Interswitch used to be the only online payment gateway we had in Nigeria. Fast forward to today, there are several of them. It is easier to break them into categories as follows:
- NFC Enabled – PayAttitude and PayWithCapture of AccessBank
- Mobile payment: Paga, GTB’s *737# and other banks, SquareMii (owned by NIBBS) and newly launched Paysob.com, KongaPay and Verve Mobile
- Web payment aggregators: VoguePay, SlushPay, CashEnvoy, SimplePay and newly launched Paystack.
Why is everyone disrupting payment. Will it be bigger than eCommerce?
It seems that payment (and FinTech in general) is the next killer startup to build in Nigeria. Victor thinks so too.
Even though eCommerce seems to be the BIG THING right now, payment holds a lot of potentials too. Take for example, PayPal's debut valuation of $52billion shows how powerful a payment gateway is compared to eCommerce business. Remember that eBay, one of USA’s biggest eCommerce sites by traffic size is the parent company to PayPal, yet PayPal was able to outgrow it in valuation. (This makes me think of the future of the newly launched KongaPay vs. Konga)
How does a payment gateway make its money?
In Nigeria, this revenue can come from different sources and market niches; let me show you three of them.
- Transactional charges: Everything rises and falls on payment. Some of these transactions are for eCommerce; gaming; paywall access; subscription services etc. and they are paid for via web and mobile, in-app purchases, NFC, QR Codes, airtime and crypto currencies. This enables payment gateways to make money from transactional charges.
The revolution of online commerce in Nigeria is just about to scale as more people are confident enough to pay online for services instead of the cash on delivery model which is currently prevalent.
- Forex income: A number of the payment startups today have added the functionality to send and accept international payment. That is good news for businesses aiming to sell to an international audience, or NGO that wants to accept donations in USD; like VoguePay is doing. There is money to be made as the payment gateway can fix its own reasonable exchange rate (just like banks) to generate revenue.
Another revenue opportunity is remittance. According to stats, over $21 billion was remitted from Nigerians in diaspora back home in 2014. While wire transfer is traditionally what Western Union and MoneyGram do, remittance-focused FinTech are giving them a run for their money. One of the players is SimbaPay which recently got licensed for facilitating single inbound and outbound transaction as high as $45,000 from its initial $3000 and makes money by marking up its FX rates.
- Serve niche audience: Earlier this year, a music service simplified sales of music digitally by making it easy to pay with airtime recharge. They were strongly influenced by the success of the caller back tunes (CBT) model in Nigeria. Their solution of accepting payment via airtime recharge is novel, the problem is that it is expensive for not-well funded startup to copy.
That is where Paysob comes by serving a niche market who want to accept micropayments that make it pointless asking people to pay to the bank. Instead they pay with airtime (recharge cards). This potential niche market includes small contributory schemes, farmers or cooperative networks, eBook sellers and other low value items. Paysob hopes to make money by keeping 30% of the transaction for itself and gateway partners.
The “death” of Interswitch
It seems the "smaller" players are weaning off their dependence on Interswitch. This is made possible by the new wave of PCI SSD-compliance and CBN approval that payment startups like SimplePay, Paystack and (soon-to-be) VoguePay enjoy that enable them to store card details securely and be reclassified to a "bank-like" status with respect to transaction processing.
The good news is that these developments enable them to support new business models like subscription and recurring billings.
However, Interswitch is not sleeping. In fact, the "new" Interswitch did a logo refresh in a bid dissociate itself from the presumably bad old Interswitch "guy". That monster many hated is dead. This is is a new Interswitch.
A merger with Payoner and series of acquisitions - VANSO being the latest- proved this. Interswitch is preparing for the future by unbundling its business to separate entities and turning them to competitive “startup-grade” products. It is also investing in local startups with a war chest of $10million ePayment growth fund. That is why I am not surprised by their IPO rumour potentially valuing the company as a unicorn at $1billion
Is Interswitch's growth bad news for startups? Or a wakeup call?
To me, it shows that there is indeed a massive window to grow our FinTech space in Nigeria with innovative products, especially as established financial powerhouses do not want to be sidelined by the new and young entrants. This kind of competition is good as it will drive the innovation in FinTech space.
More proof everybody is really catching the “Fintech” bug
Earlier this year, I was at the developer fireside chat organized by Stellar, a FinTech product dubbing itself as the SMTP of payment (or call it PayPal-beta).
One of the persons in attendance was the Head of Innovation Lab at Wema Bank. This showed that his bank is also leapfrogging to join the bandwagon of innovative online payment. If you happened to know the "history" of the bank, you would appreciate that there is actually an impending online payment revolution for real.
To prove my point further, I was at Union Bank's training HQ as part of resource people of a consultancy firm. In our post-training chats, we discussed how their take-over and restructuring efforts is re-positioning them to capture new market with innovative banking.
These 2 banks were on the lowest perking order as far as technology was concerned but they too have caught the technology bug.
So what does this mean for the future of payment? Especially for Startups
Firstly, I had shared my expectation with the small players in a forum post noting that the BIG players (who are infrastructure enablers) for FinTech startups are now entering into direct competition with them.
Startups must be more innovative and offer more value to users.
A perfect analogy of how to do this is how chat apps are gradually allowing other applications to build on their platforms. I wrote about how WeChat, WhatsApp and BBM are taking advantage of this for commerce.
So what does this mean for payment startups? It means that payment can actually be a front door which can lead to endless possibilities for innovative startups especially in Nigeria. Let me start with how Ade Olabode of Prognostore detailed what today's customer expects from payment gateways to elaborate my point.
In addition to accepting payments, he expects them to:
- Have an API others can build on to turn transaction history into meaningful use for third-party apps.
- Incorporate machine learning, artificial intelligence and data mining.
- Ensure privacy and security.
I corroborated some of his points while discussing how to 10X innovate online payment in Nigeria.
Do you have any thoughts about online payment revolution in Nigeria? Please share in the comments section below.