Why B2B Payments Will Drive the African Growth Story

Digital financial services have played a pivotal role in Africa’s financial sector by facilitating millions of transactions worth billions of dollars. These services have significantly contributed to the economy as they offer transparency, traceability, and convenient tax payment and collection methods.

It is widely known that Sub-Saharan Africa is the only region in the world where almost 10% of the Gross Domestic Product (GDP) transactions occur through mobile money. This percentage is incidentally 10% in Asia and less than 2% in other regions.

It’s worth noting that Africa stands out for its extensive use of mobile applications in financial services. This has led to high market penetration for mobile financial services, second only to China.

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It’s also notable that Ghana’s mobile money success results from a successful marriage between consumer-driven practices and appropriate regulations, all built upon a strong foundation of early infrastructure investments.

Mobile money payments represent a significant share of Africa’s vast digital payment potential, although the opportunity that will drive the growth is B2B payments. 

Although digital payment solutions have helped overcome many challenges, several issues still need to be addressed to facilitate the smooth flow of money between businesses in Africa. Digital payments in Africa are also crucial in bringing the masses under the financial umbrella, especially those excluded from formal banking. This encourages a cashless ecosystem.

By transitioning to a cashless system, an ecosystem can encourage digital payments and make it easier and more affordable for financial service providers to reach a wider audience. While financial inclusion holds more significance, a cashless economy can hasten the process of financial inclusion.

The business-to-business (B2B) payment sector is a significant but largely unexplored opportunity within the African digital payment universe. The gap in potential and realisation in this B2B payments opportunity is partly because these involve larger transaction volumes and are more complicated. According to the World Bank, Africa’s share of global B2B payments was USD 1.5 T in 2015.

Digital payments in Africa are expected to reach USD 195.50 B by 2024, creating opportunities for disruption. Around 80 to 90 million SMEs and small businesses remain to be onboarded on digital payment platforms. 

For digital payments to reach its potential in Africa, more cross-border transactions need to happen. But the limitation to this is that different countries across Africa adopt different payment channels. So, there’s a need for solutions that bridge this gap.

A fintech company in Nigeria, Kora, is creating world-class solutions for businesses to bridge the cross-border payment gap and boost digital payments. The company, which was founded in 2017,  has witnessed transaction volumes in Kenya and Ghana grow by over 200% in the past 2 years. At the same time, its transaction volume in Nigeria has reached over 1000% since inception, with an average WoW growth of ~10%.

Kora makes digital payments easy for business owners by prioritising convenience, flexibility and affordability.

For example, by leveraging its presence in multiple jurisdictions, Kora is able to hack multicurrency support for its merchants. For example, due to its presence in Kenya and Ghana, Kora can enable a business owner in Kenya to receive payments in Kenyan Shillings from customers in Ghana through a local payment channel like mobile money while simultaneously providing the same payment collection service to a Ghanaian business owner who has Kenyan customers.

What distinguishes the company is the deep knowledge of businesses’ varying levels of technological sophistication. For instance, businesses have the flexibility to collect payments using Kora’s API integrations, explore the Checkout feature tailored for those with limited coding experience, or opt for Payment Links, which need no coding at all.

As a payment solutions company, Kora has thoughtfully devised its product around the growing needs of small businesses, helping them increase successful transactions in the short term and expand their potential in the medium to long term.  

Growth path

Per a report published last year, South Africa led the way in electronic bank transfers, with 49% choosing it as their preferred way to pay vendors, followed by Nigeria (48.5%), Ghana (34%) and Kenya (32%). Kenya led the way in payment automation, with 83% of Kenyans stating that their payment system was either semi-automated or fully automated, compared to Nigeria (80%), South Africa (72% ) and Ghana (67%).

The adoption rates are believed to grow as more and more small businesses enter the market to solve real consumer challenges. The growth in the number of startups will create fertile grounds for digital payment solutions to enable commerce and trade between companies as well as consumers.

Policies

However, the main challenge around the growth of digital payment companies in Africa is posed by regulating policies. African countries are facing a concerning trend that threatens to reverse the progress achieved in the adoption of digital payments due to the increasing costs and tax burden. Governments are raising taxes on mobile digital payment channels, such as money services, to boost their revenue. This move is adversely affecting both consumers and businesses, and experts warn that it could harm the financial sector’s advancement, hamper financial inclusion, and pose challenges to economic growth.

Digital financial services have been essential in shaping Africa’s financial landscape. These services have enabled billions of dollars in transactions with millions of users, contributing significantly to the economy. They offer transparency, traceability, and a convenient tax payment and collection method. However, the imposition of high taxes threatens these advantages, jeopardizing the essence of digital payments.

While governments have the legitimate need to increase revenue, industry activists argue that excessive taxation on e-payment services risks undermining the progress made in financial inclusion and economic development.

Finding innovative solutions to boost revenue without stifling the digital economy is crucial; otherwise, the unintended consequence might be a regression from digital progress to cash-based economies, reversing the strides made in the past decade.