It costs to get paid in Africa
And the fight against fintech fragmentation
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Before we dive in - this edition is sponsored by EBANX.
I caught up with Wiza Jalakasi and Juliana Etcheverry to learn what it takes to get paid in Africa.
Turns out, it’s a lot harder than it seems and while writing this I realised how much we take making payments for granted.
Ready? Let’s dive in.
Africa has a big digital payment potential. It’s the fastest-growing digital economy in the world.
Nearly 70% of all telecom mobile money transactions globally come from Africa.
And other digital payment methods like cards, digital wallets, and tap-to-pay are catching up.
According to McKinsey’s report: The Future of Payments in Africa, Africa’s digital payments market will grow 152% between 2020 and 2025.
That means the market will reach nearly $40 billion in revenue from domestic payments alone.
Now, while the digital payment revolution in Africa may seem massive it's really just the start.
Digital payments account for only 5-7% of the total transaction volume on the continent.
And in 2021, just 12% of Africans made an online purchase - mostly focused in big markets like Kenya, Nigeria, and South Africa.
So, payments are going digital, and Africa’s e-commerce market is set to boom.
And global merchants who are noticing this growth want in on this action. But there’s a bit of a problem..
Enters the Villain: Fintech Fragmentation
In Africa, digital payment systems are all over the place.
Unlike developed countries where card transactions dominate, African countries have a mix of diverse payment methods.
Not to mention 42 different currencies to deal with.
In a country like Nigeria, an online merchant has to integrate with bank transfers, mobile money, payment apps, and cards, each with its own network and requirements.
Think of it like a maze.
Because of this maze-like system, merchants have to deal with multiple payment service providers and banks to accept payments from customers.
And if you snooze, you lose.
Failing to integrate with the various payment systems is like slamming the door on potential customers.
If you’re a merchant operating in Zambia for a local market, it’s a headache to take every payment solution.
But if you’re a giant company like Spotify, YouTube, or Starlink? It’s a world of pain.
You’re no longer accepting payments from one country, you want to accept payments from the whole continent.
And it’s expensive to get paid in Africa.
The cost of getting paid in Africa
Wiza (Director of Africa Market Development at EBANX) broke down what it would take for a company to accept payments directly in Kenya.
Let’s take Starlink, for example.
To take payments directly in Kenya, Starlink would need to:
Set up a local entity.
Establish merchant relationships with all payment methods in Kenya.
Hire someone to manage finance, operations, and relationships with payment methods to make sure they are compliant.
Sort out the settlement (collecting the funds) and treasury (how and where you store the money).
Then it’s foreign exchange. Starlink would sell its products in Kenyan Shilling, but its costs (and HQ) are in the US. That money would need to get sent back to the US, which involves paying local taxes before money can be sent.
Now, this is the best case where regulations are straightforward. Sometimes, it’s not so simple.
Starlink bumped into issues in South Africa, where it is required to give up 30% of equity of its South African company to historically disadvantaged groups if they decide to set up shop.
The cost of getting paid in Africa is high.
It costs time, money, and resources, all to accept payments from one country. Imagine repeating this in all of Africa’s major markets.
Wiza and Juli explain that global merchants hardly find it to be worth the time, effort, and resources to launch in Africa.
Which is where EBANX comes in.
Learnings from LATAM
In 2012, Latin America was in the same spot Africa is in today.
The payment landscape was fragmented. E-commerce was growing rapidly.
And global merchants wanted a piece of the pie.
But, a big chunk of digital buyers were excluded from traditional payment methods.
In Brazil, a boleto is like a payment slip with a barcode that you can use to pay for and buy goods across the country.
Shops. Supermarkets. Lottery shops. And bank branches.
A startup in Brazil, EBANX, built a payment platform that accepted debit and credit cards from all around Brazil - including these boletos.
An EBANX Boleto
And their solution caught on.
“Companies from the US and China approached us asking how they could take payments with boletos, as their customers were asking for it and they didn't even know what that was,” says João Del Valle, EBANX CEO and Co-founder.
EBANX saw an even bigger opportunity: to bundle not just boletos, but all payment methods across LATAM and let global companies start taking payments in the region.
They enabled API integration on those foreign companies' websites.
It became super easy to accept local payments from Brazil and to send it straight to the merchants.
It caught the attention of both small companies and big boys like AliExpress and Airbnb.
Soon, EBANX had over 100 payment methods across LATAM on one payment integration.
Today, EBANX processes payments for more than 1,600 companies and in 2019 became a unicorn company, valued at more than $1 billion.
Next order of business? Expanding into Africa.
Collaborating for Access
While EBANX sounds like a direct competitor to Flutterwave, MFS Africa, DPO Group, or Cellulant - they are more likely to collaborate than compete.
EBANX will work with a number of payment providers in each country to ‘bundle up’ payment for these solutions.
Then they offer that to global merchants that want payments in both LATAM and Africa.
Think of it like a one-stop shop for payments in LATAM and Africa with one offering.
And to achieve that, EBANX needs to be deeply embedded in Africa’s key markets
And how do they intend to do this?
Well, they started with the experience. EBANX is banking on their reps in Latin America and the similarities between both markets.
Africa and Latin America are more similar than they are different when it comes to payments.
Share the pain of fragmented payment ecosystems.
Boast growing urban populations with increasing purchasing power.
Have a booming digital payments ecosystem.
Next, they got the talent.
Juli leads Strategic Payments Partnerships and Market Expansion and has done so for 9 years at EBANX, and they are joined by fintech veteran Wiza Jalakasi whose experience is a short article in itself.
Now? Time for execution. EBANX wants to be live in 11 markets by the end of this year - a feat that took them 9 years in LATAM.
And that 9 years of experience have given them a few learnings on navigating other rising economies and the importance of local partnerships and knowledge.
If they can make it happen, I think it’s a win.
EBANX will reduce the cost to get paid in Africa, and let global merchants set up easily and quickly in LATAM and across Africa.
And in turn, we’ll see more global companies and brands launching into the continent and more access for consumers.
I’m excited to see how it pans out. How about you?
What do you think of the ‘cost to get paid’ in Africa? And EBANX’s move into the region?
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