Unpacking the potential to digitise African commerce

Micro, small and medium enterprises (MSMEs) are critical to the African economy as they account for 83% of private-sector employment. However, several pain points such as informal operations and fragmentation in the supply chain and digital payments create opportunities for disruption. In a recent report, titled The inflection point: Africa’s digital economy is poised to take off, Endeavor Nigeria outlines the potential to digitise commerce on the continent and highlights some of the start-ups taking advantage of these opportunities. Here are insights from the report.

Informal businesses in Africa are predominantly run manually, with weak management practices and a heavy reliance on pen and paper, as shown by the below graphs.

Source: ICT access and usage among informal businesses in Africa – Mariama Deen-Swarray, Mpho Moyo and Christoph Stork

There are three important conditions that give rise to opportunities in the commerce industry:

1. Informal operations

  •  A third of commercial activity and over 80% of employment in Africa is in the informal sector.
  • These informal businesses are often primarily operated manually (>85% of offline payments are in cash), with weak management practices, and with little regulatory oversight (84% of African MSMEs are unregistered).

2. Fragmentation in the supply chain

  • The retail and commerce landscape in Africa comprises millions of small businesses operating at various points of the value chain with little coordination or centralisation.
  • The supply chain that serves SMEs in Africa is highly fragmented, with multiple intermediaries, each adding their margin.

3. High cost to serve

  • The combined effect of informality, fragmentation and cash-based operations result in a high cost to serve, data asymmetry, and inability to extend credit.

The retail value-chain across Africa is highly fragmented

A bar of soap, leaving a manufacturer’s warehouse, will pass through up to four middlemen before landing on the shelf at a retail outlet.

African FMCG supply chain

Source: Euromonitor International, 2019.

Informal businesses face significant barriers to financial inclusion

SMEs in Africa are half as likely to have a loan, and they are twice as likely to cite access to finance as a major barrier to growth. In addition, they are significantly more likely to have their loan application rejected or to refrain from applying due to complex application processes and high collateral requirements.

Source: SME finance in Africa – Africa Growth Initiative

This informality and fragmentation presents challenges for last-mile distribution in Africa

The distribution network for retail products operates primarily manually with limited use of technology. Distributors often use simplistic approaches with very little route optimisation when supplying retailers in their region. According to one estimate, route optimisation can reduce the cost of delivering supplies by up to 66%.

Manufacturers’ visibility into their product penetration stops with the major distributors. Distributors operate manually giving manufacturers limited insight into their product coverage and stock levels across retail outlets. One study found that nine of the top 10 best-selling products across Nigeria were present in less than 30% of stores.

This results in higher prices for African consumers.

Start-ups digitising the commerce value chain

Using different initial wedges, digital platforms are attempting to digitise the entire commerce value chain and provide financial services to informal retailers across the continent. Some of these start-ups include:

Yoco – mobile point of sale (South Africa)
Expansion opportunities: Business loans, digital wallet, savings products, savings, supply chain
Year launched: 2015
Capital raised: $105 million
Investors: Dragoneer, 4DX, Partech

(Read our earlier interview with Yoco co-founder and CEO Katlego Maphai)

TradeDepot – supply chain (Nigeria)
Expansion opportunities: Inventory financing, digital wallet, POS, data and analytics, advertising
Year launched: 2018
Capital raised: $123 million
Investors: IFC, MSA Capital, Partech

(Read our interview with Onyekachi Izukanne, CEO of TradeDepot)

Kippa – bookkeeping (Nigeria)
Expansion opportunities: Digital wallet, inventory financing, savings products, supply chain, POS
Year launched: 2020
Capital raised: $3 million
Investors: Entrée Capital, Target Global, Alter Ventures, Rally Capital

Brass – bank accounts (Nigeria)
Expansion opportunities: Cash flow management and forecasting, expense management and control, payroll, tax payment
Year launched: 2020
Capital raised: $1.7 million
Investors: Ventures Platform, Hustle Fund

Case study: Yoco

A Yoco point-of-sale device.

A Yoco point-of-sale device.


Yoco builds tools and services to help small businesses accept card payments in-store and online, access loans, and manage their day-to-day activities. The start-up generates revenue through margins on hardware and software sales and fees of around 2.95% per transaction on its point-of-sale (POS) devices.


Yoco launched in 2013 and positioned itself among merchants in South Africa as the go-to platform to access offline payments. Yoco filled an essential gap as 80% of Yoco’s merchants had never accepted card payments before joining the platform (due to issues related to accessibility and costs of traditional POS systems). In 2020, Yoco launched a suite of online payment solutions to help businesses scale through the pandemic. These online solutions had a customer base of 80,000 small businesses.

In 2021 Yoco served 150,000 of South Africa’s six million small businesses with over 500 merchants per day. Yoco is looking forward to scaling offline and online offerings, expanding to new markets and reaching at least a million SMEs across Africa and the Middle East within the next four years. To make this happen, Yoco is increasing its team by 200 people remotely and has hired talent across companies such as Monzo, Paypal, Uber and Pagseguro.

Value proposition

  • POS payments: pocket-sized card machine Yoco Go and its smarter 4G/wifi device Yoco Khumo.
  • Online payments: get paid online without a website via Yoco Link, take card payments on a website via Yoco Gateway.
  • Other SME support: Yoco Portal’s free software to help manage sales, stock and staff, Yoco Capital’s fast, flexible cash advance for small businesses using Yoco.