COVID-19 related lock down reinforced the need for digital payment, driving significant changes in commerce and payments behaviour, boosting P2P, B2B and B2C digital payments. The growing trend towards consolidation in merchant payment enables acquirers to scale across geographies and offer multi-geography solutions. For the merchants, their needs revolve around the following; optimise payments in digital channels, approve the most transactions for the least cost, achieve geographical scale without multiple integration, further provide industry specific value propositions addressing market needs and risk levels. For the Payment technology (Paytech) companies, their needs revolve around improving system stability, reducing fraud/chargebacks, reducing merchant churn, growing the merchant base, and expanding their service offering to increase revenue.
Many Paytechs are providing targeted value propositions specific to industries, additional financial services like investment and trading, cryptocurrency transactions and debit card offerings or/and becoming commerce marketplaces. As digital payment becomes commoditised, helping merchants receive non-cash payment faster and safer, Paytechs grow and increase in number and size in Africa. To succeed, what are they doing to ensure that they remain competitive and relevant?
State of digital payment in Africa
Paytechs in Africa are thriving and this is best exemplified by the increasing ticket sizes of funds raised from global venture capitals (VCs); Cellulant, Flutterwave, Interswitch, OPay, Wapi Pay, warranting acquisitions by foreign Paytechs; Paystack, DPO group, getting new licensed players; PesaPal and global players with operations in multiple African countries; PayU, Ingenico. Paytechs abound and this work would not cover all of them, though it is important to mention Flocash, Fawry, Kopo Kopo of course the Telcos digital money services like M-Pesa, Orange money and MTN mobile money.
Africa is an emerging hotbed of entrepreneurial activities. The continent has 54 countries, and an estimated population of 1.3 billion people. With a young, fast-growing and increasingly urbanised population, the rapid adoption of technology makes the African continent a fertile ground for innovation. Yet for payment, cash is still king and Paytech’s major competition besides themselves is cash. Although the market is big enough for all players, what are the competitive dynamics deployed by these Paytechs to remain relevant?
Competitive dynamics refers to a series of actions and reactions of companies taking part in a competitive business environment in an industry. Here, each company continuously makes choices, takes actions and chooses their responses to rival activities in order to strengthen its competitive position relatively and remain relevant in the market. Based on my experience, below are some instances of competitive dynamics in the African payment industry.
Basically, most of the Paytech companies have a user-friendly interface both for the software developers integrating the APIs and for direct consumers–i.e., merchants (who have dashboard access to view transaction reports and analytics in real time) and payers on the merchant website during their checkout experience. But these are the basics. Beyond accessibility, what are other games deployed to keep merchants hooked on Paytech’s services? Remember that surface integration is easy to replicate, and, because of redundancy, most merchants use over one payment provider. Below, I have highlighted some of the key ways/strategies Paytechs leverage to engage and provide niche/top-notch services to merchants, whilst continually improving their reach and overall value.
- Multi payment channel acquiring and payment tokens-
In recent times, the lines between offline and online transactions have blurred. It’s almost predictable that most retail chains with offline stores also have an online presence. COVID further pushed traditional businesses like restaurants to have an online presence. Paytechs that can serve merchants online and offline payment service needs using a single integration appeal more to merchants. Also offering multiple payment tokens such as alternative payment methods- Bank account, mobile money wallets and other electronic wallet options facilitate high conversion rate as they provide buyers with convenience and choice. Lately, Paytech like Flutterwave plugging in international payment options, such as PayPal and Alipay and Paystack plugging in Apple Pay, has differentiated both players. Local merchants with international consumers are having more options to receive payment, just as regional merchants can receive payment through mobile money wallets. These capabilities give Paytechs a competitive edge.
- Industry-focused value propositions/ Vertical expertise
Some Paytechs have differentiated themselves by providing industry-focused services/expertise. Industry verticals such as airline and aviation, travel and tours, hotels, ecommerce, betting, medical and education require focused services.
Paytechs such as DPO group, Cellulant and Flocash are popular for their airline collections. Cellulant built this expertise by partnering with Kenya Airways in 2017 to provide a variety of mobile and bank payment options to their customers paying for bookings online. DPO group first foray into Payment was in 2006, when Kenya Airways requested the company to develop an online booking system that would cater to the needs of foreign travelers and tourists. Since then, they now serve over 50 airlines.
