African e-commerce & payments sectors in-depth study

What awaits your e-business in Africa?

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African e-commerce & payments sectors in-depth study. Source: flickr.com

For long years, the African continent has remained an outsider of global digitalization trends. After all, it is the home of economically developing nations. When Africa is mentioned in the world news, it is more likely to be connected with hunger, poverty, exotic diseases, or rioting, than progress and innovation. Surely, the range of economic and social problems in African countries is impressive. However, recent trends suggest that a considerable potential for e-commerce and finance sectors most certainly exists in the region.

Current state and forecasts

In 2018, the International Telecommunication Union (ITU) presented the statistics of global Internet growth. It is noteworthy that African countries have displayed the strongest growth of all regions, with the percentage of people using the Internet having increased from 2.1% in 2005 to 24.4% in 2018. Considering the fact that Africa is the second-largest and most populated continent in the world, after Eurasia, global Internet penetration finally overcame the 50% limit. The same growth tendency concerns mobile broadband subscriptions. 

According to data collected in March 2019, the numbers are even greater. The total number of Internet users in Africa is estimated at more than 474 million people which equates to 36% of the population. Most of the users were registered in Nigeria, Egypt, Kenya, and South Africa. Much of this year’s growth in internet users has been driven by more affordable smartphones and mobile data plans. 

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Much of this year’s growth in internet users has been driven by more affordable smartphones and mobile data plans. Source: unsplash.com

The rapidly increasing access to the Internet opens new perspectives for local customers. In South Africa alone, the revenue of the e-commerce market amounts to US$3,308m in 2019. It is expected to show an annual growth rate of 9.9%, resulting in a market volume of US$4,817m by 2023. Of all the Internet users, e-shoppers percentage here is 59.7% in 2019 and is expected to hit 74.9% by 2023. Half of online buyers shop both domestically and cross-border, while 38% and 12% prefer exclusively domestic and foreign e-shops respectively. 38% of the South African population bought something online via phone in the past month according to the statistics of the third quarter of 2018

In other regions of Africa, there is also strong proof of people’s willingness to try out the benefits of e-commerce and fintech. According to Statista, the proportion of people who are likely to use m-payment systems on their smartphone in the next year is:

  • 79% – Kenya
  • 76% – Egypt
  • 75% – South Africa
  • 62% – Nigeria
  • 43% – Tunisia

Opportunities and challenges in Africa

African e-market is only just starting to develop. It greatly differs from the familiar commerce schemes of western civilizations. Its unique position presents both opportunities and challenges for online sellers.

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There is still a low rate of mobile payment solutions available across the continent. Source: unsplash.com

To begin with, there is still a low rate of mobile payment solutions available across the continent. In spite of high mobile penetration, only 6% of the population uses mobile phones to make financial transactions. Cash transactions continue to dominate, because people are afraid of theft or don’t trust new technologies. In addition, many people are illiterate so they find it hard to use mobile wallets or phones altogether. 

Moreover, mobile payments are distributed unevenly across different countries. Most of the population in some regions are unbanked. For example, 60% of Nigerians still do not have a bank account, so they don’t have access to digital services on offer. They need customized mobile apps that would involve cash-in options. However, typical African digital consumers are young — the average age is 19. Older consumers shy away from fintech, they prefer cash on delivery, which is still the dominant method of payment in Africa.

Almost 280 million Africans have mobile wallets, which is three times more than the number of Africans with bank accounts. For instance, 73% of the population in Kenya already have mobile payment accounts. They are less limited in their e-shopping experiences. The leading mobile money wallet service there is M-Pesa. People use the service to send money from their mobile phone to other account holders, as well as to pay bills and take out loans. 

Another issue hindering active e-commerce is logistics. According to Sacha Poignonnec, co-founder and co-CEO of Jumia, Africa’s largest internet group, in Africa, there is no address system in most cities and villages. The streets have no names or house numbers. Someone’s whereabouts may be described by proximity to some object or color of the door. Therefore, delivery of any goods must be provided by locals who can orientate themselves well in the settlement. Moreover, it is hard for customers to fill in the delivery address at the checkout stage in online stores.

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Currently, only 6% of South Africans buy online goods weekly. Source: shutterstock.com

Nevertheless, if you find a way to overcome those obstacles, you get access to the client base of 400 million internet users who are eager to find decent goods unavailable in their local stores. For instance, Jumia has created a network of over 4,000 logistics partners to work across the 15 countries they have been operating in. It has more than 3,000 employees and is Africa’s best-funded e-commerce startup. Now they have 41,000 active merchants in the ecosystem who offer over 6.1 million products ranging from hotels to real estate, jobs, TV, airtime, restaurants, flights and more.

In Africa, there are more opportunities for small startups to start online from scratch. Developing your business, thus, requires less investment than in Europe or the US, where merchants traditionally go from offline to online.

The potential for sales is enormous. Currently, only 6% of South Africans buy online goods weekly, while the majority (44%) buy online less than once every 3 months. The most popular motivations for choosing e-commerce over traditional purchases are price and process convenience, special offers and variety of choice. As you can see, the demands of this emerging consumer base are quite simple. Having some expertise with pickier US or European buyers, it will be easy for a service provider to cater to those basic needs.

SEE ALSO: How to pay in Brazil: facts on country’s payments market

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