Ecommerce funding trends in South Africa

by Miguel Da Silva: Managing Director at Retail Capital.
During the height of the COVID-19 pandemic, South Africa experienced a massive ecommerce boom as consumers turned to online shopping as a great alternative to using bricks and mortar stores. People embraced the convenience, and finally began to understand the safety and security it offered on a number of different fronts. Importantly, consumers could prioritise their time and money towards what really mattered to them, rather than picking the right toilet paper, or paying for petrol and parking.

It’s no wonder then that ecommerce business which accounted for 2% of all retail sales in 2019 doubled to 4% in 2022. While that’s 100% growth, there’s still really exciting scope for improvement. It means retailers can take advantage of new opportunities across all spheres of their businesses by fully adopting a trend that is only going to grow.

But the pivot needed for tech and platform adoption – like creating a full ecommerce website – takes time and money. And that’s money you won’t save just by not paying for parking once or twice a week.

Funding solutions

Getting the funding to take advantage of these opportunities is often a difficult endeavour. This is because small and medium enterprises (SMEs) have struggled to obtain financial support from traditional banks. This has fuelled two major trends that we’ve experienced since the start of the pandemic.

1. The rise of alternative funding

Before the pandemic, many SME owners weren’t aware of options other than a bank loan. However, during Covid, and the necessary increase in digital adoption, meant that turning online for solutions became so ingrained that more entrepreneurs and business owners started to feel more comfortable with alternative and largely digital funders. Fintechs are now playing a massive funding role as entrepreneurs have become more familiar with the process. They understand the players and how they work, and this familiarity means alternative funders are top of mind as smart and effective funding.

2. Embedded finance

Embedded finance also talks to the confidence and familiarity people have with digital options. Embedded Finance is the placing of a financial product into a non-financial customer experience or digital platform using banking application programming interfaces (APIs). It’s by no means a new concept but it’s one that is gaining momentum because the products offered by alternative funders are being embedded into digital interfaces that are being used by consumers daily, such as digital wallets, loyalty apps and at the final check out stages when a customer makes online purchases.

Making use of rich data

Embedded finance is transforming the funding landscape because it also makes use of rich data acquired from partners. Gone are the days of long-winded painful processes where applicants must fill out copious amounts of paperwork. The partnerships forged between retailers, payment platforms, fintechs and insuretechs allow customers to secure loans and insurance products at the point of sale without the need to shop around and compare the best prices.

As fintechs and insuretechs are already able to garner a lot of information from their respective partners they can build a better picture of the creditworthiness of their customer and offer a loan or insurance instantly. By accessing data already in the ecosystem, it takes away the fear that business owners have of being rejected. For digital funders it’s all about leveraging the partnership model with a customer-first focus. It’s become easier for the consumer and SMEs because multiple parties coming together enables them to present the best product to the customer and helps them to solve their problems efficiently and conveniently. It is a solution mindset, rather than putting the onus on customers to “prove themselves” funders are using the information available to provide feasible options from the start.

SMEs are operating in a tough environment with high inflation, rising living costs and an energy supply crisis. It’s all contributing to business owners and consumers feeling squeezed. SMEs are struggling with cash flow. They need cash to pay for solar inverters, to pay salaries and to buy stock to keep the business afloat. There is pressure from all sides. But with entrepreneurs and consumers embracing ecommerce, the benefits of e-finance are becoming increasingly more attractive.

Useful resources:
Retail Capital
For over a decade Retail Capital has provided funding to more than 43,000 Small Business owners in South Africa with over R5.5bn to date.
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