branchless banking that allows traditional banks to extend their network of branches and services in a cost-efficient manner through authorised agents, who often operate through Points of Sale (PoS) terminals.

PoS terminals were first introduced in Nigeria in 2012, and enable Nigerians to withdraw money, transfer funds and make deposits without the trouble of visiting a formal bank branch, which may be several hours journey away. The popularity of POS terminals grew during the Covid-19 pandemic when bank branches were closed and customers were prohibited from taking lengthy journeys to reach the few services that remained open. The number of POS terminals in Nigeria is reported to have grown from 150,000 in 2017 to 543,000 in April 2021, according to Statista.

The Nigerian Inter-Bank Settlement System (NIBSS) reports that the value of transactions on Point of Sales (PoS) terminals across Nigeria rose by N1.05 trillion ($2.3bn) from N3.56 trillion in the first seven months of 2021 to N4.61 trillion in 2022. The data showed PoS transactions hit their highest levels for any seven months, increasing by 29% of N3.56 trillion and N4.61 trillion in 2022 and 2021.

Mayowa Kuyoro, partner at McKinsey, said that agency banks are underpinning the new retail revolution.

“Agents are the unsung heroes of digital financial services across Africa. When you see an increase or a significantly higher penetration of financial services, you tend to see agents as part of it and I think that they are the intermediary between digital financial services players and a lot of people at the bottom of the pyramid.”

Tobi Amira, vice-president at business loans at TeamApt, a Nigerian business payments platform, said that agency banking is leading to the digitalisation of transactions.

But here again affordability is an issue, with the cost of agency devices and data in remote areas holding back the growth of this emerging area.

The outlines of a vibrant future e-commerce system in Africa are beginning to emerge, but it is clear that SMEs require the ongoing support of banks, MNOs and policymakers if they are to make the most of the new opportunities.

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