Data Use Case Study: Retail Payment Industries
By Jay Chikobe
Kenya, Nigeria, Ethiopia, Ghana, Tanzania, Rwanda, Uganda
Financial technology (fintech, retail payments)
MarketForce considers itself the operating system for fast-moving consumer goods (FMCG) retail in Africa. Its products enable manufacturers, distributors, retailers, financial service providers, and sales agents to source, order, and pay for goods and services. At the core of the company's value proposition is providing financial services, including purchasing inventory, payment of commissions for services, and other point-of-sale (POS) services, such as airtime, electricity tokens, and bill payments. The company offers three flagship products—RejaReja: Retail Distribution Marketplace, MF360: Manufacturing & Distribution, and MF1: Financial Services.
By leveraging the company's products, manufacturers are empowered to grow customers and gain last-mile visibility into sales and distribution channels in real time. Distributors can efficiently manage field workforces to ensure customers satisfaction. Retailers can order in-demand products at the best prices from top manufacturers and distributors with embedded inventory financing. Financial service providers can empower sales agents to increase productivity and revenues through predictive forecasting. Lastly, sales and fulfillment agents can collect a commission for fulling services.
Tesh Mbaabu and Mesongo Sibuti founded MarketForce in 2018 in Kenya. The cofounders sought to solve the fragmentation challenge they observed in the FMCG sector among manufacturers, distributors, and last-mile retailers. They chose to address fragmentation
because of the crucial role the FMCG value chain played in everyday life of Kenyans. Beyond retail, the sector served as a hub for critical financial services for consumers. It was also one of the main ways that consumers accessed digital payments for everyday consumption (i.e., buying airtime, accessing loans, and paying for utilities).
Since 2018, the company has raised $2.5 million in seed funding from institutional and angel investors, leading to rapid growth. MarketForce is enabling trade across 20,000+ retailers, and to date, $500 million in transactions have been processed through the platform. Since its inception, the company has grown to 95 employees and three country offices, but has ambitions to grow regionally. MarketForce recently partnered with Cellulant, a payment gateway provider, to expand its footprint. Cellulant has partnerships with 46 mobile-money operators in Africa and with 120 banks, and it serves 35 African countries with a physical presence in 18.
ABOUT THE SECTOR
Today's global digital payments ecosystem can be traced in part to innovation in Africa. In 2007, stakeholders in the Kenyan mobile network provider Safaricom realized that customers were using prepaid airtime (prepaid phone minutes) as a type of currency. Taking advantage of this insight, the company launched M-PESA, a ubiquitous digital wallet. As the product gained traction, Safaricom added more features and capabilities, such as peer-to-peer (P2P) transfers. As the mobile wallet spread throughout Africa, other parts of the globe began to see its benefits. Soon, India, Europe, and China entered the market, developing similar financial services.
Across the African continent, only a small percentage of upper-income households enjoy the convenience of card-based, online, and mobile banking and payments, while most consumers still pay with cash. One study showed that more than 90 percent of retail transactions in parts of Kenya remain cash-based. And a Gallup survey of 11 countries in sub-Saharan Africa found that more than 80 percent of adults made bill payments or remittances with cash. The lagging digital-payment penetration means that consumers, banks, and governments are still bearing the high cost of cash payments—costs associated with manual acceptance, record-keeping, counting, storage, security, and cash transportation.
To better understand the opportunities in expanding digital payments on the continent, it is invaluable to take a focused perspective by sector, payment technology, or geography. Companies like MarketForce are recognized as important players, given their nuanced expertise in operating at the center of customer value chains in various sectors. These companies can stimulate the adoption of digital payments by leveraging their grasp of payments culture, infrastructure, and policies in multiple countries.
Today, the continent is home to hundreds of fintech companies and start-ups pushing the evolution of payments forward. Several global players have taken note and are jostling for a stake in this digital payment opportunity. In 2018, Mastercard backed Flutterwave, an online and mobile POS payment platform. That same year, PayPal entered the scene by backing Tala, an online lending platform operating in Kenya and Tanzania. In 2020, Visa backed Paga, a Nigerian P2P payment service (known as the PayPal of Africa), and Interswitch, an all-inclusive payment platform. In 2020, Stripe acquired Nigerian-based PayStack, an online and offline payment service.
