An Overview of the Payment Services Industry in Nigeria for Entrepreneurs

The payment services industry in Nigeria has witnessed significant growth in recent years. This growth can be attributed to a combination of factors such as increasing smartphone penetration, growing e-commerce market, government initiatives to promote digital payments, and the emergence of fintech companies.

Nigeria, as Africa's most populous country, presents significant opportunities for payment service businesses, especially in the fintech sector. The country has a large population, a growing middle class, and a high number of unbanked citizens. As a result, this has created a fertile ground for new entrants to launch their businesses.

This report examines the payment services industry in Nigeria, providing an overview of the market, its size, and key trends; the major players in the industry and the competitive landscape, as well as the regulatory environment and future outlook.

Market Overview

To start a payment services business in Nigeria, it's essential to understand the market dynamics, consumer behaviors, and the competitive landscape. Nigeria has over 200 million people, with about 60% of them under the age of 30. This youthful population is highly tech-savvy and has a high appetite for digital solutions, including payments.

Despite the progress made in the payment processing industry, Nigeria still has a large unbanked population. According to a survey by Enhancing Financial Innovation and Access (EFInA), over 36% of adults in Nigeria are financially excluded. This presents a massive opportunity for entrepreneurs to introduce new solutions that cater to this segment of the market.

Additionally, the Nigerian government has been driving a cashless policy (including the recent monetary policy of 2022 which saw the re-design of the nation's N200, N500 and N1000 bank notes), which will further encourage the use of digital payments. In recent years, there has been an increase in the adoption of mobile money, online payments, and electronic payments. According to a report by the Nigerian Inter-Bank Settlement System (NIBSS), transactions worth N345 trillion were performed electronically between January 2022 to November 2022 through the NIBSS instant payment platform. A recent report showed POS transactions in Nigeria surged by 41% year-on-year as at January 2023, from N152.10 billion in January 2018 to N807.16 billion in January 2023.

However, the payment services industry in Nigeria is highly competitive, with several established players, including Paystack, Flutterwave, Interswitch, and Paga. New entrants must come up with innovative solutions that can differentiate them from their competitors.

Key Trends

1. Mobile payments: The adoption of mobile payments has been a significant trend in the payment services industry in Nigeria. The majority of Nigerians now own a mobile phone, and this has made it easier to access mobile payment solutions. Mobile money has become a popular payment option for individuals and small businesses, especially in rural areas where traditional banking services are not readily available. Mobile payment platforms such as Paga, OPay, and Flutterwave have experienced significant growth in recent years, making it easier for individuals to send and receive payments.
2. Fintech innovation: Fintech companies have disrupted the traditional payment services industry in Nigeria, providing innovative payment solutions that are more accessible and affordable. These companies leverage technology to offer solutions such as peer-to-peer (P2P) payments, online payment gateways, and digital wallets. Fintech companies such as Paystack and Flutterwave have raised significant funding, indicating the growing interest in the sector.
3. Government support: The Nigerian government has been supportive of the payment services industry, creating an enabling environment for the growth of digital payments. The CBN has launched various initiatives such as the Payment Service Banks (PSBs) to promote financial inclusion and encourage the adoption of digital payment solutions. The government's support has also attracted international players such as Mastercard, Visa, and PayPal to enter the Nigerian market.

Major Players

1. Banks:

Commercial banks are the major players in the payment services industry in Nigeria. They offer a wide range of payment services, including online banking, mobile banking, and ATM services. Some of the major banks in Nigeria include Access Bank, Zenith Bank, First Bank of Nigeria, and United Bank for Africa (UBA).

Access Bank is one of the largest banks in Nigeria and offers various payment services to customers. The bank's online banking platform, Access Online, allows customers to transfer funds, pay bills, and check their account balances. Access Bank also offers mobile banking services through its Access Mobile app, which allows customers to transfer funds, pay bills, and purchase airtime.

Zenith Bank is another major player in the payment services industry in Nigeria. The bank's online banking platform, Zenith Direct, allows customers to transfer funds, pay bills, and check their account balances. Zenith Bank also offers mobile banking services through its Zenith Mobile app, which allows customers to perform transactions such as fund transfers, bill payments, and airtime top-ups.

First Bank of Nigeria is one of the oldest and largest banks in Nigeria. The bank offers a wide range of payment services to customers, including online banking, mobile banking, and ATM services. First Bank's online banking platform, FirstOnline, allows customers to transfer funds, pay bills, and check their account balances. The bank also offers mobile banking services through its FirstMobile app, which allows customers to transfer funds, pay bills, and purchase airtime.

UBA is one of the leading banks in Nigeria, providing payment services to customers through various channels such as online banking, mobile banking, and ATM services. The bank's online banking platform, UBA Online, allows customers to transfer funds, pay bills, and check their account balances. UBA also offers mobile banking services through its UBA Mobile app, which allows customers to perform transactions such as fund transfers, bill payments, and airtime top-ups.

