Wasoko and MaxAB turn to fintech to boost profits following merger

Kenya-based Wasoko and Egypt-based MaxAB recently finalised their merger after eight
months of integrating their business operations across the continent. The newly formed entity,
co-led by Daniel Yu, CEO of Wasoko, and Belal El-Megharbel, CEO of MaxAB, now reaches
450,000 merchants across Egypt, Morocco, Kenya, Tanzania, and Rwanda, making it the
largest business-to-business (B2B) e-commerce network in Africa.

Both MaxAB and Wasoko provide e-commerce solutions for small informal retailers to order inventory from suppliers and receive timely deliveries, often on the same day. The primary distinction, however, lies in their geographical focus: MaxAB operates in Egypt and Morocco, while Wasoko offers its B2B ecommerce platform to retailers in Kenya, Tanzania, and Rwanda. This will remain unchanged post-merger, Yu told African Business in an interview.

“We’re continuing our local operations across the various markets in East Africa. What we’re
benefiting from now is a centralised global back office, where we’re able to continue to develop
and invest in better technology and services that can be offered across the combined group,” he
remarked, highlighting that the tie-up was structured as an all-stock transaction with no separate
capital raised.

Yu noted that the company is banking on increased scale and improved efficiencies post-
merger to achieve profitability.

“The strategic priority moving forward will be on sustainably growing the business to achieve full profitability across all of our markets,” he noted.

Wasoko’s and MaxAB’s core B2B e-commerce service is profitable in three of the five countries they operate in, with the goal to achieve profitability in the remaining countries in the next year. Both tech startups have secured a combined total of $230m from investors to date.

Fintech driving growth

Yu views the endemic unavailability of credit affecting informal retailers in Africa as a significant
growth opportunity for the group’s fintech vertical.

“Our fintech services in Egypt alone are generating about $180m annually in turnover by themselves. That business has more than doubled in the past year.”

“What we’ve seen with both companies is actually a very strong burgeoning of fintech services whereby we leverage the network of hundreds of thousands of small shops that we have, and the data we have, to offer them additional services in terms of financing for their businesses.”

“At least for the next year, our primary focus is expanding our fintech offerings across existing markets,” Yu noted.

The company says it has enjoyed high repayment rates of over 99%.

“That is possible because of the ecommerce platform that has enabled us to build this relationship with these shops.”

“The lack of availability of credit for these informal small businesses is a huge challenge. We
use the data generated by the ecommerce activity on our platform to actually do our own
internal credit scoring for these shops.”

“What we’ve seen through that process is actually an elevated performance that other SME
lending platforms have not been able to replicate or compete with,” he remarked, noting that the
group has disbursed over $20m of credit financing to retailers in the past year alone.

Yu believes that fintech’s continued growth will be key in advancing the group’s quest for profitability.

“Both companies started as pure B2B e-commerce platforms, catering to small mom-and-pop stores. Early on, we recognised that this couldn’t be the end game because e-commerce, while high in volume, is low-margin, operationally complex, and requires significant investment to achieve profitability.”

Investing in offline channels

Ali Hussein, a Kenya-based entrepreneur and tech commentator, believes that African e-commerce companies like Wasoko and MaxAB should prioritise investing in offline channels, rather than solely focusing on their digital infrastructure.

“Let’s forget this ‘e-commerce’ thing. It’s just commerce. Its distribution via digital channels. The online aspect is meant to improve processes. I think what we are missing here is the fact that there is this deep integration between offline and online. This omnichannel, omnipresent use of digital channels to glean data and insights and ensure that we have efficiencies in place.”

Hussein pointed to the strategy of global e-commerce giant Amazon, which has invested significantly in offline operations, including its acquisition of Whole Foods and investments in bookstores, as a model for African e-commerce companies to consider.

However, investing in fulfilment and distribution centres and building an offline presence remains a significant challenge for e-commerce firms in Africa due to poor transport infrastructure, high operating costs and limited capital resources. Tellingly, in recent months, MaxAB and Wasoko have scaled back their offline operations. In January, the two companies announced plans to reduce their workforce of roughly 4000 by 10%, cutting 4,000 jobs. By March, Wasoko had shut down operations in Zanzibar, Tanzania, and halted activities in Uganda and Zambia.

Urbanisation and informality dominant trends

Yu believes that the key trend that will shape Africa’s retail landscape moving forward is urbanisation. Africa is experiencing the fastest urban growth in the world. The continent’s urbanisation rate has risen from 35% in 2000 to 43.5% in 2020, according to the United Nations Economic Commission for Africa. But investments in infrastructure have not kept up, presenting logistical and supply chain challenges for retailers.

“Addressing the needs of increasingly urban consumers with rising purchasing power will be crucial for the industry’s future. However, the challenge lies in keeping up with the growth of informal retail stores in ever-expanding cities,” Yu notes.

“This is where technology platforms can play a crucial role,” Yu observes. “The average African consumer remains both cash and transport constrained. Unlike the US or Europe, where large supermarkets cater to weekly grocery shoppers, the mass market African consumer relies heavily on local corner shops. These small, informal retailers will continue to be the primary access point for retail.”

According to the Boston Consulting Group, African consumers continue to purchase over 70% of their food, beverages, and personal care products from the continent’s more than 2.5 million small, independent shops. A study conducted by the firm, surveying over 4,500 small retailers in Egypt, Kenya, Morocco, Nigeria, and South Africa, confirms that informal retail will maintain its dominance across the continent.

“We concluded that the traditional retail sector will remain at the core of African commerce in all but a handful of nations, such as South Africa, for the foreseeable future.”