The cross-border nature of the payments industry means that companies like MarketForce must be created at the outset to address both global and local issues. These companies need to build systems and processes that function efficiently and compliantly across borders while delivering customized and secure services and ensuring customer satisfaction at the local level.
The coordinating power of the African Continental Free Trade Area (AfCFTA) agreement has a key role in the success of digital payments. The Pan-African Payments and Settlement System (PAPSS), an AfCFTA initiative, is a game-changing protocol launched in January 2022. PAPSS is a centralized payment and settlement infrastructure for intra-African trade and commerce payments. This initiative, developed in collaboration with the African Export-Import Bank (Afreximbank), will facilitate payments and formalize some of the unrecorded trade due to the prevalence of informal cross-border commerce. It will also provide an alternative to current high-cost and lengthy correspondent banking relationships among countries, through a simple, low-cost, and risk-controlled payment clearing and settlement system. PAPSS will also strengthen Central Banks' oversight of cross-border payment systems in signatory countries. This will directly and positively impact the sector and, specifically, cross-border operations for companies like MarketForce.
Payment technology built on government-sanctioned financial systems remains the most viable way to drive intra-African trade. Regulators at the national level continue to pave the way for digital payments and the entry of non-bank operators like MarketForce. Together, these factors will make it easier for digital payments to leapfrog the costly development of formal banking by introducing advanced mobile systems.
Payment solutions must devise offline options that bridge the gap to effectively capture informal cross-border trade and Africa's largely offline population. Unstructured Supplementary Service Data (USSD) is a non-Internet mobile protocol that processes transactions by using widespread mobile phone ownership, agency banking, and retail-agent outlets.
This offline opportunity is exactly what makes MarketForce relevant to understanding the payments sector. The company, like many others, is finally bundling payments with other relevant services for the retail value chain and its stakeholders in a way that promotes sustainability. Its solution enables companies to get online, leveraging core business services and payment facilities that support their growth and sustainability.
Looking ahead, blockchain and its related currencies are the next frontier in the evolution of payments. Some African countries are already launching digital currencies leveraging blockchain. If interoperability is designed into these systems, they hold massive potential.
HOW DATA ARE USED
MarketForce uses data extensively for internal operations and for external client services as a technology company. The company considers itself principally a patron of the data provided by its customers. Data at the company are processed through its proprietary platform and made available for various internal and external use cases. Typically, raw data from customers captured in onboarding surveys include business data (i.e., business names, location, services and products offered, value-chain partnerships, etc.). Once onboarded, the company manages operational data (i.e., logistics routes, agent infrastructure, demand data, etc.). All of these data are processed, cached, and stored for on-demand access, forecasting, and sharing across its three flagship products.
MarketForce’s Chief Technology Officer (CTO) Mesongo Sibuti noted that a key goal for the company is attaining greater visibility into customer meta-data to better understand needs and challenges across various value chains. The company sees this as the key long-term opportunity in data utilization for the themselves and sector at large. Historically, the company has had to rely on larger companies, like Safaricom and Nielsen, for meta-data across value chains. Mr. Sibuti mentioned that companies like Coca-Cola have the best meta-data in Fast Moving Consumer Goods (FMCG) retail because they have historically provided digital solutions to its retailers.
Internally, MarketForce uses data to tailor service offerings to meet customers’ preferences, identify and address operational inefficiency, and ensure compliance with various data management regimes. Data are also used extensively to forecast demand and to provide financial services, including credit or remitting commissions. For example, credit analysis on retailor inventories makes it possible for the company to understand demand or to build an insurance product for retailers and other similar customers. The MarketForce AI engine allows it to access datasets and inputs that are the foundation for predictive analytics. The company also shares data with commercial partners to facilitate lending and payment processing. Below is a snapshot from the RejaReja platform:
Marketforce RejaReja Dashboard
DATA POLICY REGIME
MarketForce works to build relationships with regulators in its countries of operation. According to the company, policy frameworks in its key markets are well-positioned and adequate to regulate data collection and management in the sector. However, as with any digital-first sector, innovation in the payments sector outpaces regulation, ensuring that policy is always playing a game of catchup. CTO Sibuti noted that most policies and regulations today are still concerned with upstream challenges of data collection and management but not as much with the more complex downstream challenges (i.e., consumer data protection in emerging social commerce platforms). Innovation leaders like MarketForce must forge ahead, leaning on General Data Protection Regulation (GDPR), and mitigate challenges through strategy and partnerships. Ensuring compliance with globally recognized frameworks like the GDPR in lieu or in addition to local or regional regulation affords companies a layer of credibility as an organization and as partner.