2. Payment Processors:

Payment processors are companies that provide payment solutions for merchants and businesses. These companies facilitate the processing of online payments and help merchants accept payments from customers. Some of the major payment processors in Nigeria include Interswitch, Flutterwave, and Paystack.

Interswitch is a leading payment processing company in Nigeria, providing payment solutions for businesses and individuals. The company's services include online payments, mobile payments, and point-of-sale (POS) payments. Interswitch also provides payment processing services for banks, enabling them to offer digital payment solutions to their customers.

Flutterwave is a payment processing company that provides payment solutions for businesses in Nigeria and across Africa. The company's services include online payments, mobile payments, and POS payments. Flutterwave also provides payment processing services for banks, allowing them to offer digital payment solutions to their customers.

Paystack is a Nigerian payment processing company that provides payment solutions for businesses in Nigeria. The company's services include online payments and POS payments. Paystack also provides payment processing services for banks, enabling them to offer digital payment solutions to their customers.

3. Mobile Network Operators:

Mobile network operators (MNOs) are companies that provide mobile phone services to customers. In Nigeria, MNOs such as MTN, Airtel, and Glo offer mobile money services to customers, allowing them to perform transactions such as fund transfers, bill payments, and airtime top-ups.

MTN is the largest MNO in Nigeria and offers mobile money services through its MTN Mobile Money platform. The platform allows customers to perform transactions such as fund transfers, bill payments, and airtime top-ups. MTN also provides mobile banking services through its MTN Xtratime platform, which allows customers to borrow airtime and pay back later.

Airtel is another major MNO in Nigeria, providing mobile money services through its Airtel Money platform. The platform allows customers to perform transactions such as fund transfers, bill payments, and airtime top-ups. Airtel also provides mobile banking services through its Airtel Bank platform, which allows customers to open and operate a bank account using their mobile phones.

Glo is the third-largest MNO in Nigeria, providing mobile money services through its Glo Mobile Money platform. The platform allows customers to perform transactions such as fund transfers, bill payments, and airtime top-ups. Glo also provides mobile banking services through its Glo Xchange platform, which allows customers to transfer funds and pay bills using their mobile phones.

Regulatory Framework

The Central Bank of Nigeria (CBN) regulates the payment processing industry in Nigeria. To start a payment service business, entrepreneurs must obtain a license from the CBN. The license requirements vary depending on the type of payment service solution that the entrepreneur wants to offer.

For instance, to offer mobile money services, the entrepreneur must have a minimum paid-up capital of N1 billion ($2.2 million) for a national license and N100 million ($218,885) for a regional license. Additionally, the entrepreneur must comply with the CBN's Know-Your-Customer (KYC) requirements and anti-money laundering regulations.

To offer online payment processing services, the entrepreneur must register with the Corporate Affairs Commission (CAC) and comply with the guidelines issued by the CBN. The guidelines require online payment processors to have robust security measures to protect their customers' data and transactions.

Challenges faced by Payment Services Providers in Nigeria

The payment services industry in Nigeria has seen tremendous growth in recent years, thanks to a rapidly expanding digital landscape and increasing adoption of electronic payments. Despite the growth, payment services providers (PSPs) in Nigeria face a number of challenges that can hinder their success. This report will identify and discuss some of the major challenges that PSPs face in Nigeria and provide recommendations on how to overcome them.

1. Infrastructure

One of the major challenges faced by PSPs in Nigeria is the inadequate infrastructure. To operate effectively, PSPs require a reliable and robust technological infrastructure. However, Nigeria's infrastructure is often inadequate, leading to frequent power outages, poor network connectivity, and transaction failures. This has a direct impact on the smooth operation of payment systems, leading to delays in transactions, higher costs, and reduced efficiency.

2. Regulatory Environment

The regulatory environment in Nigeria is complex, with multiple agencies responsible for oversight of payment services. PSPs must comply with various regulatory requirements, such as obtaining licenses and approvals, submitting regular reports, and adhering to security and data protection regulations. However, the complexity of the regulatory environment can lead to delays in obtaining licenses and approvals, confusion about compliance requirements, and increased costs associated with compliance.

?3. Cybersecurity

Nigeria is considered a high-risk country for cybercrime, and PSPs must implement robust cybersecurity measures to protect their systems and customer data. However, this can be challenging, especially for smaller providers with limited resources. The lack of cybersecurity awareness among customers and employees can also increase the risk of cyberattacks, leading to the loss of sensitive data, financial loss, and reputational damage.

