NfX, a venture firm with a focus on marketplace companies writes that “the next frontier of double-sided marketplaces” are fintech-enabled marketplaces. 

Across all these industries, a similar pattern appears if you look deeply: marketplaces bringing a bigger piece of the transaction online. Extrapolating to its logical extreme, this means bringing financial services online as well.

In particular, they write of an evolution across four distinct phases - 

1. Horizontal Lead Generation - online discovery, offline booking
2. Vertical Lead Generation - verticalized discovery, but offline booking
3. Vertical Transactional - booking takes place entirely on-platform
4. Transactional Marketplaces with Major Fintech Component

On the continent, rather than a distinct set of vertical, sector-specific companies being built at each individual stage, we are seeing the evolution happen all at once - startups launching initially with offline booking and evolving to add more financial transactions on platform, in an opportunity to not only provide greater customer experience for their users, but also to capture a greater take rate. 

So, let’s explore this evolution on the continent. 

The evolution of double-sided marketplaces in Africa

Marketplaces are extremely difficult to build at their origins, because of the chicken and egg problem. They rely on requisite liquidity on both the supply and demand side. So, before a marketplace can facilitate transactions and capture that value, their first objective is often to demonstrate that there is interest on both sides of the marketplace. 

This was the case with Johannesburg-based home services marketplace Kandua, co-founded by The Flip’s executive producer and b-mic Sayo Folawiyo. 

In Kandua’s case, in particular, the offline booking element is especially acute given the nature of home services, in which providers often need to first complete an in-home assessment before they can provide a price quote. 

As a result, vertical marketplaces monetize through an advertising-based revenue model, or, as a lead gen tool, through a pay per lead model, with the seller as their customer. 

However, as platforms become increasingly sticky for their customers - not only in facilitating new business, but also in other software-based products and services¹ - the natural progression of a marketplace is to bring transactions online. 

Not only do online transactions provide a stronger revenue model for marketplaces, they provide a superior customer experience for users, as well  It’s also a tacit service that, apart from aforementioned network effects, keeps both buyer and seller on the platform and prevents disintermediation. . In the case of Uber, in-app payments were a vital element to building transparency in the exchange between driver and rider. Similarly, online payments act as a trust-building and escrow mechanism between host and guest on Airbnb. 

Crucially, it is also the digital acquisition of (transaction) data that unlocks new opportunities for these marketplaces in question. 

Fintech-Enabled Marketplaces

On the continent, this often and initially takes the form of SME lending, though other financial services (i.e., insurance) also fit this category. It is these ancillary services that allow “full-stack” marketplaces to create the most value for their users, and capture the most value from a business model perspective. 

In The Flip Notes #3, we heard from Angela Nzioki, the CEO of Sokowatch Kenya. She had this to say, 

Sokowatch is a tech and data company - that's how we identify ourselves, and being able to do distribution is an enabler to what we are already doing… To also help the shop owners be able to help get access to services, we do have a smartphone financing service as part of the financial services, where we give access to the shops themselves smartphones so that they can be able to download the Sokowatch app and place orders for any essential good and services that we have in our basket.

Sokowatch’s primary product is a logistics marketplace that shortens the gap between manufacturers and retailers in the last mile. Yet, to ensure transactions are completed digitally, they have a smartphone financing program to ensure their customers can use their app. They also offer free delivery to ensure affordability of products in their marketplace (and improved customer experience). High utilization of the app allows Sokowatch to capture sufficient user data to build a credit scoring profile, which then allows them to offer additional credit products to their customers (beyond just smartphone financing). 

To be sure, this opportunity is born out of both the stickiness of the platform and the under penetration of digital services. Then, expansion opportunities exist in multiple directions - additional services (i.e., financial services), additional products (i.e., delivery of a wider variety of goods, in the case of Sokowatch), and geographic expansion. 

We can see how mobility marketplaces like MAX.NG and SafeBoda offer consumer ride-hailing services, last-mile parcel delivery, food delivery, financial services such as vehicle financing and insurance for their drivers, and have expanded geographically, as well.²  

And this platform multiplier effect is especially prevalent on the continent, again, because of the under penetration of digital services. As vertical marketplaces continue to take transactions online and as this data enables them to offer financial services products, they increasingly become a lever for inclusive finance. 

It’s equally instructive to see how other ecosystem enablers are looking at the opportunity. I recently spoke with Maelis Carraro, the Director of Catalyst Fund, which is an accelerator for inclusive fintech startups in the global south, and she had this to say, 

In our view, fintech is not a vertical; fintech can be applied horizontally across a lot of sectors. And we really, very much believe in this concept of embedded finance across value chains. So it’s more of a means to an end, and the end is a problem you’re solving.

So, while double-sided marketplaces are especially difficult to build, we can expect to see them become increasingly defensible and become a premium channel for other services to be offered through.