Embedded Finance for B2B Payments in Africa: Future Outlook and Use cases

If your business handles money (and let's face it, which one doesn't?), you're going to bump into embedded finance sooner or later.

This does not mean every business is suddenly going to transform into a bank. But the way we handle money in business is changing fast. Remember when accepting credit cards seemed high-tech? Now we've got customers expecting to pay with their smartphones and smartwatches.

A few years ago, digital transaction volume in Africa was less than 80 billion in 2019. Projections say it'll reach $314bn by 2028. 

The numbers don't lie. The embedded finance market in Africa is on a steep upward trajectory. 

In 2021, the global embedded finance market was worth about $43 billion. By 2029, it's expected to hit $380 billion. 

What is Embedded Finance?

Embedded finance integrates financial services or tools directly into non-financial products, services, or platforms. It allows your business to offer banking, lending, insurance, or payment services to your customers without becoming a full-fledged financial institution. 

Ways Embedded Finance Help African Businesses

Embedded finance offers African businesses an easy way to integrate financial services directly into their products and services, enhancing customer experience, increasing revenue streams, and driving overall growth.

Here are ways your business can benefit:

1. Launch Faster and Smarter 

Building your own financial system from scratch can be costly, time-consuming, and overwhelming, especially if your primary business focus isn't on financial services or you lack experience in this area. Fortunately, you don't need to start from square one. Embedded finance allows you to bring your product to market more quickly and efficiently.

This approach not only saves you time but also significantly reduces your upfront costs. You'll be able to focus on your core business while still offering top-notch financial services.

2. More Ways to Make Money

With embedded finance, you're not just selling your primary product or service; you can make extra revenue by offering financial services.

Here are a few ideas:

• Offer buy-now-pay-later options and earn interest on credit extended to customers
• Process payments and take a small cut of each transaction
• Provide a digital wallet and earn fees on transfers or currency exchanges

The beauty of this approach is that you're adding value for your customers while also padding your bottom line. It's a win-win.

3. Enhanced Customer Satisfaction

Customers appreciate the convenience of managing multiple transactions in one place. For example, if you’re operating an e-commerce platform, you could offer:

• Seamless checkout experiences
• Personalized financing options
• Loyalty programs with integrated financial benefits

This level of integration allows your customers to handle all their transactions in one streamlined environment, reducing the need to switch between multiple apps and increasing their overall satisfaction. Satisfied customers are more likely to become loyal, repeat customers.

4. Gaining Deeper Customer Insights

Many embedded finance solutions come equipped with advanced analytics tools, enabling you to:

• Monitor spending patterns and preferences
• Uncover new cross-selling opportunities

These insights will allow you to better understand your customers and tailor your offerings to meet their needs.

Use Cases of Embedded Finance for African Businesses

Let's look at some of the most common ways businesses in the continent can use embedded finance to scale.

Top five use cases of embedded finance:

1. Simplified Payments

Embedded finance is transforming payment processes, making it easier for customers to transact. For instance, Jumia, a leading e-commerce platform, introduced JumiaPay, a dedicated payment system that offers customers digital wallets for seamless transactions.

2. Banking Services

While traditional banking remains the domain of banks, many companies are now offering banking-like services. Examples include savings apps that promote financial inclusion and HR platforms that streamline payroll management, providing convenient financial services without being a bank.

3. Credit as a Service

Embedded finance enables non-banking companies to provide credit facilities. For example, Bamboo, an investment platform, allows customers to obtain loans based on the value of their investment portfolios without requiring them to liquidate their assets. Similarly, many e-commerce platforms are implementing "buy now, pay later" options to enhance customer purchasing power.

4. Virtual Cards and Accounts

Businesses are issuing virtual cards and creating accounts for employees or customers to simplify expense management and make travel more convenient. These solutions are especially useful for managing corporate expenses and improving the user experience.

5. Investment Opportunities

Some companies are integrating investment options directly into their platforms, making it easy for customers to grow their wealth. For example, Cowrywise offers not just savings services but also embedded investment opportunities, like mutual funds, enabling users to diversify their financial portfolios.

How to Implement Embedded Finance in Your African Business

We have established how embedded finance helps businesses in Africa, but there's a caveat. You have to do it properly to prevent legal aand security issues. Here are ways to ensure a smoother experience.

Choose the Right Partners

Look for fintech companies and Banking-as-a-Service (BaaS) providers operating in Africa. Evaluate them based on technical capabilities, regulatory compliance, and local market expertise. Request case studies relevant to your industry and consider factors such as ease of integration, cost structure, and scalability.

Ensure Compliance

Collaborate with local financial authorities to understand the regulatory landscape. Hire legal experts familiar with fintech laws in your specific African country. Develop a comprehensive plan that addresses required licenses, data protection measures, and reporting obligations. Stay informed about regulatory changes to avoid future compliance issues.

Start Small and Scale Gradually

Introduce one embedded finance feature initially, such as a digital wallet for your most active users. Monitor its performance using defined metrics, and gather user feedback through surveys and interviews. Use this data to refine the feature before expanding it to your entire customer base.

Prioritize Security

Select platforms with robust security measures, such as multi-factor authentication and data encryption. Ensure they possess the necessary licenses and adhere to standards like PCI DSS and ISO 27001. Review their data protection policies carefully. Prioritize partners like Miden, who are not only committed to compliance and security but also understand the unique challenges of the African market.

Identify Opportunities

Begin by closely examining your customer journey to pinpoint areas where customers face challenges with financial processes. Use surveys and analyze customer feedback to identify these pain points. For example, an e-commerce platform might discover high cart abandonment rates due to a lack of flexible payment options.

The Future is Now

Embedded finance is already transforming the way African businesses operate. Consider how M-Pesa revolutionized mobile payments in Kenya or how Jumia integrated credit options into its online store. These examples illustrate how financial services can seamlessly integrate into everyday business operations.

Looking ahead, we can expect even more innovations tailored specifically for African markets. These may include improved methods for assessing credit risk, new cross-border payment systems, and micro-insurance solutions for farmers. By incorporating financial services into your business, you can not only boost revenue but also expand access to essential financial tools for people across Africa.