Lessons from cross-border payment conversation with 50+ Tanzanian business owners

For over 2 years, my team and I have built a platform, Swahilies, that has been used by 15,000 Tanzanian SMEs to manage inventory, record transactions, build credit, and prepare to access financial services. It was normal to see customers reaching out to us and asking for help with things beyond our core service offerings.

Below is an example of a customer asking us to help them find someone to hire as a shopkeeper, someone who knows how to use a laptop and our platform. So, this was common.

But something changed 3 months ago: most business owners started asking if we could help them, or if we knew someone who could help them get dollars to pay their international suppliers. That is when I started going out and speaking to different business owners to learn more about the problem and here is what i have learned;

1.China is the top destination

Last year, I visited China where about 16% of Africa’s imports come from and met a number of Africans who import goods to Africa or place orders on behalf of other Africans.

Even though I had read that China-Africa trade reached a record total of $282 billion, I approached my conversations with Tanzanian business owners involved in cross-border payments as if I had no data.

In the end, 6 out of every 10 business owners I spoke to were sending money from Tanzania to China for buying their inventory, confirming that China is the top destination.

2.Alipay and WeChat are mostly used by small SMEs instead of bank accounts

Both small and large businesses import goods. In Tanzania, there are business owners who import stock worth $500 or $1,000 (yes, $500 or $1,000, i asked these small SMEs why they wouldn’t just buy such stock locally, considering the logistics and costs might be high for such small amounts, but they insisted they know what they are doing) from China, while others import stock worth $500,000 and beyond.

The majority of small business owners, those transacting between $500 and $10,000 pay their Chinese suppliers via Alipay and WeChat, not through bank accounts. Most of these payments are settled in under 5 minutes, which is faster than traditional bank transfers.

When I asked some of these small business owners about invoices, the majority said they didn’t have any. Instead, they simply chat with the suppliers about what they want, send a list of products via text, and the supplier confirms the order, responds with an Alipay or WeChat ID for payments.

The Tanzanian business owner then finds an agent (who handles cash-in and cash-out in 🇨🇳RMB, provides the exchange rate, and collects 🇹🇿TZS), gives them the supplier’s payment details, and boom the payment is done and settled. I spoke to one agent who works in a logistic company but also helps Tanzanian small business owners pay suppliers on AliPay and his volume per day is ~ $100,000. Those who transact between $500 and $10,000 prefer using Alipay or WeChat, while those transacting $10,000 to $500,000 and beyond typically use banks, stablecoins or other alternatives.

3.WhatsApp is the primary platform for communication and negotiation

Whether the money is being sent to China or the US, WhatsApp is the primary communication platform for negotiation, closing deals, and more.

WhatsApp has become the marketplace for foreign exchange business in Africa. I wish we had the numbers to show the total value of FX deals happening there each day.

4.Most dollar transactions locally still happen in cash

I spent time at Kariakoo, the largest public market in Tanzania, which attracts tens of thousands of shoppers daily.

The top lesson I learned from the business owners there, many of whom also import, is that they always need dollars for international transactions and usually convert TZS to dollars in cash, mainly due to trust issues and a desire to avoid transaction delays that are common with banks (as the business owners explained to me).

Their main concern is that once they receive the dollars in cash, they know exactly how to pay their suppliers. For context, it is normal to see a business owner with TZS looking to buy dollars in cash at the best rate. After that, they look for a Chinese business person based in Tanzania, give them the dollars (also in cash), and that Chinese person contacts a counterpart in China to make the payment for the Tanzanian business owner’s order.

They also emphasized that if they have 🇹🇿TZS, it is more expensive to get 🇨🇳RMB directly than if they first convert to dollars so they prefer to source dollars first at good rate and then convert to RMB at a better rate.

All of this points to a large volume of dollar transactions happening via Cash.

5. Stablecoins power big transactions behind the scenes

Most local business owners don’t have exposure to or awareness of stablecoins. But when you speak to some of them about how they pay international suppliers, their process, and meet the people helping them, you quickly learn that most non-cash, large-dollar transactions are actually powered by stablecoins and they are processed much faster.

The person facilitating these transactions is responsible for converting TZS to stablecoins, then converting those into the supplier’s local currency or dollars, and ensuring the supplier receives the payment.

These payments are processed via stablecoins in a way that the business owner never directly sees or interacts with the stablecoin part. All they care about and the only assurance they need is that their supplier receives the money faster.

6.Stablecoins are dollar alternatives (and also cheaper and faster to move after onramping) but expensive before onramping when you have TZS

I have learned a lot about stablecoins and their promise of disrupting global cross-border payments. They seem very promising especially since many large transactions by business owners I have spoken to are already powered by stablecoins, thanks to their speed and low fees after on ramping.

But, the biggest challenge when trying to use them as a payment facilitator is having only local currency like TZS. Converting TZS to stablecoins like USDT or USDC becomes very expensive, possibly due to the low global demand for TZS.

To get the best primary rates, you need to be well-connected and able to match TZS demand with stablecoin supply.

7.The New Opportunity

If you have carefully read every point above, you will see there is a big opportunity to solve real problems in the cross-border transaction chain; too much inefficiency, unreliability, and lost value that could be fueling business growth. At Swahilies, we are going after this. If you are a cross-border business owner or a payments company doing business with Tanzania in any way, let us connect! Ping me; Founder@swahilies.com, +255682411725 - WhatsApp.