Although most Paytech serve domestic airlines digital collection in their local market, the implication of getting partnership invitations from international/regional airlines is that they expose the payment companies to Global Distribution System (GDS) integration, a computerised network system that enables transactions between travel industry service providers; airlines, hotels, car rental companies, and travel agencies using real-time inventory (e.g. number of hotel rooms available, number of flight seats available, or number of cars available) from the service providers. Integration with the GDS enables these payment companies to build other value add that then makes them attractive to other airlines.
Some Paytechs, like Remita and Xpresspayment, are popular for government/public sector collections in Nigeria.
- Global affiliations through Partnerships or acquisitions-
Global affiliations through partnerships or acquisition also set aside some payment companies because of the service standard, access and infrastructures of the global partners being passed on to the partnering payment companies. Examples of such partnerships include Intouch partnership with Worldline & Total, WorldPay (FIS) and Flutterwave partnership, Stripe acquisition of Paystack, Cellulant and Adyen partnership, etc. These global partners, by the virtue of these partnerships, transfer brand recognition, global clients or third party (mostly consultants) referrals to the partnering company. There was an instance where a local payment company affiliated through partnership with an European payment company won a bid for an international airline collection. Affiliations with global Paytech make domestic or regional Paytechs appealing, hence more competitive, to global merchants.
- Platform/ Marketplace Play
Alongside having plugins to all the e-commerce enabling platforms such as Magneto, WooCommerce, Shopify, Wix, OpenCart, Ecshop, some payment companies create store fronts enabling anyone to sell physical and digital products online. Examples include Flutterwave store, Paystack storefront, Quickteller store, etc. Going a step further, Paytechs like Flutterwave are creating a marketplace aggregating stores all over the world and creating huge global exposure to merchants on their network. By creating an ecosystem that connects buyers with sellers, it fulfills its core function of collecting digital payment.
Cellulant’s Agrikore is also a digital marketplace connecting actors across the agricultural value chain for farmers, traders and processors. Cellulant facilitates payments resulting from transactions within its platform. This capacity to transform from a payment gateway to a platform, bringing together buyers and sellers, makes Paytech more appealing to merchants seeking to grow their market.
- Geographical coverage and compliance peculiarity
Some categories are the African continent using the hemisphere- South Africa, East Africa, West Africa, North African and Central Africa. Others categorise it by language- Francophone and Anglophone Africa. These categorisations have political and economic implications, resulting in policies that guide business conduct.
PesaPal is positioned as the gateway to East Africa. This makes regional coverage one of its competitive advantages. Meanwhile, some payment companies such as Intouch, CinetPay, Paydunya are positioned as Francophone payment gateway.
Twenty-one out of the fifty-four countries in Africa speak French either as their sole official language or second official language. This is because of their colonial heritage in France. While the Economic and Monetary Community of Central Africa (CEMAC), comprising Cameroon, Republic of Congo, Gabon, Equatorial Guinea, Central African Republic and Chad use the Central African CFA franc (XAF), the West African Economic and Monetary Union (UEMOA), comprising Benin, Burkina Faso, Ivory Coast, Guinea Bissau, Mali, Niger, Senegal and Togo use the West African CFA franc (XOF). These two CFA franc currencies have a fixed exchange rate fixed to the Euro and though they have always been at parity, are effectively interchangeable.
Based on the currency peculiarity, these Francophone countries share similar monetary and compliance policies that make cross-border transfers with one another easier than other African countries that are not members of CEMAC and UEMOA. When a business wants to scale the Francophone region or a geographical region, Paytechs that have aggregated payment channels in the region have competitive advantage over others that do not.
Summary
To grow merchant acquisition in a competitive environment, African Paytechs are being creative with their offerings, harmonising offline and online collection, aggregating multiple payment channels, integrating international payment wallets and tokens. Some are focusing on niche markets by providing industry focused payment while others are becoming a marketplace- pivoting from a payment gateway to a platform that connects buyers and sellers of product and service while facilitating payment in the ecosystem. Others are differentiating themselves through affiliations with global Paytechs, either through partnerships or by being acquired. Some are using geographical or language privilege to dominate segments of regions with uniformity in compliance and currency. By adopting these positions, African Paytechs ensure their offerings remain relevant to merchants.
