Africa’s $1.5 trillion B2B payments market[1] is ripe for innovation and represents a golden opportunity for investors and entrepreneurs looking to capitalise on the continent’s burgeoning digital economy. While in the past, the lion’s share of funding gravitated to embedded finance fintechs and start-ups digitising the B2C value chain (e.g., digital banks and acquirers), the focal point of the next investment phase will be on B2B payment solutions incorporating the CFO tech stack. It’s here, particularly in the areas of spend management and AR/AP digitisation for Africa’s millions of underserved SMEs, where investors will find the most extensive opportunities and growth.

Spend management digitisation

Sub-Saharan Africa has over 44 million micro, small, and medium-sized enterprises.[2] The vast majority of them rely on manual paper-based processes for managing non-payroll expenses such as travel or day-to-day purchases of goods that are not part of accounts payable. These processes are opaque, burdensome, and error-prone and look much the same as they did several decades ago.

In the US and Europe, companies like Brex, Wex, Fleetcor, and Expensify have been at the forefront of modernising spend management for SMEs for some time. With the growth of Korridor Logistics and the emergence of start-ups such as Sava Africa and Flex Finance, we are now seeing the beginnings of the same in Africa. These companies are leading the way in building Africa’s own versions of Expensify and Brex, driving digitisation and innovation in spend management in their respective home markets and across the continent.

South Africa based Korridor Logistics is an exciting technology company in the space focusing on the transportation sector. The company’s comprehensive digital solution for fleets includes services that eliminate the need for cash transactions on expenses like diesel, road tolls, border payments, and parking, ensuring complete visibility of all expenses incurred during journeys within and between countries in the Southern African Development Community (SADC). Korridor is in a prime position to grow as the African Free Trade Area (AfCTA) trade pact takes effect. The AfCTA will connect 1.3 billion people across 54 countries and boost trade by up to $450 billion.[3] Companies like Korridor that facilitate cashless transactions for intra-Africa trade are set to reap substantial benefits

Sava Africa, a South African based player, has operated for less than two years and has already secured funding from top global investors. The start-up is poised to play a significant role in digitising spend management and increasing access to credit for African SMEs by offering a comprehensive spend management solution that includes spend cards, mobile wallets, digital bank accounts, and invoicing tools. These are linked to a unified spend management platform to enable SMEs to track and control spending against budgets and cash flow and automate reconciliations.

It also aims to improve access to formal credit by digitising spending flows and generating critical data for credit scoring.

Nigerian fintech start-up Flex Finance has also developed an innovative spend management platform. Flex’s platform is designed to help SME CEOs, COOs and finance teams manage and track their spending and make automated bulk payments to vendors. With Flex, businesses can create and assign virtual corporate cards to employees for online purchases with expenses categorised automatically.

AR/AP digitisation

Africa’s fintech industry has experienced two distinct waves of innovation. The first wave began in the early 2000s and focused on bringing SMEs online and connecting them with consumers. This involved the development of platforms and services that facilitated online transactions, e-commerce, and digital payments between businesses and their customers. The second and current wave of innovation is focused on simplifying the back-office payment processes of these SMEs through digitisation and automation.

Today, African SMEs heavily depend on inefficient and error-prone manual processes for managing accounts receivable and payable. These manual processes leave businesses with limited visibility into their accounting processes, making it more challenging to track payments, identify trends, and implement corrective actions promptly. They are also incapable of producing sufficient data to make informed decisions, often leading to poor cash flow management, missed payments, and increased expenses.

Fintech start-ups like Duplo and Churpy have recognised these challenges and the immense need for solutions among Africa’s underserved SMEs. They are leading the charge in becoming the African equivalents of successful global players such as, Tipalti, and AvidxChange. These global players have revolutionised accounts receivable and accounts payable processes for SMEs across the US, Europe, and the UK.

Duplo has built a financial operating system that enhances the efficiency, transparency, and cost-effectiveness of business payments from automating and monitoring the entire accounts payable process, scheduling instant payments to any bank account within Nigeria to executing cross-border transactions with vendors and suppliers as required. In mid-2022, the company raised $4.3 million in seed funding to expand into new verticals and scale across the African market.[4]

Kenyan start-up Churpy is another prominent player in the space. Their Software-as-a-Service (SaaS) solution establishes a connection between a business’s bank account and ERP system to reconcile outstanding invoices against incoming bank payments automatically. With $1 million in seed funding secured last year,[5] the company is positioning for growth and has set its sights on expanding its presence across Africa. As part of its expansion strategy, the company plans to collaborate with its banking partners and utilise its SaaS product to provide trade financing to selected customers.

Why now and what next

Africa’s current fintech leaders have dedicated their efforts to constructing the foundations for the financial services infrastructure of the future, rolling out simple solutions for the continent’s expanding consumer class. These solutions encompass a range of offerings from digital wallets and remittances to online and offline payments.

The next phase will see this focus shift toward developing more advanced solutions in areas like spend management, AR/AP, and embedded finance for Africa’s over 44 million SMEs. These businesses have historically been underserved, relying on manual and inefficient back-office processes that are error-prone, lack visibility, and incapable of producing the data necessary for business optimisation.

Bridging the gap between SME back offices and the front-end tech stack presents a multi-billion dollar market opportunity. The prevailing macro environment, marked by an increasing imperative to reduce costs, boost productivity, and improve efficiency, will underscore the pressing need for automated and digital solutions within these areas. Looking forward to 2024 and beyond, we foresee a significant increase in activity in this space as start-ups in the market secure funding to expand their operations.

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