The Trajectory Africa Distilled #02: Infrastructure-building Opportunities in Fintech
Trade credit, stablecoins, neobanks — where the smart money is heading next.
Hello, Everyone.
I'm Tayo Akinyemi, and this is the second piece in my many-part series with African Tech Roundup, distilling insights from The Trajectory Africa podcast.
In the first piece, I outlined five VC-backable, infrastructure-building fintech opportunities: trade-boosting credit, cross-border payments, consumer payments infrastructure, niche neobanking, and asset-based financing.
Tayo Akinyemi
This piece is essentially my freestyled review of literature—weaving in perspectives from experts to validate and flesh out these opportunities. Think of it as earning validation by cherry-picking evidence from people I trust. Let's see what I've learned.
Trade-boosting credit
In an excellent piece for Frontier Fintech entitled, Lending and Technology Opportunities in Trade and Supply Chain Finance, Samora Kariuki makes a strong case for credit to support trade, which I recap here. The case centres on a couple of things.
First, the size of the need is massive and well-documented—African trade is worth US$ 1.4 trillion, with a trade finance gap of US$ 100 billion. Second, enabling consumer credit is quite challenging depending on market characteristics. High default levels illustrate the difficulty, which is why some lenders are adopting less risky models like vehicle financing.
But even focusing on businesses, size matters. Many lenders serve small, informal retailers, but because these businesses don't borrow much, lenders need to serve larger companies and provide higher margin lending, like from inventory and receivables financing.
"Invoice financing is more attractive especially in emerging markets where KYC, verification, and trust may not be as well established."
-- Lina Kacyem (Launch Africa Ventures)
The opportunity seems to sit with relatively large businesses (still SMEs). That might be okay-ish if you believe mobile money has largely solved financial inclusion for small businesses. But it raises difficult questions about whether driving financial inclusion for the most excluded is a VC-backable opportunity.
The need for working capital comes down to supply chain structure. In Africa, goods take a much longer journey—through distributors, wholesalers and retailers—than in markets like the US, creating a need for capital to finance supply chain movement. Importers and manufacturers typically offer 30 to 60 day credit terms. Overall, it may take from 90 days to almost a year for cash from goods sold to return. That's where the financing opportunities come in.
According to Samora, the biggest opportunity is pre-shipment finance, where there are few service offerings in a sea of needs. With post-shipment financing, there are lots of players competing on price.
But as Lina Kacyem from Launch Africa Ventures points out, "Invoice financing is more attractive especially in emerging markets where KYC, verification, and trust may not be as well established. With post-shipment finance, the goods have already been delivered and the invoice can be verified. When you think about pre-shipment financing, you are exposed to production risk and logistics risk."
Another way to unlock working capital is helping SMEs escape what Samora describes as the "working capital trap" created by onerous collateral requirements. He breaks this down in this article headlined: Why Scaling Mid-Market Commercial Lending is so Hard in Africa.
Countries like China, Ghana, and India have enabled moveable assets like tools, vehicles, supplies, accounts receivable to secure financing through centralised, government-run platforms that register collateral and liens. This liberates "dead capital" that can't currently be used to finance growth.
Asset-based financing
The viability of lending to small businesses and consumers depends on market characteristics. Samora segments this into two basic types of consumer lending models.
Type A, or productive asset-based financing, is exemplified by companies like M-KOPA and Watu financing mobile phones and motorcycles. Type B, the POS-Integrated Consumption Model, is technology-enabled BNPL like Lipa Later.
Type A models help informal economy workers obtain productive assets that banks won't finance due to lack of credit history. Technology can track and deactivate assets if borrowers default, turning them into collateral. These models have high customer acquisition costs but high lifetime value because customers are renting to own. Lengthy repayment periods make them "high-margin, low-velocity" businesses.
Type B models target middle-class consumers in formal employment with bank accounts, using BNPL for upfront purchases with non-interest repayments over several weeks. Because they acquire customers through merchants, CACs are low and money cycles quickly—"low margin, high velocity." Type B BNPL is essentially a technology service benefiting from merchant-driven network effects.
To determine where Type B models thrive, you need to evaluate discretionary income, how "formal" the financial infrastructure is, and what people buy.
Examining five major markets, Samora concluded that South Africa is the best fit because of relatively high household consumer expenditure, largely formalized retail infrastructure, and sizable discretionary spending. The remaining markets have high degrees of informality and limited household expenditures, making them more suitable for Type A. Nigeria appears to be a hybrid market accommodating both.
