Guides and tips

    September 5, 2024

    Expanding into Africa: A guide for US retailers

    E-commerce in Africa has been growing steadily in recent years. Research shows that internet penetration, smartphone adoption, and technological advancements are the main drivers of this growth. It's projected that about 438 million people in Africa will be broadband users by 2030.

    Online spending in Africa has also increased. Data from McKinsey shows that online spending in Africa will reach $75 billion in 2025. This indicates that Africa is undergoing a digital revolution, with more consumers turning to online platforms for products and services rather than the brick-and-mortar stores traditionally preferred by African consumers.

    International merchants and retailers leverage this digital revolution to expand into the continent, boost sales, reach more customers, and establish their brands as top-of-mind. However, one challenge US retailers face when expanding into Africa is capturing payments in hard currencies like USD. This is because Africa comprises countries with unique cultures, currencies and payment methods, making it quite challenging for retailers to expand into the continent.

    To help US retailers handle orders from customers in Africa, fintech companies like Klasha have emerged to create cross-border payment solutions. These solutions bridge the gap by enabling retailers to capture payments in local African currencies and payment methods while receiving the equivalent payout in their preferred hard currencies, such as USD and more.

    In this article, we will explore how they're doing this, but first, let's look at the African consumer markets and cross-border payment ecosystem.

    The state of the consumer market in Africa

    As one of the fastest-growing consumer markets, Africa's expanding economies present an exciting opportunity for US retailers. Household consumption has been increasing much faster than gross domestic product in recent years, and Africa's annual GDP growth has consistently outpaced the global average.

    Consumer spending in Africa is expected to reach $2.1 trillion by 2025 and $2.5 trillion by 2030. This growth is driven by increasing affluence, population growth, urbanisation rates, and easy access to the Internet and mobile phones.

    The Brookings Institute reported that by 2030, Nigeria, South Africa, and Egypt will be among the world's largest markets, with lucrative opportunities in Kenya, Tanzania, Algeria, Angola, Ethiopia, Sudan, and other African countries.

    The growth of Africa's economy is fueled by young consumers who populate urban centres. Like their urban counterparts in developed countries, this new consumer market is educated, digitally savvy, and earns higher earnings. They are brand—and quality-conscious, seek the latest trends, and desire a modern and attractive shopping environment. Top trade items that interest them include apparel, financial services, groceries, the Internet, and telecommunications.

    The African cross-border payment ecosystem

    Cross-border payments in Africa have witnessed tremendous changes. With increased technological innovations, individuals and businesses have moved beyond traditional bank transfer methods to opt for faster, cheaper, and more efficient cross-border payment systems.

    Technological advancements, digital adoption, and changing consumer behaviours have led to the rise of more fintech players, creating efficient cross-border payment solutions. This has resulted in increased cross-border payments to and from Africa and the adoption of digital payment methods like cards, bank transfers, digital wallets, and international money transfer operators (IMTOs).

    Fintechs, in particular, have developed cross-border payment solutions to provide real-time payment insights, reduce processing times and fees, cut down on fraud, ensure security, reduce foreign exchange costs, and improve interoperability between various financial systems. This has led to a more trusted online payment ecosystem in Africa.

    With improved cross-border payments, e-commerce businesses are thriving as online shops boom across the continent. Retail e-commerce sales are projected to reach $75 billion by 2025.

    If you're a US retailer, now is the time to expand into Africa and establish your brand as top-of-mind. If you're wondering what the terrain might be like, here are some challenges you'll likely face.

    Common challenges global  retailers face when expanding in Africa

    1. Cross-border payments: A significant challenge for US retailers expanding into Africa is collecting payments. African nations have distinct currencies, payment methods, and regulations. Partnering with payment providers like Klasha helps mitigate this risk. Klasha enables businesses to accept payments in local African currencies while receiving payouts in their preferred hard currency.

    2. Localisation: Adapting products, services, and marketing strategies to fit different countries—each with unique tax structures and regulations—isn't a walk in the park. This process typically involves extensive market research and partnerships with local vendors who understand the market terrain. It can be particularly challenging for retailers planning to expand into multiple African countries.

    3. Regulations: Navigating regulations in Africa can be daunting, as each country has rules governing payments and currency exchange. US retailers must comply with these laws to avoid legal issues. Partnering with an experienced payment provider in the African market can help ensure compliance and reduce regulatory risks.

    4. Payment methods: Africa's payment ecosystem is unique, with several popular payment methods that differ from those commonly used in the US. Bank transfers, mobile money, cards, and USSD are particularly prevalent. These often rely on local payment gateways tailored to the African market's needs. Retailers looking to expand must understand and integrate these payment methods into their systems and websites.

    Expand into Africa with Klasha

    Klasha is a technology company facilitating African payments for global businesses selling online across borders to and from Africa. Through Klasha, US retailers can accept payments from various African countries using local payment methods and currencies, accept cross-border payments from customers in Africa online, and receive payouts in hard currencies like USD and more.

    At its core, Klasha empowers global businesses to expand into Africa effortlessly through its technology. This allows African consumers to access global goods and services using their local currencies and payment methods. Klasha has developed several cross-border payment solutions to help global retailers grow their businesses to and from Africa; some of them include:

    Pay-ins: Klasha Pay is an online payment gateway that allows global merchants to accept payments from Africa in local currencies while receiving payouts in significant currencies like CNY, USD, EUR, and GBP. To use Klasha Pay, merchants will have to integrate the Klasha API on their website or mobile app.

    Payment Links: This solution helps merchants accept payments from African customers without websites. With Klasha Payment Links, merchants can receive payments in local African currencies and methods while getting payouts in their preferred currency. The generated payment link can be shared via WhatsApp, Instagram DM, email, WeChat, and other platforms.

    Multi-currency accounts: Klasha's multi-currency accounts allow merchants to create virtual accounts in various currencies—such as ZAR, NGN, KES, USD and more —from the Klasha dashboard. Each account functions as a regular bank account with a unique number. These accounts enable you to accept, hold, and send money in different currencies to over 120 countries worldwide.

    Klasha is on a mission to give Africans frictionless access to global goods and services like other parts of the world. If you’re a US retailer, now is the best time to sell to one billion African consumers online and accept payments in local currencies: NGN, KES, ZAR, TZS and more through 10 different payment methods while you get payout in your preferred currency.

    To get started with Klasha, sign up here or speak to our Sales team.