Whenever there is an unusual development in the African venture backing ecosystem, the dealmaking spotlight often zeros in on fintech startups. However, over the past year, that status quo has all but stayed the same, as a good number of non-fintechs ceremoniously hopped onto the record-breaking bandwagon.
VC funding for B2B eCommerce retail startups (Suplias, MarketForce, Asilimia, Alerzo, and the like) reached an all-time high in 2021, with TradeDepot—a Nigerian firm that connects consumer brands to retailers via distribution—concluding the spree with a mega USD 110 M round from a consortium including the IFC. One of the largest Series Bs in the continent, TradeDepot’s raise also officially marked the advent of buy-now-pay-later (BNPL) in African retail tech.
Still on unusual upshots, hot on the heels of becoming one the few funded Ivorian startups, ANKA—formerly known as Afrikea—raised USD 6.2 M in Series A to expand its platform and roll out a BNPL service for its target merchants. Shortly after and much recently, Lipa Later—a Kenyan consumer credit platform founded in 2018—secured 12 M in pre-Series A to expand its BNPL service to other African markets.
While BNPL has suddenly become a household phrase in African venture-backed tech, the more enthralling development is this new, short-term financing scheme finding grounds in the longstanding retail sector.
In an exclusive interview with WeeTracker, Ignatius Akpabio, Head of Strategy & Expansion at TradeDepot, talks the case for BNPL in the region’s retail rim.
Courtesy: TradeDepot
How much does Africa’s informal economy need buy-now-pay-later? The play is relatively new in this market.
Ignatius: Buy-now-pay-later solves one of the two major challenges that retailers in this space face today. One is access to goods, and the other is access to finance. Buy-now-pay later solves the latter because for retailers to significantly grow their businesses, they need an injection of working capital, just like any other venture.
Because the market is mainly informal, players struggle to get access to structured credit, and that leaves an opportunity for just about anyone willing and able to provide that access to structured financing. Buy-now-pay-later meets many of the retailers’ needs, which makes it very much here to stay.
Like every other emerging market worldwide, the retail ecosystem is the crux of economic development for Africa. If you look at Nigeria’s global GDP, you would realize that the FMCG manufacturers’ impact on the country’s economy is nothing trivial. The same can be said for most other Sub-Saharan African economies, all of which are projected to grow tremendously this year.
All that trickles down to the only route to market today, which is the informal retailers. They constitute a significant factor within the economy. Being able to solve retailers’ problems means we would be solving a more significant problem in the African economy, since most of the markets here are similar.
From time immemorial, access to financing has been a big problem because we do not have appropriately structured credit bureaus and the like. These retailers are largely unbanked and do not have references for credit checks. It is a natural progression for a business to build its own credit profiling infrastructure, which, for us, is the commerce business—where all the transactions are generated.
Once you build that level of data within the transaction space, the information can be leveraged to provide additional services like buy-now-pay-later and others. Ideally, it is a normal progression for any player in the space to arrive at the BNPL threshold.
TradeDepot secured USD 10 M eighteen months before its current (USD 110 M) raise. Did the ticket size increase to chiefly address problems for retail or credit?
Ignatius: At this point in our journey, we are cognizant of the reality that these two problems are not exclusive to each other; one is a means to solving the other.
For the 18 months before the Series B, the business was in hyper-growth mode, gaining traction constantly. Conversations about this investment started at the beginning of 2020 and built up to this development. We do not consider it a colossal raise because this is just the first step.
Early last year, Sokowatch—who is almost as old as we are—raised USD 15 M, a significant round in the East African context. But the investment rounds for similar players in a region like Southeast Asia are substantially larger than what TradeDepot has secured.
What does the entry of BNPL mean for the African retail economy of the next decade?
Ignatius: The most significant change is increased purchasing power and access to extensive SKU (stock keeping unit) assortments.
We are experiencing this already, as order volumes per retailer grow by 2-3x, thanks to the availability of additional financing. We have also seen them venture into the sale of innovative products previously not within their scope.
With more purchasing power comes a greater economic boost within the segment, and this allows the market to contribute more to the development of the economy. This, in turn, will force manufacturers to increase their production quotas to make up for the supplier deficit currently challenging the market.
Overall, this means the final consumers like ourselves can access more products when we visit stores because the retailers have more purchasing power to increase their basket sizes.
A couple of years ago, it was unimaginable that the retail sector would have such an amount of VC interest. What seems to have changed?
Ignatius: I would not say TradeDepot is to take credit for the change because investors’ interest into the African retail market has been bound to happen. The increased attention paid to the problem has created the traction that encouraged VCs to come on board. Also, it is not new that, in emerging markets, retail contributes immensely to the economy.
Sooner or later, it was bound to happen that if someone found a way to digitize the sector, they would be able to attract huge investments. It is the kind of big market we have here; we are operational in Nigeria, South Africa, and Ghana.
Meanwhile, we are looking to consolidate our presence in the existing markets while keeping an eye out for Francophone and Anglophone West Africa. After all, these two regions are in close proximity and bear similarities with the markets we currently operate in.
Now that there is BNPL on the cards to provide credit, what other kinds of tech solutions does the informal economy need going forward?
Ignatius: I believe credit is one aspect of the bigger financial opportunity in the market. These MSMEs need access to other financial services to grow their businesses. Ultimately, the focus is on giving these informal retailers a digital identity and enabling them to operate on digitized platforms.
From that point of view, we think about credit as just one component. There are tons of financial services that can be leveraged to help these small enterprises scale. However, things will continue revolving around access to goods and financial services.
There is still a lot of ground to cover, as there are more than 1 billion consumers across Africa. These last-mile retailers are closest to the distribution structures for goods and services.
Even with as much as USD 110 M in fresh firepower, we cannot cover the entire continent. This is just Day 1, and it is interesting to see that investors are paying more attention.
The one goal we have is to better the lives of the everyday retailer in the continent. If there are a couple of dominant players doing that in the space—despite competition—they will see an increased injection of funds, which benefits the target consumers.
2021 was the most remarkable year for African retail tech, but that was just the beginning. I am sure that in 2022, we will be having a more interesting conversation about this. Going forward, these retail tech services need to be democratized, just like fintech.
