“Over the next five years, an even greater rise in digital interactions between buyers and suppliers will break traditional sales models. 80% of B2B sales interactions between suppliers and buyers will occur in digital channels.“
The Gartner Future of Sales 2025 report
Civilization, no doubt, has benefited from bilateral trade and cross-border trade over the centuries. Water channels have been pivotal in cross-border trade. For example, the most populous of Arab nations, Egypt, depends on the Nile River for transportation, and as a hub of its ancient civilization. While water, air, and road still remain critical to trade, inexpensive and faster payment and communication infrastructure boost economic activities across regions. There has been tremendous infrastructural progress in developed countries. Developing countries that catch up fast accelerate their economies. Implementing replicas of other systems may not be feasible as different cultures have peculiar characteristics. However, it seems prudent to make these systems interoperable. It will be difficult to enjoy trade from a country when your ship cannot berth in the harbors of that country you intend to do business with. In like manner, unfavorable infrastructure and regulatory frameworks repress the mutual benefits of global trade. Cross-border payment is a centerpiece of global trade.
Inexpensive speed, inexpensive payment, and interoperability are good for business.
COVID-19 pandemic has accelerated the need for digital transformation across the globe. One area we are seeing rapid growth is in cross-border remittances. According to a World Bank report, COVID-19 Crisis Through a Migration Lens, remittance flows to sub-Saharan Africa recorded in 2019 is $48 billion. Nigeria, the largest population in Africa, is by far the largest recipient of remittance with $23.8 billion in 2019 followed by Ghana ($3.5 billion) and Kenya ($2.8 billion). In 2020, Nigeria reported $17.2 billion but remains the strongest receiver of remittance in the region. The actual remittance flow, including informal channels, is likely to be significantly larger. The global sourcing of attractive tech talent from African countries is soaring. These energetic young demographics are great examples of cross-border payment participants. Limitations from traditional cross-border models make other means attractive. Lower fees remain a significant factor in remittance.
According to a world bank report, “Officially recorded remittance flows to low- and middle-income countries reached $540 billion in 2020, just 1.6 percent below the 2019 total of $548 billion, according to the latest Migration and Development Brief. The global average cost of sending $200 remained high at 6.5 percent in the fourth quarter of 2020, more than double the Sustainable Development Goal target of 3 percent. Average remittance costs were the lowest in South Asia (4.9 percent), while Sub-Saharan Africa continued to have the highest average cost (8.2 percent). Supporting the remittance infrastructure and keeping remittances flowing includes efforts to lower fees.“
Because of the high cost of sending money people have opted to use crypto. A Chainalysis report stated, “Africa has the smallest cryptocurrency economy of any region we study, having received $105.6 billion worth of cryptocurrency between July 2020 and June 2021, but despite that, it’s also one of the most dynamic and exciting. Not only has Africa’s cryptocurrency market grown over 1200% by value received in the last year, but the region also has some of the highest grassroots adoption in the world, with Kenya, Nigeria, South Africa, and Tanzania all ranking in the top 20 of our Global Crypto Adoption Index.”
According to a Statista report, “Reliance on remittances and the prevalence of peer-to-peer phone payments have led to a steep rise of cryptocurrency use in Africa’s largest economy. Out of 74 countries in the Statista Global Consumer Survey, Nigerians were the most likely to say they used or owned cryptocurrency.”
Now we have established that money is flying around, and Africans are adopting cryptocurrencies, let us consider ways organizations, African government inclusive, could be playing by yesterday’s rules.
Playing by yesterday’s rules
When Netflix, founded in 1997, began operations by offering DVD rentals and sales, Blockbuster was the leader in video rental. Blockbuster was the largest video rental company in the US with a sizeable international presence and worldwide revenues of $6 billion. At the time, DVDs were a new format. Instead of rolling out brick-and-mortar retail locations with VHS tapes, Netflix delivered movies by mail, which was well-suited to the new DVD format. Netflix’s traditional pay-per-rent business model was the same model used by rival giant, Blockbuster. In 2000, Netflix listened to the market and replaced the traditional pay-per-rent model with a monthly subscription-based revenue model. Netflix allowed you to keep the discs for as long as you wanted with a limit on the number of DVDs you could borrow. Their radical new rule was that customers received new movies when the old ones were returned – with no late fees or due dates. That year 2000, Netflix went to meet Blockbuster’s team and proposed that it be acquired by Blockbuster for $50 million, recommending the companies collaborate. Blockbuster, at the top of the video rental industry, wavered at the idea of collaborating with an upstart. Netflix proposed to manage Blockbuster’s online brand while Blockbuster would promote Netflix in stores. Netflix may have been seen as youthful dimwits.
In 2004 Blockbuster’s CEO finally recognized that the market had changed, especially by Netflix and others, and started planning to spend $200 million to launch Blockbuster Online. But Blockbuster’s board of directors saw how this plan would have negatively impacted the company’s bottom line in the short term. They kicked against it. In 2010, Blockbuster, the once unbeatable leader in the video rental industry, declared bankruptcy. Analyst will agree the company was playing by yesterday’s rules. Netflix, on the other hand, adapted to changes and localized its offerings in new regions as they expanded internationally.
This is very similar to what is happening in the financial industry. In Africa, some financial institutions are evangelizing the agency banking model. Yet, youthful entrepreneurs are establishing digital platforms that adopt peer-to-peer models even for domestic transactions, challenging traditional banking models. In Payment Innovations Government of Developing Economies Could Endorse we discussed four major models used in cross-border remittance.
When organizations expand their platform to new regions, it’s common practice to localize it.
Local knowledge is vital for adopting innovation in a region of interest. Business Insider reported that Nigerian banks don’t allow customers to send more than $500 out of the country at a time. This is due to regulatory laws. This makes non-traditional banking models very attractive for cross-border payment. We see an increase in digital banks in African countries, and they are seriously challenging the traditional bank’s domestic market. On the other hand, the correspondent banking model these traditional banks apply for cross-border remittance is rapidly diminishing, losing its profits to newer models. With its thousands of retail locations, millions of customers, regulations, and massive marketing budgets traditional banks in Africa would find adapting to these changes lengthy. For this reason, banks are open to partnership with FinTechs, even for domestic transactions. To capture cross-border remittance where traditional banks cannot swiftly adapt to these changes, central banks are embracing central bank digital currencies (CBDC). This is not the only reason central banks are embracing CBDC. There are other reasons.
Platforms like Uphold, Coil, Yellow Card, and Stripe API, amongst others, are applying today’s rules and transforming the way people trade globally.
To enable stellar cross-border interaction that positions an organization for emerging global opportunities, organizations should
- Comply with regulations
- Adopt swift and inexpensive payment methods
- Possess an interoperable system
In other words, businesses and countries that are easy to do business with and possess an interoperable system are braced for economic impact.
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TechAssembly is a technology development company that works on digital transformation, tech skill acquisition, and tech talent acquisition. TechAssembly specializes in communication solutions across economic technology, FinTech, commerce for organizations.
Our clientele includes funded start-ups and SMEs, some of which are within and outside Africa.
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