Jumia’s in-house digital payment platform, JumiaPay, is flashing signs that it could well become a revenue spinner for Africa’s largest e-commerce firm in the near future.
The e-tailer’s third quarter results showed tremendous growth in the acceptance of JumiaPay by online shoppers, as total payment volume on the platform increased by 95 percent to 32 million Euros from 16.4 million Euros in the third quarter of 2018, while the number of transactions spiked by 262 percent over the same period.
The traction being made by JumiaPay is significant for two reasons. First is that it means Jumia’s ambition to generate more revenue from digital payment products is truly on and could even happen faster than expected. It also gives Jumia a leeway out of an expensive and problematic cash-on-delivery option which hinders efficiency and could be ridden with security lapses- as e-commerce firms in Nigeria have come to find.
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JumiaPay is following in the steps of US-based Paypal, Alipay in China and Latin American fintech firm, MercadoPago. All three companies were established by and started out as the in-house payment platforms for Ebay, Alibaba and MercadoLibre respectively.
By leveraging on the market place of their parent companies, digital payment platforms have often thrived like JumiaPay is finding out now even though it hasn’t even scratched the surface in terms of usage.
That’s because, JumiaPay’s total payment volume, though up from 8.3 percent in the third quarter of 2018, was only 11.6 percent of the parent company’s total sales (referred to as Gross Merchandise Value, GMV in online retailing) of 275 million euros in the third quarter 2019.
While revenue came in strong and customer base grew 56 percent to 5.5 million, Jumia also recorded some losses. The firm’s Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) remained negative in the period, worsening by 26 percent to 45.4 million Euros from 35.8 million euros in the third quarter of 2018.
A large portion of the loss was attributed to an “increase in fulfilment expenses due to more cross-border goods transactions”, the company’s management team said over an investor conference call. Since its founding in 2012, the e-commerce firm’s costly model of delivery and the relentless pursuit of growth in 14 African markets have come at the cost of recurring losses.
Jumia’s CEO, Sacha Poignonnec believes the most relevant monetisation metrics for the loss making firm is market-based revenue and gross profit rather than net profit “which is impacted by shifts in the revenue mix between first party and market place.” The company, whose target for profitability is late 2022, will also be looking for faster growth from JumiaPay as a leeway out from its expensive cash-on delivery services.
“We are focused on driving the adoption and penetration of JumiaPay within our own ecosystem,” Poignonnec said during the investor call.
“E-commerce marketplaces are very powerful engines to drive payment. Everywhere in the world some of the leading payment companies were born out of and grown by market places,”
“We are following the same path to ultimately create the leading payments system in Africa,” Poignonnec said.
Since its launch, JumiaPay has spread across six countries and is targeting a larger share of the electronic payments market, according to Poignonnec who also said the payment platform’s bright future has been somewhat validated by the backing of global card giant, MasterCard, which invested 50 million euros in the firm before an initial public offering in New York.
