Online Payment Start-ups are Boosting Nigeria’s Informal Sector
A core objective of Nigeria’s payments companies is to bring small businesses in the country’s informal economy onto the online platforms. The small businesses hoping to enter the formal economy are facing barriers ranging from difficulty registering their businesses, accessing credit from banks and facing multiple taxes to maintaining expensive corporate accounts. Verdant Capital has seen renewed interest in Nigeria in 2018 from a range of international investor types, after the markets has been off-limits for many firms for most of 2016 and 2017 given a weaker domestic economy and foreign currency rationing. Lagos, along with Nairobi, Cape Town and Johannesburg has retained its status as one of the four key fintech hubs in Africa.
Several payments companies are focusing on enabling small businesses to receive their online payments through their payment platforms. Nigeria’s two largest e-commerce companies; Konga and Jumia (both founded in 2012) have been assisting unregistered businesses getting online and receiving payments from their customers.
Paystack, a two-year old Lagos-based payments company is making it easier for unregistered businesses to get into the digital economy by removing some of the compulsory requirements including the need for certificate of incorporation and a corporate bank account. In addition, Paystack requires business owners to produce valid personal banking details, a national identity document and phone numbers.
VoguePay, a payments company founded in 2012 allows unregistered businesses to use its platforms but with restrictions on the number of bank cards the businesses can receive payments from to provide an incentive to become fully registered businesses.
Paystack is hoping to follow the same procedures in the long term by limiting the number of transactions unregistered businesses can receive through its platform. Currently, it has capped the amounts at NGN 3 million (approx. USD 8 400) before the businesses can register themselves. “The explicit thinking behind starter businesses is that overtime, they will become a registered business,” said Emmanuel Quartey, Head of Growth.
According to the IMF, Nigeria’s informal sector forms up to 65% of the country’s economy creating employment opportunities and income to the people.