Payment solutions are offering small businesses a lifeline

Cash is king is a refrain indicating a preference for paper money but trends show that a rise in online payment solutions offering a simple and convenient payment process is changing this predisposition to cash, while helping small businesses better compete, writes ISAAC ANYAOGU.

For Elsie Godwin, a Nigerian lifestyle blogger, March 16 was a momentous day. No, she did not get a marriage proposal, nor did she score an amazing job with a Fortune 500 company. Rather, the news that Flutterwave, a local payment company was partnering global payment service firm Paypal, to make it easier for Nigerian businesses to receive payments from abroad, got her all excited.

“This is huge news for everyone who understands the trouble with payment systems in Nigeria,” she gushed in a Youtube video.

Elsie knows from experience how difficult it was for freelancers and small businesses in Nigeria to receive payment from outside the country.

As a lifestyle blogger, she relies on income from content partnerships with clients abroad. Lifestyle blogging is not as profitable in Nigeria as it is in Western countries. Her clients prefer to pay her through Paypal because it is simple, safe, and fast.

Trouble started when Paypal, based on the policy of the United States Office of Foreign Assets Control (OFAC), which branded Nigeria as a country vulnerable to terrorism and cyber crimes, blocked Nigeria from accessing the service in 2011.

This restriction threatened the livelihoods of many bloggers, freelancers, web developers, and other small businesses, who provide service to clients abroad.

“It was a nightmare,” recalls Elsie.

She begged a friend who uses the Paypal service in the United States to receive money on her behalf and then forward it to her in Nigeria through Western Union. Apart from the delay and the stressful process, she had to suffer multiple charges.

This is why the news about Flutterwave’s partnership with Paypal was so exhilarating. She can now receive money directly into her account in Nigeria as would hundreds of small businesses, removing hassles and multiple charges.

The deal will not only enable users on both platforms to accept payment easily, but it could also lessen the fuss involved in cross-border payments on the African continent.

“Cross-border payments in Africa present challenges due to the complex and fragmented financial services institutions and telecoms systems across the continent,” Dare Okoudjou, CEO of MFS Africa, a mobile money fintech said in an interview.

Cross-border transactions on the continent have to go through several banks with different charges and conflicting regulatory regimes.

According to a report by the GSM Association, an industry organisation representing the interests of mobile network operators worldwide, the cost of sending money to Africa reaches 12.4 percent of the face value of the transaction on average – much higher than the global average of 8.6 percent. Sundry charges can push transaction costs to 20 percent for remittances sent to Africa.

With over 377 million customers in over 200 countries and a transaction value of $936billion last year, Paypal’s partnership with Flutterwave opens a payment gateway to thousands of merchants across Africa.

“Africa does not exist in isolation, we need to connect Africa to the world, when it comes to payments, we took a closer step to that, today,” Olugbenga Agboola, CEO, Flutterwave said on March 16.

African countries have agreed to a continent-wide trade pact, the African Continental Free Trade Area (AfCFTA), which connects 1.3 billion people across 55 countries with a combined Gross Domestic Product (GDP) valued at US$3.4 trillion.

The IMF says that besides lowering import tariffs, to ensure these benefits, African countries will need to reduce other trade barriers by making more efficient, their customs procedures, reducing their wide infrastructure gaps, and improving their business climates as well as payment systems.

Indeed, the rise of payment solutions is helping small businesses remain competitive in Nigeria. They allow a merchant in Agege to set up a web store, accept payments and deliver goods around Nigeria and outside the country without stress.

For example, 34-year old Obafemi Onanuga who used to work for someone at the Computer Village in Lagos opened his online business through Obiwezy.com, which retails computers, phones, and other IT accessories. He credits innovative payment solutions for helping to turn the business into a profitable enterprise.

An efficient payment solution is fuelling the growth of e-commerce in Nigeria. According to the United States International Trade Administration, the demand for electronic transactions has attracted payment facilitators from Europe and Asia who are investing in Nigerian electronic infrastructure projects.