Cross-border payments powered by stablecoins
The crux of the opportunity is that two of the three main payment components, messaging and reconciliation, happen in real time. But the third, settlement, does not. Stablecoins solve this by eliminating the need to prefund accounts with local currency, reducing delays and manual processes. Nixing prefunding also liberates huge amounts of working capital that would otherwise be trapped.
This has massive, systems-level implications. As Wiza Jalakasi from EBANX explains it, new entrants could face lower barriers to entry because previously only incumbents could access the cash needed for prefunding. Existing cross-border businesses would become much more profitable without the cost of idle capital.
The field could be democratised, competing on experience rather than who has the rail. As Wiza puts it: "Stablecoins bring the native functionality of money to the internet for the first time. With messaging, you're sending representations of value. With stablecoins, you're sending the actual value."
"Stablecoins bring the native functionality of money to the internet for the first time."
-- Wiza Jalakasi (EBANX)
While cross-border payments might represent the largest, most obvious opportunity, Africa-focused, early-stage fintech investor Jasiel Martin-Odoom highlighted another compelling use case: "renting" stablecoin infrastructure. He explained that building cross-border payment functionality using stablecoin infrastructure might not be strategically differentiated enough to be competitive. But developing infrastructure that others can build on could be. Additionally, being able to issue and trade stablecoins is a moat, because stablecoin issuers keep most of the value.
As robust as the opportunity seems, there are business model challenges. Fees are the main revenue source, but high transaction volume is required to make money from payments, resulting in price-based competition without a strong value proposition for recurring revenue. If all providers get equally good at building stablecoin rails, price becomes the only competitive lever.
That's why Jasiel finds companies with pathways to "rentable" infrastructure that generates recurring revenue particularly compelling. There's also more to cross-border payments than just payments. They're often the first stage in trade-related transactions, creating opportunities to finance production, offer warehousing, shipping, and clearing services—higher-margin, recurring revenue businesses.
Neobanking for an evolving economy
Neobanks serve customers that are unwanted by traditional banks because they're unprofitable to serve. But Samora makes a compelling case, in his piece What the Neobank Greats Get Right, that they have a key role to play in economic evolution.
Platforms like Amazon, Stripe, and YouTube are making accessible the means of production for independent creators to directly sell to their customers. While large multinationals have complex needs met through high-margin services, these smaller producers need affordable, transaction-forward services that help them get paid.
The trick is to start with a niche—solving a problem for a specific customer segment, leveraging deep expertise to deliver outstanding execution and customer service. But the business model puzzle pieces are difficult to assemble.
If neobank customers lean towards transaction-enabling services like payments, which are fee-based, this traps neobanks in a race to the bottom on fees. If they lean into lending, they have to assess and mitigate risk accurately without traditional tools like collateral, and then get repaid. This is as hard as it sounds, as Kuda's struggles with non-performing loans demonstrate.
Infrastructure-building forever?
Payment rails are the internet's transaction layer, and building this infrastructure is core to what will unleash digital commerce. Companies like Flutterwave, Onafriq, and Paystack, all the mobile money providers, and instant payment systems like NIBSS and PAPSS have made progress.
Of course, it's worth clarifying that fintech companies are building technology infrastructure while banks are building financial infrastructure. But how much longer will this opportunity last?
Here's what I think, noting these options aren't mutually exclusive or cohesive, and I'm not making a case for which is more likely:
- There are (or will be) enough builders to finish what remains. This means that the remaining infrastructure—the 99% that Nala Founder Benjamin Fernandes cites—will be built by existing players such as those previously named, or ones that will enter the scene shortly.
- The whitespace is in financial infrastructure building. If the unsolved problem is settlement speed, perhaps the next frontier is building more infrastructure to enable instant payments domestically and regionally, and through stablecoins. Unfortunately, powerholders like banks have strong incentives not to participate; they earn interest by lending money in the time it takes to settle transactions. As a result, central banks would probably have to mandate the development of instant payment systems.
- Everybody becomes a bank eventually. Payment companies that start by earning fees can eventually earn higher margins on value-added products and services.
So, what's next? Samora puts it best when he argues that:
"People now are focusing on value-added services as opposed to the basic building blocks. That's one of the things that shows the basic building blocks are done. But there's a huge difference between fintech infrastructure companies like Flutterwave and broader fintech infrastructure…like national digital identity, KYC, data exchange, and open banking. That's how those two things can coexist. You can have fintech infrastructure players maturing and white space, reducing, but still have an infrastructure deficit."
In other words, the next layer of opportunity goes beyond the basics.
In the next piece, I'll synthesise these insights into a framework for evaluating fintech investment opportunities in African markets. Or something like that…
Until the next one, you can reach me at tayo@queryinsights.co with your thoughts.
Tayo