Scamlink Official :: Web3 in Africa: Research on Marketplaces and Payment Solutions
June 4, 2022Key insights :
The structural macroeconomic evolution of sub-Saharan Africa suggests significant growth for C2C marketplaces.C2C and B2C marketplaces have high transaction costs and do not allow the user to fight fraud effectively.Scamlink’s marketplace proposal is based on the use of escrow smart contracts and cryptocurrencies to secure transactions between buyers and sellers.Scamlink’s Marketplace and Escrow payment solution will benefit African countries as per macroeconomic forecasts.
What does academic research tell us about the role of cryptocurrencies in emerging countries?
There is now a consensus among analysts, researchers, and journalists to explain the structure of demand for cryptocurrencies. Beyond speculations and ideologies, it may also depend on macroeconomic variables (often institutional and political).
As such, cryptocurrencies are experiencing increasing adoption in sub-Saharan Africa and South-East Asia. The research institute ChainAnalysis ranked emerging countries according to three adoption criteria, placing Vietnam in the first place, ahead of Kenya and Nigeria in 5th and 6th place respectively.
On the one hand, the properties of blockchain can allow cryptocurrency holders to protect themselves from failing institutions plagued by inflation, political corruption, and economic uncertainty (Davidson et al., 2018). Binance Research found a significant correlation between distrust of traditional institutions and trust in cryptocurrencies, which is essential for their adoption.
On the other hand, access to financial infrastructure and banking remains limited in sub-Saharan Africa relative to the rest of the world. The percentage of adults with a bank account is half the global average (Fox and Van Droogenboreck, 2017). Within a process of financial disintermediation, blockchains and cryptocurrencies offer an increase in accessibility to monetary and financial services without multiplying physical infrastructures or basing growth on a banking network of the territory as was the case in the Western countries (Chamoux, 2021).
The table below provides key financial inclusion data on selected Sub-Saharan African countries. The high rates in Kenya and South Africa compared to the average for Sub-Saharan Africa informs us of a correlation between financial inclusion and long-term growth prospects. The challenge of cryptocurrencies is therefore crucial in these economies.
Key Financial Inclusion Indicators for Sub-Saharan Africa
Thus, the adoption of cryptocurrencies in some countries may stem from efficiency gains (financial inclusion and reduced transfer fees) as well as from a desire to protect themselves from what the economist Oliver Williamson called “opportunism” (Williamson, 1979) by responding to fraud through a secure payment system and the implementation of smart contracts.
Centralization and infrastructure issues related to B2C marketplaces. Why is there no Amazon in Africa?
This promise of efficiency and authenticity linked to the use of cryptocurrencies could naturally carry its benefits in the marketplaces of physical goods and services (B2C and C2C), which are extremely dynamic in Sub-Saharan Africa but face issues of distrust, fraud, and inefficiency. The growth in digitization, Internet penetration, and cell phone usage provides a promising outlook for the growth of marketplaces in Sub-Saharan Africa, both C2C and B2C.
As the figure below shows, the traffic of transactional e-commerce marketplaces is uneven across countries. It is most often correlated to the size of the country’s economy (here Nigeria, South Africa, and Maghreb), suggesting the significant presence of a C2C market within non-transactional marketplaces.
Total marketplace traffic per country, 2020Source: African Marketplace Explorer, data from 2020
The African Marketplace Explorer tool, founded by the International Trade Center and the University of Applied Sciences in Amsterdam, provides a dense statistical arsenal on the evolution of marketplaces in Africa according to their characteristics, popularity, and market share. The major global marketplaces for B2C (e.g., Amazon), have a very weak presence in Africa.
The two most visited marketplaces are Jumia (founded in Nigeria and hosting 146 million visitors in 2020) and JiJi (54 million annual visitors). These two marketplaces are transactional, i.e., they integrate an online payment system. They represent a minority (only 11% of marketplaces are transactional) but attract a very high share of total traffic: 1% of marketplaces host 54% of B2C traffic in Sub-Saharan Africa. This polarization of traffic around marketplaces that integrate payment systems responds to the growing digitization of the African economy and access to the Internet via cell phones (85% of visitors use their mobile rather than Desktop browsers).
Although it is difficult to assess the share of B2C relatively to C2C because of the difficulty of obtaining transactional data for cash exchanges, the B2C market represents a very important part of the Nigerian, Kenyan, and South African economies. Nevertheless, this type of marketplace takes up two problems known to the traditional B2C giants.