“Online commerce and financial technology in Nigeria is strengthened by a fast-growing youth population, expanding consumer power, and increased smartphone penetration,” according to the US ITA.

It further estimates that the current Ecommerce spending in Nigeria estimated at $12 billion could reach $75 billion in revenues per annum by 2025.

The economy will be the net beneficiary of this growth. The World Bank says SMEs contribute around 40 percent of the GDP of emerging economies and there are over 42 million of them in Nigeria.

Through their simple and efficient services, enterprise solutions like Interswitch which half a decade ago were startups have morphed into unicorns providing over 11,000 ATM services in Nigeria.

Nigerian banks too are seizing opportunities in the payment space spurred by the Central Bank’s cashless policy. The CBN is deepening financial inclusion by promoting electronic payments. In March, it agreed with telcos to raise the service fee for Unstructured Supplementary System Data (USSD) from N4 every 20 second, to N6.98 per transaction.

Banks are leveraging these reforms to offer payment services. Guaranty Trust Bank has GTpay, Access, First Bank, Sterling Bank and Wema bank all have different payment gateway solutions.

Smaller players have grown to become giants offering innovative solutions including Paystack, Voguepay, SimplePay, Amplify, Remita, and Paga.

Businesses gain

The outbreak of COVID-19 triggered economic shutdowns in many countries to halt the pelting march of the virulent virus but it also opened new vistas for payment solutions for small businesses.

A survey by Fate Foundation found that 72 percent of small businesses say their cash flow was impacted by the lockdown. In-person purchases declined, many businesses opened online stores and invested in payment solutions and logistic services.

A report by McKinsey & Company on ‘Harnessing Fintech Potential in Nigeria’, found that the ease of online order and payment systems has considerable influence on customer acquisition and retention. Tech entrepreneurs devoted brain matter to providing simplified access so that SMEs receive online payments from customers.

Flutterwave, present in some African companies including Egypt, Senegal, Kenya, and South Africa, introduced an e-commerce store for small businesses during the pandemic.

It offered small businesses an online store where they can sell directly to their customers by adding their products or services and integrate a payment system of their choice. By allowing clients to tap its APIs and work with Flutterwave developers to customise payment applications, over 200,000 customers have signed up including Uber and Booking.com.

A small business, Funky Collectionz, recorded huge sales on the Flutterwave store selling over 1000 bags in 3 days. Businesses selling cakes, food, shoes, and others are springing up daily, advertising on social media platforms and using the payment solutions to receive payment.

In an economy with over 33 percent unemployment, the contribution of these payment solutions has been phenomenal hence investors are pouring money into them.

In March, Flutterwave closed a $170 million funding deal, which puts the company’s value at $1 billion above many local oil companies.

Earlier, Stripe, a payment solutions firm, bought Paystack, a start-up out of Lagos, offering over 60,000 customers, including small businesses, larger corporates, fintechs, educational institutions, and online betting companies innovative payment solutions for $200million, nearly half of what the Nigeria government hopes to earn selling marginal oil field licenses.

Flutterwave has partnered with Chinese e-commerce giant Alibaba’s Alipay to offer digital payments between Africa and China. It is also partnering with Visa to launch a consumer payment product for Africa, called GetBarter. The net effect is that it will help cross-border payments across continents.

The payment companies are getting even savvier. Mastercard is applying the latest quantum-resistant technologies to develop the next generation of contactless payments allowing consumers to buy products or services using a debit, credit, smartcard, or another payment device using Radio Frequency Identification Technology (RFID) – also known as chip cards – and Near-Field Communication (NFC).

Governments can win

With the recent ban on cryptocurrency and poorly executed National Identity Number registration, the government hasn’t presented itself as being tech-savvy. But technological solutions including payment solutions can help it generate more revenue.

For many companies, inefficient tax procedures discourage compliance. “The process of complying with tax is too complex for so many businesses,” Richard Ojo, CEO, and Founder of Taxmingo, a company offering tax solutions to small businesses said.

In some states in Nigeria tax filings are still done manually. Filing taxes online and settling payments online too will ease the burden of the process.