Cross-border ecommerce opportunities in Africa

Cross-border ecommerce opportunities in Africa

In November MFS Africa and Chipper Cash announced they had raised $100m and $150m respectively to scale up their cross-border ecommerce services in Africa, joining a growing number of companies targeting this emerging market. Big opportunities lie in connecting the African continent and supporting within-region, cross-border ecommerce.

Africa cross-border ecommerce: key developments

Why should we look at Africa?

Ecommerce revenue in Africa is predicted to reach $25bn this year. With a projected annual growth rate of more than 13%, this could reach $40bn by 2025.

Africa is also home to 1.2 billion consumers – a young and tech savvy population – who could help drive this trade. Fast-growing smartphone and internet penetration, and most importantly high usage of mobile wallets, are expected to positively impact ecommerce growth in the region.

2021 saw a surge – fuelled by the pandemic – in the number of startups offering innovative payments solutions to meet the cross-border ecommerce challenges, largely by leveraging digital and mobile technologies or API.

What are the barriers to ecommerce accessibility?

Well-known challenges for cross-border ecommerce in Africa are regulations, the logistics costs, as well as taxes and customs duties. However, lack of trust in internet-based commerce from the local population (often coupled with the lack of digital skills) is also a factor. These all make it difficult for most countries to efficiently trade across borders. However, with the African Continental Free Trade Area being implemented, substantial regulations and cost improvements are expected over the next five years.

Access to efficient payment systems (in particular pay-in in local currency and pay-out in currency of choice) remains the most important barrier. Although local payment schemes are often successful, the very complex and fragmented market make cross-border payments difficult and often stop merchants from selling cross-border.

Grasping the ecommerce opportunity: building technology for cross-border

The African ecommerce ecosystem is still nascent, with the penetration of ecommerce as a percentage of the total retail market only at about 1% (compared to 13% in the US and above 20% for China). 

Leveraging the right technologies to build an interoperable payment system is expected to unlock strong opportunities for cross-border. More integration of digital wallets on ecommerce platforms will also help simplify the checkout experience and drive conversion.

Local governments need to support the development of innovative payment solutions adapted to local needs and to empower both small businesses and consumers. Building the right payment ecosystem will also require more partnerships between merchants, mobile operators and payment providers. Moreover, digital skills initiatives need to be implemented to upskills consumers and small businesses.

Addressing cybersecurity and fraud challenges in cross-border payments will be essential to the growth of the nascent industry in Africa. A number of startups are active in this space.

Flutterwave partnered last April with Forte to help identify fraud and security issues including flagging illegitimate consumers and merchants on the ecommerce platforms.

The future of ecommerce in Africa

Overcoming infrastructure, macro-structural and regulatory constraints will help maximise the ecommerce opportunity in Africa. As governments in the continent recognise the potential for ecommerce and cross-border payments to drive economic growth, addressing the key challenges to ecommerce adoption will be critical, as will fostering collaboration between all stakeholders in the ecommerce and payments ecosystems.

The high number of venture capital firms investing in Africa in 2021 sets a positive trend for the cross-border ecommerce ecosystem. Those investments have paved the way for more innovative payment solutions offering localised payment experiences.

Additional research undertaken by Adeyanju Pinheiro-Aina.

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