How to think about consumer innovation in Africa

NOVEMBER 22, 2020

This newsletter is a weekly in-depth analysis of tech and innovation in Africa that will serve as a post-pandemic guide. Subscribe here to get it directly in your inbox every Sunday at 3 pm WAT


I was reminiscing on a phone call that the year 2020 feels like 10 years rolled into one, and it’s still going on. Anyway, I hope you are well, and keeping safe. 

Money has been steady flowing into Africa’s tech startup ecosystem. Two weeks ago, Kuda Bank announced a $10 million seed round. 


Inside Kuda Bank’s playbook for banking every African


Then a few others seed funding announcements followed in quick succession; $300,000 for TalentQL from Nigeria, and $3 million for Kenya’s Sote.

Chipper Cash was the latest with a $30 million Series B round. The P2P payment startup is currently available in seven countries: Ghana, Uganda, Nigeria, Tanzania, Rwanda, South Africa and Kenya.

As well as building out more products, Chipper Cash plans to expand to other regions in Africa with this money. 

But before then, in light of Chipper Cash’s raise, here’s a seemingly simple question for you:
What is the best way to send money from Nigeria to Congo DRC?

If an answer immediately comes to mind, then you have done this before, or work in fintech. 

In theory, there are different options for this, and a Google search will show you more, but practically, the interoperability of financial systems in Africa is harder than meets the eye.  

Want to know why? I’ll tell you. 

Please subscribe to this newsletter if it was forwarded to you, and check out older editions, then come along for an interesting ride.

Surprise, surprise!

“Considering that I was sending money across the world on a weekly basis, I always imagined that it’ll be a walk in the park to do the same at home [Africa]. Then my business partners had dealings across Africa I offered to facilitate logistics, and was in for a rude shocker; it took me weeks to figure out how to regularly send money to other [African] countries, especially the ones that are not very popular.” – Okey, Nigerian businessman. 

Africa has grown to have some of the world’s highest rates of digital payments, and fintech is currently the sexiest thing around. 

This excerpt from a piece sums everything up;

“East Africa, home to Safaricom’s MPesa, remains number 1 in the world in terms of transaction volume and value, according to the GSMA State of the Industry Report on Mobile Money 2019. The region’s 102 million active accounts is the highest in any sub-region; its 17.1 billion transactions generated an unmatched $293.4 billion in value, a 24% increase from 2018.”

But regardless of these seeming financial revolutions, cross border payments on the continents are still a major headache. A lot of people share Okey’s sentiments. 

The reason for this is simply fragmented infrastructure across financial institutions on the continent, and most of the blame for this can be put on regulators. 

There’s a stark contrast in countries, and here are some common examples; 

  • Nigeria’s financial infrastructure is largely bank-led and telcos are still fighting an uphill battle with regulators for a piece of the market. 
  • In Kenya, telcos and mobile payments are the predominant players with Safaricomm dominating a large part of the market. 

In 2014, following insane hyperinflations, Zimbabwe was on its way to becoming the first truly cashless economy in Africa, but 6 years later that dream is still in the pipes. 

Zim is still very cashless, but government interference and clashes with leading mobile money provider, Econet has stalled progress greatly. 


Lockdown highlights Zimbabwe’s desperate dependence on foreign remittances


The fact that Nigeria’s central bank, in context of other African countries, is one of the most innovative is very telling of the rate of response to building infrastructure. 

The aforementioned examples are not to deride these regulators as Africa is globally way ahead in terms of financial technology, neither is it to sidetrack from the conversation at hand. Rather,  it is to exemplify the difference in financial structures. 

As developed as these structures are in Africa, they still suffer government interference, and most importantly are not moving fast enough for the pace of development. 

Of necessity, and solutions

In March 2018, most of Africa signed the African Continental Free Trade Agreement (AfCFTA); the world’s second-largest trade agreement to date. 

AfCFTA is very important for a lot of economic integration, market unification and intra-Africa trade relations. 


The Next Wave: After this, AfCFTA what?


Unified payment infrastructures across the continent, which currently do not exist, are a very important requisite for trade agreements.

Cryptocurrencies are one of the theoretically feasible solutions that I mentioned in the intro of this newsletter. Their borderless nature, and non-conformity to government regulations make them the perfect solutions. 