4. Low Financial Inclusion

Despite the large population, Nigeria has a low level of financial inclusion, with many people still outside the formal banking system. Payment services providers must find ways to reach these underserved populations and provide them with affordable and accessible payment options. This requires innovative solutions that are tailored to the needs of these populations, such as mobile money services and agent banking. However, the lack of reliable identification systems, limited access to mobile devices, and low levels of financial literacy can make it challenging to reach these populations.

5. Limited Interoperability

There are multiple payment systems in Nigeria, and they often lack interoperability. This leads to inefficiencies, extra costs, and delays in transaction processing, especially for cross-border transactions. Lack of interoperability between payment systems can also limit competition, leading to higher costs for customers and reduced innovation.

6. Limited Consumer Trust

Many Nigerians are still skeptical about electronic payments, preferring to use cash for transactions. This can be attributed to a lack of trust in the security and reliability of electronic payments, as well as limited awareness of the benefits of electronic payments. Payment services providers need to build consumer trust by providing secure, reliable, and convenient payment options. This requires investments in cybersecurity and customer education, as well as partnerships with other stakeholders such as banks and government agencies.

Recommendations to overcome Challenges faced by Payment Service Providers in Nigeria

1. Improve regulatory clarity and stability: The CBN should work with other agencies to improve regulatory clarity and stability. Payment service providers in Nigeria need clear and stable regulations to operate effectively. Regulatory authorities should work to ensure that regulations are consistent and updated regularly to reflect changing market dynamics.
2. Enhance digital infrastructure: Payment service providers need robust digital infrastructure to ensure that transactions are processed efficiently and securely. The Central Bank of Nigeria, Nigerian Communications Commission, and private sector should collaborate to invest in digital infrastructure, including improving internet connectivity, building new data centers, and enhancing cybersecurity.
3. Promote financial inclusion: Nigeria has a large unbanked population, which represents a significant opportunity for payment service providers. Providers should focus on promoting financial inclusion by expanding their product offerings, developing targeted marketing campaigns, and partnering with local organizations to reach underserved communities.
4. Increase competition: The payment services industry in Nigeria is highly competitive, but there is room for additional players. The government should work to promote competition by reducing entry barriers, encouraging innovation, and ensuring a level playing field for all players.
5. Develop partnerships: Payment service providers should collaborate with other players in the ecosystem, such as banks, merchants, and mobile network operators. These partnerships can help providers expand their reach and improve their product offerings.
6. Emphasize customer education: Many Nigerians are still not fully aware of the benefits of digital payments. Payment service providers should invest in customer education programs to help people understand how digital payments work and the benefits they offer.

Strategies for Success as a Payment Service Provider in Nigeria

1. Invest in Technology Infrastructure

Payment processing solutions rely heavily on technology. Entrepreneurs must invest in robust technology infrastructure, including servers, payment gateways, and security measures to ensure the reliability and security of their services. They must also ensure that their solutions are scalable to accommodate future growth.

2. Secure Funding

Starting a payment processing business requires significant capital investment. Entrepreneurs must identify sources of funding, including investors, grants, or loans. They must develop a comprehensive business plan that outlines their revenue streams, growth strategies, and marketing plans, which will help them secure funding from investors.

3. Compliance with Regulatory Requirements

The payment services industry in Nigeria is heavily regulated. Entrepreneurs must comply with the regulations issued by the CBN and other regulatory bodies. They must obtain the necessary licenses and permits before launching their services and ensure that they adhere to the KYC and anti-money laundering regulations. Compliance is critical to building trust with customers and avoiding legal and regulatory issues.

4. Partner with Key Stakeholders

Entrepreneurs must partner with key stakeholders, including banks, merchants, and payment gateways, to grow their businesses. These partnerships will help them increase their customer base, expand their services, and generate revenue. Additionally, partnerships with established players in the industry can provide entrepreneurs with valuable insights and knowledge that can help them improve their services and differentiate themselves from their competitors.

5. Focus on Customer Experience

The customer experience is critical to the success of any payment processing business. Entrepreneurs must focus on providing excellent customer service and support. They must develop solutions that are easy to use, secure, and reliable. Additionally, entrepreneurs must invest in customer education to ensure that their customers understand how to use their services correctly.

6. Marketing and Branding

Entrepreneurs must invest in marketing and branding to create awareness of their services and attract customers. They must develop a robust marketing strategy that includes social media, advertising, and content marketing. Additionally, they must focus on building a strong brand that resonates with their target audience.

Conclusion

Starting a payment services business in Nigeria presents significant opportunities, but it also comes with several challenges. Entrepreneurs must develop innovative solutions, invest in technology infrastructure, secure funding, comply with regulatory requirements, partner with key stakeholders, focus on customer experience, and invest in marketing and branding. By employing these strategies, entrepreneurs can position themselves for success in the highly competitive payment processing industry in Nigeria.