More than half of small firms in Nigeria, Africa’s biggest economy, are using digital payments for their business transactions, a new small firm diaries report has said.
According to the report, smartphones are important tools for the majority of businesses in their Nigerian sample.
“Over 74 percent of our firms use a smartphone for their business. The percent of firms that use a smartphone for business, the most common reasons for use are payments and mobile banking,” it said.
It added that over half of firms reported cost as a barrier to using technology, while only a quarter reported a skills barrier.
“Interestingly, given Nigeria’s global reputation as a source of financial scams, less than 15 percent of firms reported concerns over privacy and fraud.”
The report which got its findings from 161 firms across three states such as Enugu, Lagos and Kaduna was conducted over the course of a 12-month period between August 2021 and August 2022.
Published by Michelle Kempis, global research manager at Financial Access Initiative Research Center of New York University and Timothy Ogden, managing director at FAI in partnership with the Nigerian National Bureau of Statistics and the Lagos Business School, the report aims to better understand small firms in low-income neighborhoods of developing countries.
The Micro Small and Medium Enterprises sector is important to market economies as it acts as the wheel of the economic growth of any country. By creating new products and services, they stimulate new employment, which ultimately results in the acceleration of economic development.
In Nigeria, the sector currently contributes 50 percent of the GDP and has provided over 48 percent of all employment opportunities in the country, according to the United Nations Industrial Development Organisation.
The small firms report revealed that a higher percentage of men use a smartphone for business than women (80 percent vs. 61 percent) and that unbanked and marginally integrated firms also have lower smartphone adoption rates than highly and partially banked firms (64 percent vs. 80 percent).
“Women were also more likely than men to report skills and time required to learn as barriers to adoption (40 percent of women as opposed to 15 percent of men). While men were more likely to report cost as a barrier,” it said.
According to a recent Global Findex report by the World Bank, higher adoption of mobile money is driving the growth of account ownership in financial institutions particularly in Sub-Saharan African countries like Nigeria.
“Mobile money has become an important enabler of financial inclusion in Sub-Saharan Africa especially for women as a driver of account ownership and of account usage through mobile payments, saving, and borrowing,” it said.
In 2012, the Central Bank of Nigeria introduced the cashless policy, which was meant to curb excessive handling of cash and to curtail the volume of cash in circulation.
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More importantly, the policy was introduced to drive development and modernisation of payment systems capable of placing Nigeria among the top 20 economies in the world.
COVID-19 had changed the e-payments landscape, and hastened the adoption of instant payments as people switch to electronic channels for funds exchange, according to Nigeria Interbank Settlement System (NIBSS).
Data from NIBSS show that the volume of money transfers rose by 505.2 percent to 672 million in the first three months of 2023 from 111 million in the same period of last year. In terms of value, N9.1 trillion was reported from January to March this year, compared to N3.5 trillion in 2022.
Analysts at Duplo, a business payment platform for African businesses said in their latest ‘Exploring the State of B2B Payments in Africa’ report that electronic bank transfers are emerging as the top choice for paying vendors.
A breakdown of the report shows that South Africa leads with 49.1 percent adoption of electronic bank transfers, followed by Nigeria (48.5 percent), Ghana (34 percent), and Kenya (31.9 percent).
“Africa’s B2B payment sector represents a significant, yet largely untapped opportunity. This is partly due to the complexity and larger transaction volumes associated with B2B payments. According to the World Bank, the continent’s share of the global B2B payment opportunity stands at $1.5 trillion,” they said.
However, despite the promising potential, many businesses grapple with considerable payment delays and other issues with their payment processes that negatively impact their cash flow and slow their growth.
