In 2018 FiDA Partnership conducted interviews with several key platforms in Africa looking at how platform business models are evolving in terms of financial services.
There are several important challenges that digital platform businesses are facing when trying to integrate financial services into their business models, but we saw three themes emerge from our recent research highlighting areas where Africa platforms are struggling.
- Partnering with financial institutions has been difficult,
- Platform users need to be educated about the financial services products on offer, and
- Regulations are hampering, without equally incentivizing, platforms from exploring worker benefits.
These issues were uncovered during interviews we conducted with six platform organizations and two ecosystem players active in sub-Saharan Africa.The discussion below highlights these pain points and makes some recommendations for further areas to explore .
Partnering with financial institutions has been difficult
Platforms have not had an easy road partnering with financial institutions. Primarily, the challenge has been a poor fit between financial institutions’ existing product suites and what platforms (and their users) need. In interviews, Lynk and Jumia both noted a lack of suitable products and partners. Lynk, in particular, noted a gap in the marketplace for lending products with logic of sufficient flexibility for the loan product they would like to offer, as well as health insurance products that sit somewhere between microinsurance for completely uninsured individuals and higher levels of insurance.
Partners willing to work quickly and collaboratively on product design, like FinTechs, have been useful, but there are a limited number of FinTechs to choose from. Moreover, platforms need multiple FinTech partners to cover several countries because continent-wide deals are not presently possible. Ultimately, banks are still desirable partners because of their scale.
You can either build a small house quickly (FinTechs) or build a mansion over time (banks). We have a very broad spectrum of merchants—from tiny one man entrepreneurs to quite big SMEs—so they have a broad range of financial needs. One FI [financial institution] cannot cater to all [of] them. There is no one partner who is going to solve for all of this and understand all of this. —Jumia
Additionally, platforms have experienced technical limitations integrating with financial services providers. Jumia would like to provide consumer loans but is struggling to find a partner with whom they can share data in real time and quickly get a lending decision.
Conversions are key to e-commerce business models: a consumer who has chosen a product needs a loan decision at the moment of checkout, not days later. —Jumia.
Even as FinTechs and other financial services players make progress, payments infrastructure remains a challenge. Lynk has used M-Pesa for disbursements to Pros (i.e., workers or artisans on Lynk’s platform) as a workaround because most Pros do not have bank accounts and because they have had technical issues with bank APIs. This, in turn, has created further challenges when payouts are too large for a single M-Pesa transaction (the daily cap is KES 70,000 = $700) and have to be split over several days. Jumia also mentioned issues knowing whether funds have cleared into bank accounts. On the consumer side, Jumia was dissatisfied with payments infrastructure options that could operate Africa-wide and decided to build their own payments gateway, which also gives them more control.
The issues that platforms in Africa face around partnering are probably more to do with timing challenges (i.e., being early innovators while legacy financial institutions catch up) that all startups face, as opposed to something unique to Africa. That said, banks are notorious in their ability to move slowly when it comes to product or technology changes. Exploring how other Global South regions, such as South Asia and Southeast Asia, address partnering issues might give African platforms new ideas that can be applied to their context.
Platform users need to be educated about the financial services products being offered
Platforms that offer financial services have a duty of care to make sure people understand the terms and conditions to which they’re agreeing. In this sense, platforms are upskilling workers’ and merchants’ financial literacy in a way that enables them to better manage their finances on and off the platform. Indeed, in an example of this, Sokowatch noted that financial education was critical to the growth of the revolving credit product they currently offer.
FiDA Partnership is researching impacts of transformational upskilling—for platforms and producers on platforms as well as for cities, regions, and countries—with particular emphasis on the business case for platforms. For more details about transformational upskilling, see this post on how teaching skills to digital platform users can increase value for all.
Regulatory frameworks have not kept pace with platformization
Currently most jobs in Africa are informal and without the protections and benefits, such as healthcare, sick leave, and pensions, that formal employment offers. Platformization may exacerbate these challenges in various ways, particularly in developed countries where the number of independent contract workers is increasing. It is also bringing to light the inadequacy of many countries’ current regulatory environments around independent contractor employment and whether companies like platforms employing large volumes of independent contractors should or shouldn’t be required to comply with statutes.
Meanwhile, some platforms that want to offer benefits to their workers are running into regulatory challenges. Lynk, for example is learning that government pensions and health schemes were not built with platform businesses in mind. At present, Kenya’s National Health Insurance Scheme only allows individuals or employers to make contributions on behalf of someone else, however, platforms do not want to be seen as employers because this would put them in an uncomfortable position. Lynk would like to see the regulations around the scheme in Kenya updated so that anyone could provide health insurance contributions to a national program, which would save the company from having to source or own a separate product to offer benefits.
This is an important and timely topic, but one that is incredibly complex. Addressing what a single platform like Jumia, which operates in 14 African countries, should do involves navigating labor laws and regulatory gray zones in at least as many countries. While governments and policymakers evolve their thinking, it may be useful for development actors interested in this topic to explore what labor policies might be appropriate in the platform era and how policy could incentivize an actor, such as Jumia, to provide certain benefits. It may also be useful for both businesses and policymakers to have a better understanding of how worker benefits are regulated under labor laws across Africa and where gray areas exist.
These pain points are probably not unique to African platforms but challenges that platforms elsewhere are facing as they adapt and evolve with the changing landscape brought about by platformization. It is important for the development community and policymakers to understand how African platforms perceive problems scaling and how financial services and financial inclusion play in. These three pain points reflect potential areas for collaboration in ways that will benefit platform users and accelerate digitization of the economy.