On the one hand, they rely on expensive traditional payment systems, which require the use of a legal tender. It is not possible to use cryptocurrencies even though they are sometimes perceived as a guarantee of reliability in the context of inflationary currencies. For example, the Naira (Nigeria’s currency) has been experiencing a constant consumer inflation rate of over 10% every month since January 2020.
On the other hand, Jumia, Konga, or Takealot platforms offer their services in exchange for high commissions, ranging from 3 to 20% and decreasing according to the number of goods sold. Similarly, at Jumia, the seller must subscribe to an $18 monthly fee in addition to the commission on the sale of the goods.
In addition to these user fees, centralized marketplaces benefit from privileged access to strategic data from the most efficient third-party sellers. This access is problematic when the marketplace uses the metrics at its disposal to copy the goods sold by its third-party sellers and replace them with its own branded products, as revealed in the Wall St Journal investigation with Amazon recently.
Then, in parallel to the large B2C transactional platforms, e-commerce platforms based on the Shopify model are developing in Africa. This is the case in Africa, which offers tools that allow individuals to easily set up their own e-commerce platform, but in return receive commissions on sales of around 10 to 15%.
The compared cost structure of African and International marketplaces: the commissions and promotion costs are the most common fees. A detailed report of these costs and their distribution is available here.
Source: ITC Analysis
The omnipresence of C2C and its inherent issues
Finally, the sub-Saharan market remains highly dynamic in C2C, i.e., the sale of new or used goods between individuals through online classified platforms and without intermediaries. The importance of C2C is difficult to quantify but remains major due to structural factors (remember that only 40% of the population is banked, limiting B2C platforms to a limited share of the market).
Most marketplaces are non-transactional. The advantage of C2C lies in the lower transaction or commission fees in the absence of a trusted intermediary, and the purchase of second-hand goods without necessarily going through a digital payment system.
We are referring to platforms that bring together a buyer and a seller who meet and proceed with the exchange. For example, ROAM is one of the most popular C2C online marketplaces in sub-Saharan Africa. ROAM is a general classified platform (car, rental, goods, and services) that is structured in different branches depending on the country to accentuate the narrative of authenticity and locality. For example, there is Pigiame in Kenya, Expat-Dakar in Senegal, and Qefira in Ethiopia. These platforms adopt the same interface and are remunerated by advertisements and the possibility for a seller to “boost” his ad by listing it on the homepage.
Then, the Facebook Marketplace sees its influence grow, especially following the expansion of its market to 37 new countries in sub-Saharan Africa in August 2021 (SOURCE). 59% of Facebook’s revenue comes from advertising, and of that, 1% of revenue is related to the marketplace. This revenue may seem marginal, but it has been growing for several years, leading the Californian firm to expand the geographical coverage of its marketplace.
Previously, it was only available in South Africa, Ethiopia, Kenya, and Nigeria. This marketplace does not integrate a payment system but aims to bring together supply and demand within a classified site that relies on mobility and physical exchange. Users are affiliated with a Facebook profile that guarantees their authenticity and reputation.
Nevertheless, although the C2C market is, for structural reasons, a dynamic and growing market, the absence of a trusted intermediary leaves room for problems of fraud and scams of all kinds. The Facebook Marketplace, for example, is not very efficient in preventing the creation of fake profiles and censorship (the possibility to hide or block comments that are not in the interest of the seller) to avoid reputational damage. In addition, scams and fraudulent payments are recurrent, as there is no way for the seller to ensure that the buyer has the necessary amount of money to buy the good.
Other C2C marketplaces are experiencing the same difficulties and are fighting against fraud by raising awareness of the scam methods in place, and by creating a reputational index of sellers to reassure the buyer.
Faced with the uncertainty of receiving payment, platforms offering escrow services have been created in Africa. This is the case, for example, of Vahlid, which operates in Nigeria and Ghana. After the purchase on a C2C platform, the buyer’s funds are escrowed by Vahlid who transfers this information to the seller’s email. Once the property is received and inspected, the buyer releases the funds from escrow and Vahlid sends the money to the seller’s account.
These services take the uncertainty out of a physical transaction but are still enabled by expensive trusted third parties. They charge a fee of 1.5 to 2.5% of the escrow amount, plus a flat fee of 100 Naira. Moreover, this type of service is not directly integrated into a marketplace but adds an intermediary during a transaction, making the use of this escrow service more complex. Some marketplaces inspired by the Shopify model offer an escrow service but meet very high commissions. This is the case of Listbuy which takes 5% commission per sale or Middletrust which takes 2.8% with a threshold set at N200.
