Mobile payment, the main growth lever for e-commerce in Africa

Thu 06 Jun 2019

Established in 2012 in Lagos (Nigeria), Jumia operates in 14 countries. This leader in the e-commerce space, which the Financial Times has described as Africa's “first unicorn”, has had to deal with the same challenges as its western counterparts in terms of procurement, logistics, etc. However, it has also had to contend with issues specific to Africa, such as the payment methods commonly used by consumers.

What is Jumia’s business model?

When we first started out, Jumia positioned itself as a conventional e-commerce company: we bought products and resold them. In 2014, we decided to switch to a marketplace model. Today, nearly 90% of our sales are made by our partners. Our marketplace sells everything from fashion to household appliances, hi-tech products and food. It also provides meal delivery and hotel and flight reservation services. Lastly, we have an app called “Jumia One”, which customers can use, for example, to pay their utility bills, recharge their phones or (soon) print out cinema tickets.

What arrangements have you made regarding payment?

There was very little mobile money in Africa when we first started out in 2012, and bank cards were neither popular nor safe. We therefore invested in a tool that allows our customers to pay cash on delivery. After a period of adjustment, we managed to organise flows efficiently by building our own logistics marketplace, which enables us to deliver either directly or through a partner.

Doesn't cash payment have its limits?

Accepting cash payments helped us get our business off the ground. But there are indeed a lot of downsides: the delivery person must carry change, which raises security issues, and the financial flows can be difficult to reconcile.
We have also noticed that when customers have the option to pay on delivery, they tend to change their minds more easily and send things back. So, prepayment has become a priority. Unfortunately, the payments market is very fragmented in Africa. For example, in Nigeria there are international cards, local cards, instant wire transfers, over-the-counter cash payments, etc. We have therefore set up a payment solution called “JumiaPay”, in which all payment types are managed within a single account to facilitate the buying process.

What progress is needed to facilitate online payment?

From a technological perspective, more must be done to achieve uniformity.

Most payment operators provide APIs for connecting to their systems; however, these APIs vary from one country to another. So, a substantial development and integration effort is needed.

The user experience also needs to be improved, as it is not really suited to online shopping (if they are using their smartphone, consumers have to switch back and forth between the e-commerce app, the mobile money app, their texts, etc.). Some countries are more advanced than others. In Kenya, for example, M-Pesa provides a very simple payment system for e-commerce. As a result, the order conversion rate is higher. We also use aggregators to handle payment methods that are not directly integrated in JumiaPay. In this area, service levels, incident resolution times and the reconciliation of financial flows need to be improved.

It is worth noting though that the market is very young – many of the stakeholders are only two or three years old, so the sector will become more mature.

Mobile money services may also be expanded to include savings and loan facilities. How could this impact your business?

Consumer credit is not very common in most of our markets. As it becomes more widespread, we will be able to offer new products and increase our business volume. Mercado Libre, for example, which is a Latin American equivalent of Jumia, generates more than 60% of its sales volume from consumer credit. At Jumia right now, the figure is 0%!
So, you can imagine how impatient we are for similar credit solutions to be developed here! However, they must be adapted for e-commerce. A handful of options already exist in various countries, but the administrative processes are very long. It is important to be able to handle electronic signatures and make instant credit decisions.

Credit can also take the form of advance payments to merchants. Is that something Jumia might consider?

Of course. We have been offering this type of financing for over a year, through an SME lending marketplace accessible only to our sellers. How does it work? We collect information on our sellers (sales volumes, service quality assessments, delivery lead times, etc.), and we share it with lenders (banks, microcredit agencies and other financial institutions), which can grant loans almost instantaneously. We have already raised over €3 million in credit. At first, the initiative was managed completely offline. Now, the entire process has been digitised: from onboarding through the application process to the loan offer. The next step is to digitise payment by setting up automatic monthly repayments based on the sales volumes we finance. We therefore create a virtuous circle, enabling our sellers to finance their needs, invest in more inventory, stock new types of products, and prepare for major commercial events like Christmas and Black Friday.

Your business's growth potential also depends on your ability to reach sellers and buyers in rural areas. What is your strategy?

Alibaba has handled this issue perfectly well in China by supporting buyers and sellers to set up an account and manage their online store, inventory, etc. As for Jumia, it has created a “Jumia Force”: a network of more than 50,000 agents affiliated with Jumia, who sell Jumia products to their relatives, friends and acquaintances, who do not necessarily have access to the Internet. They place orders on the site on behalf of their friends and family, and receive a commission. The “Jumia Force” is also tasked with training potential sellers to distribute their products outside their usual geographic area.

What proportion of your business is generated by B2B sales?

Right now, Jumia is a B2C platform. We are in discussions with several players in the fertiliser industry, for example, to make it much easier and cheaper for farmers to order their fertilisers, and to deliver greater price transparency.

The next long-term step is to develop B2B sales, as is the case in Europe. Our presence in 14 countries is a very valuable asset in this respect!