Small and medium businesses in Africa sell to and depend on imports from suppliers in other countries to meet their local production, sales or reexport goals. This significant trade flow between African countries and between Africa’s top trading partners globally may well be an overlooked opportunity for business payment facilitation.

In 2017, Nigeria’s central bank opened a special facility to provide up to $20,000 per quarter for small and medium businesses who struggled to access the forex they needed to finance imports. Similarly, last year, small-scale importers in Kenya were hit hard by a scarcity of forex that forced banks to impose $1500 to $2000 daily limits.

Despite these setbacks, a significant percentage of small businesses in Africa that sell to or buy from international suppliers still prefer local banking partners. This is according to a recently published report by Duplo, a Nigerian business payments automation firm. In countries like Kenya, Ghana and Nigeria, small businesses may source for foreign currency at parallel markets, but they may still have to settle vendor invoices by bank wires or electronic transfers. 

While Duplo’s report does not offer insight into the value of cross-border business payments, a cursory look at import-export numbers provides a snapshot of the value of cross-border transactions at the small business level.

For example, roughly 90% of all manufacturing companies in Nigeria are small businesses. In the last 3 months of 2022, for example, Nigerian businesses sold N5.3 billion ($7 million) worth of shoes, umbrellas, sunshades and headgear to other countries, data from the Nigerian Bureau of Statistics shows. In the same 3-month period, Nigerian businesses (and individuals) imported more than N25 billion worth of shoes, umbrellas, sunshades and headgear. That is the rough equivalent of $33.6 million at prevailing parallel rates in December. Both figures only represent 0.02 and 0.10 of Nigerian exports and imports in the last quarter of 2022, but they also represent a snapshot of the value of cross-border transactions made by businesses (mostly small and medium businesses) in Africa’s largest economy.

Banks are still the preferred business payments partner of African SMEs

Of more than 1200 businesses surveyed in Nigeria, Ghana, Kenya and South Africa, 61% engage in cross-border payments. Almost half (48.4%) of these businesses pay their foreign suppliers and vendors through local banking partners. Only 19.5% of surveyed businesses make cross-border payments with fintech solutions.

In all countries, banks are the preferred payment channel for cross-border transactions, by a significant margin. In Nigeria, Ghana and Kenya, fintech platforms come second—a consequence perhaps of the foreign exchange pressures the three economies have come under in recent years. But it also signifies how quickly cross–border payments on fintech apps have grown and overtaken the bureau-de-change and offshore banking channels.

What fintechs can learn from banks

While banks dominate, they have also failed to translate the benefits of their scale across the multiple African markets they operate in. Capital controls and onerous rules sometimes mean that the owner of a United Bank for Africa bank account in Nigeria, for example, cannot make payments or withdrawals to that account in another UBA branch in Kenya—even if they wanted to make those payments in foreign currency.

UBA has branches in at least 20 African countries. These sorts of barriers have not allowed pan–African banks like Ecobank, for example, to benefit from their scale across Africa.

Duplo says businesses may prefer banking partners because of existing business relationships and trust in traditional banking systems. If this is the case, it shows how banks have been able to leverage their local primary business relationships with small businesses to manage cross-border payment transactions.

That playbook is something African fintechs may want to explore.

Fintechs usually focus on local business banking or providing cross-border payment services. The lesson from banks is that providing only one of the two services may be too narrow of a focus. They cannot do this quickly enough. Access Bank, Nigeria’s largest lender by assets is strategically growing it’s presence in Africa. And it has a retinue of fintechs in tow. Including a majority stake in eTranzact, a leading payments provider with operations in Nigeria, Ghana, Kenya, Zimbabwe, South Africa, Cote d’Ivoire, and the UK.

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