The need for a web3 marketplace to address industry issues. What does Scamlink provide?
The problem with C2C lies in the economic uncertainty it produces in terms of payment and reputation. While some start-ups are responding to this endemic problem with escrow services, it represents still another intermediary to the transaction chain and generates significant costs, while relying on the sometimes-inflationary local currency.
Faced with the strong demand for economic security in C2C and the additional cost of trusted intermediaries (payment systems, centralized platforms, and escrow services), Scamlink relies on cryptocurrencies and blockchain technology to provide the first web3 marketplace for the C2C sale of goods and services.
Scamlink is defined as a “crypto-friendly marketplace for products and services & decentralized escrow protocol”. The platform is inspired by Facebook Marketplace and allows users to pay for physical goods in cryptocurrency and escrow their funds until the transaction is finalized.
The escrow is based on a smart contract accessible by the parties involved in the transaction, with a significantly lower fee (0.5% to 1%) than the traditional escrow service intermediaries.
The first iteration of the marketplace works as follows: After agreeing with the seller on the Scamlink platform, the buyer locks up the funds in an escrow smart contract to notify the seller that he has enough money to proceed with the transaction. When the seller hands out the product to the buyer, the buyer can inspect it and approve the payment by releasing the funds to the buyer’s account.
In order to get better visibility of users’ reputations, a ranking system allows buyers and sellers to rate their transactions.
Scamlink Escrow Process
A later iteration of the marketplace will be integrated with product tracking and a non-custodial milestone payment system.
Scamlink responds to strong C2C demand in Africa with the guarantee of secure on-chain payments and escrow contracts allowing parties to trade without the risk of losing money to online fraud or scams.
Scamlink has several advantages over its traditional competitors. Transactions benefit from the proven security and scalability of the Tezos blockchain. The payment process is smooth and has a settlement time much lower than traditional institutions.
Conclusion. Scamlink’s advantage in the space of sub-Saharan marketplaces
Chainanalysis reports that the adoption of cryptocurrencies is exponential in Africa, with an increase of 1200% in the value of cryptocurrency transferred between 2020 and 2021.
A C2C Web3 marketplace in Africa is part of a favorable structural evolution: the sub-Saharan population is young (the most active age group using online marketplaces is 25–34 years old), and is experiencing a significant rural exodus, densifying the urban areas suitable for C2C.
Disposable income forecasts are positive and Internet penetration in the population by phone has doubled since 2014 from 13% to 28% of the population on average.
A Web3 marketplace with a built-in decentralized escrow service addresses a strong C2C demand in Africa and other emerging countries by connecting cryptocurrency users to exchange goods and services while optimizing transactions and reducing the overall risk of fraud.
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Sources
Chamoux, J.-P. Digital Era 3: Uses; ISTE Group, 2022.(1)
Constanty, B.; Garcia Pérez, A.; Tucci, S.; Martin, J.; Diederick, J. Scamlink — A Decentralized Flexible Escrow Solution for Physical and Digital Assets; Whitepaper v2.0; 2021.(2)
Davidson, S.; de Filippi, P.; Potts, J. Blockchains and the Economic Institutions of Capitalism. Journal of Institutional Economics, Cambridge University Press 2018, №14, 639–658.(3)
Demirguc-Kunt, A.; Klapper, L.; Singer, D.; Ansar, S.; Hess, J. The Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution; The World Bank, 2018.(4)
(5) Fox, M. ; Droogenbroeck, N. V. Les nouveaux modèles de mobile Banking en Afrique : un défi pour le système bancaire traditionnel ? Gestion 2000–2017, 34 (5), 337–360.(5)
Werbach, K. Trust, But Verify: Why the Blockchain Needs the Law. Berkeley Technology Law Journal 2018, 33 (489).(6)
Williamson, O. Transaction Cost Economics: The Governance of Contractual’s Relations. Journal of Law and Economics 1979, 22 (2), 233–261. (7)
Business and Policy Insights: Mapping e-Marketplaces in Africa; ITC; International Trade Centre and Amsterdam University of Applied Sciences: Geneva, 2020; p 96. (8)
L’économie Mobile : Afrique subsaharienne 2021 ; GSMA Intelligence, 2021 ; p 50.
The State of Mobile Internet Connectivity 2021; GSMA Connected Society, 2021; p 66.(9)
Global Crypto User Index — 2021; (10)
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Chain Analysis, 2021.(12)
