Why financial services can kickstart Africa’s digital economy

Mobile 2019

(Derick Anies, Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Herman Smit, Director, Cenfri & Chernay Johnson, Engagement manager, insight2impact


Africa’s largely informal economy is digitizing. Improved internet and smartphone penetration have given rise to virtual marketplaces, also known as digital platforms, where millions of workers and enterprises have the opportunity to sell their goods and services digitally.

The digital rails created by these platforms provide a unique opportunity for the financial sector to reach new consumers and shape the nature of digital commerce on the continent.

Digital platforms rising in Africa

At the end of 2018, our research identified 277 digital platforms, operating across eight countries in southern, east and west Africa. The larger platforms are well known, covering major sectors of the economy and operating across emerging markets. For example, Jumia for online shopping, Upworks for freelance work, Uber for e-hailing or Airbnb for rentals.

However, the majority of the platforms identified were started by local technology entrepreneurs, more than half of which were launched in the last three years. This includes the likes of SafeBoda for e-hailing services or DeliveryBros for logistics and couriering.The biggest markets for these locally owned platforms are Kenya, Nigeria and South Africa, but Uganda, Rwanda and Ghana have their own emerging platform ecosystems and regional aspirations.

Available survey data from Research ICT Africa estimates that in seven of the eight countries where our research was carried out, these platforms attracted 4.8 million individuals with income-earning opportunities. This equates to roughly 1.3% of the adult population and compares well with more digitally advanced and developed countries such as the United States.

Measuring activity on digital platforms at any one point in time is challenging, and our understanding of the size and nature of Africa’s digital platforms and their participants is likely to mature with time.

Measurement challenges aside, there are positive early signs that digital platforms in Africa are impacting lives for the better. More than half of the individuals in the Research ICT Africa survey report using these platforms to meet their basic needs. We believe that the financial sector can build on these positive early signs to further optimize the lives of African users and assist digital platforms in their attempts to reach scale.

The financial sector must join the party

If the platform economy is to optimally contribute to the livelihoods of Africans, it will need a productive relationship with the financial sector. Payment solutions, financing and risk-management solutions that speak to the needs of platform participants will be key to unlocking its contribution.

Platforms do not, or rarely, require face-to-face interaction between the consumer, the marketplace and the enterprise or worker providing the good or service. While this should keep operating costs low, it creates large dependencies on digital financial services to enable the viability of these business models.

For example, while some platforms allow for cash payments from consumers, most require consumers, workers and enterprises to be able to receive and make payments remotely via electronic channels. While these payment solutions do exist, many of these platform participants still experience friction using them, often due to high transaction costs or slow settlement times.

Further, these business models rely heavily on keeping the supply of goods and services high and operating costs low. This incentivizes platforms to look after their suppliers, either through reducing their exposure to risk or increasing their production.

For example, e-hailing platforms such as Uber or Bolt require would-be drivers to have insurance in the case of car accidents. This reduces Uber and Bolt’s exposure to risk and helps get cars back on the road quickly.

Online shopping platforms like Alibaba offer financing to suppliers of goods on their platform to increase the size and diversity of offerings to attract the greatest number of customers. In some cases, they offer financing to consumers to increase the size and basket of goods they buy, as well.

Early signs of a new generation of partnerships

Brokering partnerships between financial service providers and digital platforms will thus be critical for maintaining and growing digital commerce in Africa and its ultimate impact on Africans. A growing number of Africa’s digital platforms are partnering with financial service providers to offer financial services. Of the 277 platforms we identified, 15% offered one or more insurance, digital wallet, savings or credit product to platform participants.

The graphic below highlights early demonstration cases of how partnerships with the financial sector can improve the functioning of digital platforms to the benefits of platforms and platform participants.

Image: insight2impact (2019)

• Online shopping platform Jumia launched a mobile wallet solution, JumiaPay, in partnership with MasterCard. This payment service was launched to improve the ability of providers and consumers to transact on the platform by speeding up settlement times and reducing transaction costs.

• E-hailing platform Uber partnered with fintech Jumo World to offer Uber drivers vehicle financing. This allows e-hailing drivers the ability to purchase their own vehicles, rather than leasing from a third party, improving drivers’ earning potential.

• Wesabi, a freelance platform operating in Nigeria, offers professional indemnity insurance to protect consumers against damages related to services obtained through their platforms. This reduces the risk to both the consumer and freelance worker.

• Ghanaian e-hailing platform Dropping partnered with People’s Pension Trust to provide pension products to their drivers. For the first three months the driver is on the platform, Dropping pays the pension fund contribution on behalf of drivers who achieve an average of 20 completed trips per week. Assisting drivers to save and incentivizing greater platform participation.