The key data policy concern was the policy development process itself rather than the already complex policy framework. MarketForce noted that policy and regulatory frameworks are critical for consumer protection, and when developed in collaboration with stakeholders, they serve the sector well. However, according to the company, most regulations and policies are developed by politicians and take a copy/paste approach—rarely with a clear implementation plan. These regulations are formulated critically without the input of the companies like MarketForce that have an in-depth understanding of the value chain, the digital divide, and the role of payments. This lack of collaboration results in a restrictive environment that can suffocate growth and innovation. Mbaabu noted that recently, when the company reviewed a policy regulation, it was mostly the online protection of data. The policy didn't include guidance on collecting data with pen and paper, which is how a lot of data are still collected.
The regulatory environment in MarketForce's anchor markets, Nigeria and Kenya, requires a similar compliance regime. In both countries, the company currently operates in compliance with data protection regulation (the Kenya Data Protection Act 2019 and the Nigeria Data Protection Regulation 2019), consumer protection regulation (the Kenya Consumer Protection Act 2012 and the Nigeria Federal Competition and Consumer Protection Act 2018), and key sector regulation frameworks from the respective Central Banks in Kenya (the National Payment System Act [NPSA] 2011 and the National Payment System Regulations [NPSR] 2014) and in Nigeria (the Banks and Other Financial Institutions Act 2020). In addition to these three tiers of independently regulated policy, the company noted emergent regulations and amendments that address Web 3.0 innovations.
In order to continuously improve the ease of compliance for companies like MarketForce, the complex regulatory environment across the continent needs to improve alignment and coordination processes, to keep pace with innovation and growth in the payments sector.
DATA PRIVACY, STORAGE, AND CYBERSECURITY
MarketForce keeps all customer data, including personal data, encrypted across its core infrastructure and through data use agreements with third-party partners. All of these data are governed by national regulation and are stored and managed locally, as required, including but not limited to location and transaction data. As part of the company’s overall data regime, customer data used in predictive analytics for demand forecasting are not kept beyond three days. The company did not cite any significant challenges to accessing data across borders.
Another key compliance consideration noted within MarketForce and across the sector is data security and privacy. MarketForce is susceptible to nefarious attempts on its customer's data as a technology company. The company’s mitigation strategy is anchored in its open technology architecture, which leverages best-in-class solutions, including AWS PostgreSQL databases, Google Cloud Platform (GCP) for location services, and the Google AI platform, in addition to its internal proprietary engine that powers its offering. This infrastructure is managed internally by the company's engineering team in Kenya, Ghana, and Canada.
FUTURE OF DATA USE
According to MarketForce, the future of data use in payments is vast and bullish. The company cited the most exciting future opportunities in partnering with national governments. It mentioned the possibility of leveraging its relationship with retail companies to facilitate the remittance of statutory obligations and compliance, including taxes, licensing, and other related obligations. However, CTO Sibuti noted that any success here would require thoughtful collaboration with all stakeholders involved.
Another future opportunity cited was the emerging prominence of social commerce on the continent. Specifically, how do regulators protect consumers in the age of distributed retail driven by middlemen like influencers? How does one validate quality, pricing, and fulfillment? As with any emerging technology, the growth of this current niche commerce is outpacing regulation.
E-Trade Alliance Case Study. Author: Chikobe, Jay. Data Use Case Study: African Payment Industries. USAID Digital Economy and Market Development Project. January 2022.