Startups like SendCash, Bundle, Bitsika, among others, are currently simplifying the process of sending money with crypto. 

As good as digital currencies are, they are not widely adopted enough. CTO of Bundle, Taiwo Orilogbon said that
“currently, only 1.4 million people out of 1.2 billion people in Africa use crypto today.”

While this is a statement of the opportunities in the market, it underscores that crypto is not ready for the urgent need for a unified payment system across Africa. 

‘Then what?’

In this case, it’s trickier to ask regulators to do something. What should they do? I mean, beyond making better regulatory environments, I’m not sure what’s next. 

Open source software, Mojaloop is a very seemingly viable option for interoperable infrastructure in Africa. 

A definition from a bootcamp by investment firm, DFS Labs, succinctly defines Mojaloop as: 

“A reference model for payment interoperability, that can be used to overcome barriers that have slowed the spread of digital financial services. Whole, adapted, or as a blueprint – the Mojaloop Foundation’s open source software can be used by organizations to build interoperable, digital payment systems that enable seamless, affordable financial services between individual users, banks, government entities, merchants, mobile network operators, providers, and technology companies – connecting the underserved with the emerging digital economy.”

Simply put, a Nigerian fintech startup plugged into Mojaloop can enable me to pay somebody in Congo DRC regardless of what platform they are on. 

The possibilities are endless, and it seems like an awfully straightforward answer to a complex problem. 

How to think about consumer innovation in Africa
It seems like everything around here eventually goes into a sachet. And not just consumer goods; TV subscriptions, internet bundles, and even financial services, are broken down to bits. This week’s edition of Factsheet uses the concepts of ‘sachetization’ to explain, in layman terms, a mental model for innovation. 
Africa’s billion dollars e-waste problem. “In 2019 alone,  recoverable material like gold, silver, copper, platinum and other such materials worth US$57 billion were lost to improperly recycled electronic waste.” With the help of infographics, this article explains this problem, and how you may be complicit. 
“It is interesting how much entrepreneurs and sources of capital have become closer in a virtual world, and this will be a trend that will be dominant post-COVID. Extensive screening processes used to require startups to physically get in front of investors. But now, virtual meetings have brought companies closer and reduced the transaction costs of travel.”
– John Nikolaou, Account Manager, InsiderPR.  
Every week, we ask our readers, stakeholders and operators in Africa’s tech ecosystem what they think the new normal will look like,and share their thoughts here. You can share yours to with ‘The Crystal Ball’ in the subject line.
Transport Charges
Let’s play a little guessing game. If Akello sends money from the UK to his mum in Kenya and he also sends money to his business partner in the Philippines, which one of these will accrue higher charges? 
If you said Kenya, you are most likely to be correct. In the first quarter of 2018, the average cost of sending $200 to anywhere in Sub-saharan Africa was about $19 about 20% than the remittance charges for any other region.

In 2018, Africa received about $65 billion in remittances but the cost of sending that amount is estimated to be about $1.8 billion annually. 

Historically, remittance costs have fallen. They fell from 14% in 2008 to about 10% in 2014. There’s no new data to suggest much has changed in the last two years. Since 2015, average cost has been between 9 – 10%.

Remittances make up 2.5% of Africa’s GDP but they are the lifeblood of the economies in some countries. In Liberia, Comoros, and the Gambia, remittances make up over 20% of GDP.

What the high charges imply is that while remittances make up a huge portion of the income in many African homes, recipients sometimes give up a sizable amount of the money sent to them. In some cases, senders bear the additional charges. 

Two of the major reasons for these high remittance charges are bank regulations and exclusive agreements. Bank regulations put in place to check money laundering and terrorism financing drive up administrative costs which affect the cost of remittances. In some cases, the nation’s post office has an exclusive agreement with a money transfer service. And since the post office is more widespread, consumers have no other option. Competition typically drives down cost.

While the rise of crypto has resulted in many businesses using it for cross-border transactions, it is still not widely used for sending home. Much more needs to be done to encourage innovation in remittances.

If you are a founder in Africa, please fill our investor list here and let us know who gave you your first check. Get TechCabal’s reports and send us your custom research requests here.

Best wishes for a great week

Stay safe and please observe all guidelines provided by health experts.

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– Victor Ekwealor, Managing Editor, TechCabal

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