While these partnerships provide clear benefits to financial services providers, the digital platform and the platform participants, new products in Africa are often slow to get off the ground. This is partly a translation issue between these different actors. Partnerships between typically risk-taking technology entrepreneurs and conservative banking and insurance executives do not come naturally.

It also does not help that digital platforms are still in the early stages of figuring out how to use the rich data they are collecting on their participants to better understand their financial needs and give financial services providers the information they need to optimally design and deliver services.

These teething troubles will likely be resolved in time. But until the financial sector comes to the digital platforms table, the contribution of Africa’s digital economy will likely be stunted.

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Nagasaki is ‘a global inspiration’ for peace, UN chief says marking 73rd anniversary of atomic bombing

Malaysia can show the way towards a holistic model for human rights

Rohingya cannot become ‘forgotten victims,’ says UN chief urging world to step up support

6 facts to know about EU alternative investment funds

What washing your hands can teach you about global change

Here’s why the tech sector could be the next target for Chinese investment in Africa

New UN rights report paints bleak picture in eastern DR Congo

The unpleasant truth of plastic straws

Guterres hails historic Convention banning violence and harassment at work

Tuesday’s Daily Brief: funding for Palestine refugees, families today, tech surveillance

This man is sleeping out in the Davos cold to make a point about homelessness

Future-proofing the European banking market – removing the obstacles to exit

This graphene battery can recharge itself to provide unlimited clean energy

Avocado: the ‘green gold’ causing environment havoc

Around 23 million boys have married before reaching 15; ‘we can end this violation’ says UNICEF chief

How smarter machines can make us smarter humans

EU budget: Regional Development and Cohesion Policy beyond 2020

This NATO experiment used fake Facebook accounts to trick soldiers into sharing sensitive information

The remote doctor, can it ever work?

UN agency warns conditions around Yemen’s key port city of Hudaydah still ‘very bad’, as staff rush to deliver aid

Mediterranean and Black Seas: Commission proposes fishing opportunities for 2020

UN and Red Cross chiefs appeal for end to use of explosive weapons in cities

The Junior Enterprise concept: Business & Education

Close to final agreement on the EU Banking Union

Commission: Raising the social issues that can make or break the monetary union

Impact investment favours expats over African entrepreneurs. Here’s how to fix that

5G networks: to slice or not to slice?

Who should pay for workers to be reskilled?

‘Antagonistic gestures and accusations’ drown out Kosovo dialogue hopes, Security Council hears

Aid stepped up to Syria camp; new arrivals say terrorists blocked their escape

From UN Assembly podium, Central African Republic leader appeals for lifting arms embargo

More women and girls needed in the sciences to solve world’s biggest challenges

A ship with containers at the port of Rotterdam. (Copyright: European Union. Source: EC - Audiovisual Service. Photo: Robert Meerding)

US follows the EU in impeding China market economy status in WTO

Poland: €676 million worth of EU investments in better rails and roads

Blockchain is becoming key for global trade – but is that a gift for hackers?

UN chief pays tribute to ‘enduring contributions’ to regional, international diplomacy of Oman’s late Sultan Qaboos

It’s getting harder to move data abroad. Here’s why it matters and what we can do

European Court rules that ECB’s OMT program of 2012 is OK; not a word from Germany about returning the Greek 2010 courtesy

UN ‘stands in solidarity’ with cyclone-hit India – Secretary-General Guterres

As fighting in Libya escalates, so does number of children ‘at imminent risk of injury or death’

Somalis ‘will not be deterred’ by Friday’s terror attacks – UN chief

Brexit casts a shadow over the LSE – Deutsche Börse merger: a tracer of how or if brexit is to be implemented

The experience economy is booming, but it must benefit everyone

EU Summit consumed by the banks

Yemen: Recent uptick in fighting contradicts desire for peace

100 years after Polish independence, 5 reasons to be cheerful for the future

GSMA head urges regulators to help Europe regain leadership

Taxes on polluting fuels are too low to encourage a shift to low-carbon alternatives

Mergers: Commission approves Assa Abloy’s acquisition of Agta Record, subject to conditions

EU humanitarian budget for 2020 to help people in over 80 countries

Meet the robot fighting back against coral reef destruction

From philanthropy to profit: how clean energy is kickstarting sustainable development in East Africa

EU unfolds strategy on the Egypt question

Chart of the day: These countries have the highest share of electric vehicles

These are the world’s healthiest nations

Global Citizen-Volunteer Internships

Why the answer to a more sustainable future could lie within the platform economy

Youth Entrepreneurship Issue of the month: JEN, organisers of JADE October Meeting, on why JEs should come together

‘No-deal’ Brexit preparedness: European Commission takes stock of preparations and provides practical guidance to ensure coordinated EU approach

Paris, Rome, Brussels and Frankfurt to confront Berlin over growth and the Athens enigma

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s