African digital platforms are giving rise to new financial needs; creating and bridging barriers to financial and economic inclusion; and revolutionising the informal economic activities of merchants and individuals. These platforms can have both positive and negative effects on development, but the net impact on Africa will ultimately be shaped by the responses of industry, regulators, government and civil society.
To better understand these dynamics, insight2impact facility (i2i) and The Mastercard Foundation Partnership for Finance in a Digital Africa (FiDA) partnered to convene experts on these topics. Representatives from research organisations, donors, development partners, financial service providers (FSPs) and African digital platforms met in Cape Town on 29 November 2018 to:
- Take stock of the latest research insights
- Advance and align research activities
- Solicit input from industry champions on the relationship between the digitisation of African marketplaces, the financial sector and economic inclusion
This blog describes the key themes and questions we encountered during the day. And, our closing thoughts from the workshop are summarised as follows:
- Digital platforms challenge existing notions of (in)formality.
- Digital platforms can, and do, incorporate analogue features.
- Platforms are emerging as distributors of financial services.
- Regulatory changes are needed in the platform economy.
Digital platforms challenge existing notions of (in)formality.
Platforms are affecting economies by changing the way we think about traditional societal divides.
It might be necessary to reconsider what “formality” means in the context of platform-mediated livelihoods. While formally recording and organising activities, platforms also allow their users to conduct some of their activities in an informal manner. This implies that individuals are increasingly straddling the formal–informal divide, and platforms are bringing informal activities into the realm of the formal economy.
Platforms allow for the use of basic payment methods – like cash – to enable the unbanked to participate in work activities that are intermediated by platforms. For example, the option of cash payments provided by e-hailing platforms (such as Little, Safe Motos or Twende) is turning a sector that has traditionally been informal into a regulated and recorded service. While individuals’ livelihoods are consequently formalised, their use of financial services might remain mostly cash based – which is still characteristic of the informal sector.
Similarly, small-scale merchants in the informal market are now making use of superplatforms like Facebook and Twitter to market their products, communicating with their clients via WhatsApp and receiving payments via mobile money. While their core business remains in the informal sphere, individual parts of their business can move over completely or partially to the more formalised and standardised structures of various platforms.
In these and other ways, digital platforms allow for workers and merchants to straddle the formal and informal sectors in a manner that better suits their operational needs.
Digital platforms can, and do, incorporate analogue features.
African digital platforms are experimenting with non-digital features to include individuals that are less digitally savvy.
While many platform activities are digital in nature, not all users targeted by platforms are yet (fully) digitally included. In fact, the International Telecommunication Union (ITU) estimates just under 25% of individuals in sub-Saharan Africa used the internet in 2018. This poses a major challenge for platforms in expanding their user base, but it encourages innovative practices to bridge the digital divide. Representatives from digital platforms who attended the workshop cited various examples of these practices:
- Agency models: Different variations of platform agents assist users with signing up and using the app, as applied by Jumia.
- Hybrid models: USSD menus and SMS-based notifications for workers who mainly use basic feature phones are combined with an app for digitally savvy users, as done by YegoMoto.
- So-called digital ambassadorship: Younger, digitally savvy platform users assist their (often older) business partners or relatives to sign up for, and subsequently use, various types of platforms. Through their FIBR project, BFA observed this to be common practice.
- Profile intermediation: This is an emerging type of peer-to-peer digital assistance, where platform users with high ratings successfully bid for high-paying jobs, which are subsequently “farmed out” to other workers with lower ratings who may lack the digital skills to craft successful online profiles. A report by the Oxford Internet Institute describes such emerging practices on online work platforms.
These observations highlight interesting norms that are arising around platforms, but they also indicate real barriers to understanding and using digital platforms for many users in terms of digital know-how and access to appropriate ICT infrastructure. It is important for platform providers to consider these in their design and for policymakers to consider the new types of skills that are required for individuals to become successful in modern, African platform economies. In addition, the research community has a role to play in examining the evolution of formality in a digital world.
Platforms are emerging as distributors of financial services.
African digital platforms provide value to various economic actors and activities, and this goes beyond the core value proposition of platforms’ matching potential.
Platform providers and FSPs described the value of platforms digitising and standardising previously non-centralised and irregular records. This function makes it possible for FSPs to use platforms as a cost-effective distribution channel, especially for target markets that would traditionally have no, or incomplete, records of employment. For example, SweepSouth and Simply have partnered to use data on domestic workers’ activities and income streams to cost-effectively design and distribute accidental death and disability cover to workers on the platform. Uber and Jumo also recently partnered to create a credit facility called Jumo Drive, which uses data on drivers’ activities, income and ratings to provide a credit assessment for vehicle finance.
For FSPs, user data collected by platforms is key in understanding and reaching target markets that would otherwise be invisible. For platform providers, partnering with FSPs allows for the creation of value-added services for the benefit of platform participants. This can contribute to reaching the scale and network effects required for platform businesses to achieve success.
Regulatory changes are needed in the platform economy.
Regulation adjustments are needed for the platform economy’s contribution to development to reach its potential.
In this regard, three regulatory themes emerged from the workshop: taxation, competition and labour practices.
- Tax policy. Platforms can widen the tax base by taxing the profits of the platform company and by making individuals and enterprises (more) visible to the tax authorities. This makes fast-growing digital economies attractive for cash-strapped African governments. On the other hand, there is concern that taxing platform companies would discourage their operations or would reduce consumer use due to an increased tax burden. Recent social media and mobile-money taxes in Uganda had a material impact on usage: Forty-four percent (44%) of mobile money users reduced their activities, 46% ended usage completely, and social media usage dropped by 11%, according to a survey conducted two weeks after the taxes came into effect.
- Competition regulation. It is unclear whether it is appropriate to apply traditional competition law to platforms in Africa or whether large-scale platforms should be treated as a new class of market participants, such as utilities. Platforms that reach superplatform status contribute to increased levels of competition across the large number of suppliers that are being matched to consumers on multi-sided platforms. Although evidence from the Global North suggests that monopoly or duopoly-like market structures may pose significant efficiency gains for the platform economy, the body of evidence for the Global South is too scant to yet conclude that any one market structure, for any one sector, is optimal for consumer welfare.
- Labour practices. While online work holds many benefits for platform participants, there is also increasing wariness that platform work might give rise to a “race to the bottom”. In the platform economy, workers facing intense competition are essentially becoming price-takers. With labour regulation slow to respond, emerging initiatives are attempting to standardise principles of “decent online work” and bring about greater transparency – an example of which is being led by the Fairwork Foundation.
While regulators and policymakers have a role to play in setting and enforcing local labour laws, there is a sense that online work might be of such a specific nature that additional protection for gig workers would be necessary, whether put in place by platform providers or encouraged by civil society.
Ensuring African digital platforms live up to their development potential
For the participants of the workshop, it was clear that the discussed topics raised more pertinent questions for future consideration rather than offering any clear conclusions. We look forward to contributing to this body of work, as we move forward with our research initiative on African digital platforms and the future of financial products.
- African digital platforms and the future of financial services (2018) Hunter, Johnson and Dunn (infographic)
- African digital platforms database (2018) (interactive online database)
- The rise of African digital platforms (2018) Makuvaza, Johnson and Smit
- African digital platforms and the future of financial products (2018)