Infrastructure underpinned by technology is critical to modernizing the payments landscape of any market.
In Francophone West Africa, the payments infrastructure remains well behind those of more developed markets like Europe. Yet its telecommunications infrastructure has flourished and today, while the region has a large underbanked population, its high penetration of mobile phones has created a new landscape upon which to build innovative financial tools.
According to Mathias Léopoldie, president of B2B payments FinTech Julaya, that infrastructure has been key to understanding the best path toward digital business payments and disbursements. But when considering the power that FinTech innovation can have on leapfrogging B2B payments into the digital age, it’s important to prioritize the finance — not just the technology — aspect of those efforts.
Working With the Ecosystem
The most successful disruptive technology often takes two varying journeys to adoption. In one path, a technology might be so beneficial that end users are willing to change their behavior to adopt it. In the other path, technology can embrace the behaviors that are already deeply ingrained in a community and use those patterns to change outcomes.
Julaya has decided to take the latter across West Africa, where Léopoldie said an understanding of the biggest payment challenges of the market was essential to developing a solution people would use.
Today, in Francophone West Africa, FinTechs only have the opportunity to obtain an electronic money transfer license (not a payment service provider license). With so many people underbanked, it’s clear that banking and payment rails have limited reach. Yet with mobile phone penetration so high, the market already offers a platform for FinTechs looking to disrupt.
For Julaya, its target pain point is the process through which businesses make payments and disburse funds. Scenarios in which money must move quickly — to pay employees or subcontractors, for instance — can create significant friction considering the costs and sluggishness of wire transfers as well as the low penetration of banking services. The result? A lot of inefficient, and even dangerous, cash-based transactions.
With this current climate in mind, Léopoldie said it was clear that the mobile device offered a smoother transition away from cash.
“It’s not about trying to impose something new,” he explained. “Our customers already do some mobile money payments.”
The opportunity, he continued, was to translate a payments ecosystem designed for B2C payments into a solution that could offer a better corporate end user experience of mobile transacting. Typically, businesses must work with an agent in cash to initiate a payment to a mobile wallet. This creates plenty of friction, not to mention results in challenging accounting and reconciliation workflows.
Most of the time, this poor experience leaves businesses to continue working in cash instead.
In July, Julaya raised $2 million in funding to support its mobile-based B2B payment offering, with a focus on lower-value transactions that can enable faster payroll and supplier payments than wire transfers or cash transactions.
This focus reflects yet another way that the existing ecosystem and infrastructure can guide a B2B payments modernization strategy. Because the foundations of this product were designed for B2C payments, higher-value transactions are not always feasible. Yet Léopoldie noted that for the businesses that do need to make those larger payments, there typically isn’t a need to do so quickly, and thus wire transfers can be acceptable. But as Julaya expands, targeting those higher transaction amounts will be on the roadmap.
Leapfrogging Into Digitization
While West Africa’s payments infrastructure may not be as modernized as Europe’s, that’s not to say elevating the payments ecosystem in the region won’t be a success.
On the contrary, unlike markets in the U.S. — in which paper checks remain so prevalent despite heavy investments in payments modernization — Francophone West Africa has the potential to leapfrog over those legacy solutions to jump right into a world of mobile-first electronic B2B payments.
Léopoldie said the market has other opportunities to urge ahead, especially as traditional banks leave plenty of gaps for FinTechs to fill.
“Banks are not taking this leapfrog opportunity,” he noted. “The market demand is high for a solution, and you can reach very high volumes much faster than you could do in Europe, for example.”
He predicted a continued rise of mobile money infrastructure that could eventually be replaced by bank rails if the banking ecosystem accelerates its upgrading efforts. Cryptocurrency and blockchain infrastructure offers another promising avenue to modernization, Léopoldie added, particularly in markets with a high degree of currency volatility.
Léopoldie made sure to emphasize the role that banks and other players in the traditional financial services ecosystem play in driving modernization of B2B payments and other areas. Industry collaboration should be embraced to mitigate as much friction as possible.
“FinTech people tend to forget the ‘financial’ part of FinTech,” he said. “They really focus on the ‘tech,’ but you have a lot of customers you can reach through banking partnerships and traditional banking products.