How A Nifty New Product Is Supercharging Africa’s Informal Retail Market

Earlier this year, OmniRetail, a business-to-business (B2B) e-commerce startup that serves retailers, launched OmniPay, an embedded finance platform, just in time for a cash scarcity that rocked Nigeria. The cash shortage led to reduced output and severe consequences for businesses and small traders who struggled to obtain the necessary funds to cover expenses, causing an estimated loss of NGN 20 T (USD 43 B) for the Nigerian economy.

The launch of OmniPay would prove timely, offering retailers a broader range of payment options, including digital wallets and buy now, pay later (BNPL) services. It has the makings of a cornerstone product, drawing over USD 100 B worth of transactions in its first few months, according to the company, with 100,000+ retailers with OmniPay wallets and 28,000 regularly utilizing the platform for their business operations.

OmniRetail’s approach to addressing financial inclusion and advancing the informal retail sector in Africa has garnered attention with the introduction of OmniPay. In this packed but crisp and concise interview, Deepankar Rustagi, CEO and Co-founder of OmniRetail, who has lived in Nigeria for two decades, shares insights into the journey behind OmniPay, its impact, and the strategies employed to navigate the complexities of the B2B e-commerce landscape in Africa.

The interview has been edited and condensed for clarity and brevity.

How did the idea for OmniPay come about, and what prompted its development within the B2B commerce landscape?

In any B2B commerce scenario, there are two essential aspects: the movement of goods and the associated payments. For us at OmniRetail, managing cash collections from retailers posed a significant challenge, especially as these transactions involved non-employees. We recognized the need to digitize these payments, particularly in Nigeria’s financial inclusion context. That led us to develop OmniPay, not solely sparked by demonetization but certainly accelerated by it.

How are retailers leveraging OmniPay, and what key services does it offer to foster financial independence for these businesses?

We initiated by digitizing payments, empowering retailers to track transactions through their wallets. Subsequently, we introduced services like inventory financing, working capital loans, and BNPL options. This enabled retailers to enhance their inventory, reducing stockouts and improving customer experiences. Presently, we’re working to offer asset finance, allowing retailers to acquire costly assets through manageable instalment payments.

Given the extension of credit to retailers, how does OmniPay mitigate associated risks, such as non-performing loans?

Our creditworthiness algorithm primarily analyses transaction history and payment patterns. This allows us to gauge a retailer’s creditworthiness and manage risks associated with extending loans, ensuring a balance between offering credit and minimizing non-performing loans. Identifying genuine businesses is crucial. For us, consistent deliveries to retailers’ shops with documented pictures prove their existence. We integrate wallets, allowing retailers to receive money from customers. After a few months of multiple transactions, our creditworthiness algorithm assesses their trustworthiness based on payment data and transaction histories.

How does OmniPay finance its operations, especially with asset and inventory financing?

Our operations tap into the USD 20-22 B market for fast-moving consumer goods in Nigeria. We partner with manufacturing entities for credit and collaborate with development finance institutions like the Bank of Industry. Our lending is done through our balance sheet, focusing on enabling working capital at various stages in the value chain.

How does OmniPay address the challenges of smartphone and internet access limitations for financial inclusion in underprivileged areas?

We focus on small, fixed-structure shops for our retail network, avoiding locations without formal addresses. We face issues motivating these retailers to use the internet but provide physical verification for transactions. Some customers lack internet, so we offer card transactions through retailers’ internet and POS systems, facilitating cash-in and cash-out services.

What were the challenges faced in rolling out the payment product?

Partnering with financial service providers and ensuring maximum uptime with their APIs proved challenging. The digitization process faced resistance from retailers accustomed to cash transactions. However, showing the value of transactions making retailers creditworthy and offering convenient loans motivated them, despite the challenge of training ground staff.

Beyond digital wallets and BNPL services, what long-term plans does OmniPay have to broaden its service offerings?

We’re committed to staying within the retail value chain, focusing on strengthening small businesses. We’ve progressed from payments to inventory financing and aim to introduce asset financing for items like generators and fridges. Future prospects include offering cards, insurance, and potential community banking services through partnerships with our retailer network. We aim to continue empowering retailers by providing a comprehensive suite of financial services.

What do you make of scepticism around B2B e-commerce in Africa lately in light of upheavals at various companies that have fed unease about the viability of the venture?

I believe the reduction in funding and other struggles is linked more to external economic cycles on a global scale rather than reflecting the performance of the sector itself, although the era of cheap capital may have encouraged some businesses to splurge on unbridled growth on negative gross margins. I think times became tough for those companies as the tide turned.

What else?

The noise in the last few months about companies struggling is majorly not a change in the B2B e-commerce segment but basically, the change in the investor readiness to burn more money. Raising money today is very tough. And those companies who now go to investors with negative gross margins, don’t get what they expect, don’t get the valuations, don’t get the money. That’s what has changed, and that’s why all the news of struggles and challenges continue.

Finally, how is OmniRetail navigating these issues and what are the prospects?

I think on our side, things have been better. We’ve done well in terms of bringing in the efficiencies this year. We believe it’s possible to scale profitability in B2B e-commerce. We’re committed to providing access to essential goods in remote communities and see the sector as critical for economic development. Our efforts aim to improve infrastructure for efficient product distribution, envisioning more product variety and efficient distribution to even remote areas.