Looking back at the “value exchange” landscape in Nigeria over the years, you will see a significant shift happening – in multiple iterations. Let’s look backwards to see and understand these iterations, current trends and safely predict where things are going next.
“Cash is king” has always been a dominant expression for much of our existence, a term that consistently emphasised the importance of money you can touch and feel over almost every other thing. However, while money has not become any less important than it was from the days of cowries and silver coins, cash as a concept and means of value exchange is increasingly becoming unpopular.
Think about it, the corner shop lady with the charcoal-inscribed ‘No credit today, come tomorrow’ at the entrance of her shop, does not like money any less than she did a decade ago. What has changed, however, is she has moved from needing you to pay cash, but now collects payments even with a PoS device.
When she does not have ‘transfer-phobia’ out of fear of fake alerts, she would even let you make a bank transfer. And yes, she really won’t mind giving you credit if it would make you buy more and she is guaranteed to get her money back.
Quick clarification on what we mean by “remote payments”: It’s payment to a business that is not happening at the physical location of receiving value. In simple terms “put the money in the bank, I will know and give you value”. How this need has been met over time is what this article is about.
Iteration #1 – Pay at the bank
Let us take it back a bit and follow what could be a personal experience with the evolution of payments, at least for a generation of us. To pay school fees – either primary or secondary – there was a time you had to get to your school, collect a bank teller, which you would take to the bank to make payment. You would then return to the school after making the payment to also submit that bank teller. This was how non-cash payment was done. The end.
At that time, not giving the school a copy of your teller could have unimaginable consequences, most prominent being ‘you haven’t paid tuition for that term’. A very inconvenient situation that could take several visits to the Bursar’s office to rectify. After being embarrassed at the school assembly.
In Nigeria, this was one of the earliest iterations of “remote payments”..
Then things evolved.
Iteration #2 – Integrated payments on websites
Still on the school example, things improved to a point where schools started building websites, apps etc and with the eCommerce rave, there was a new revelation of sorts that, ‘maybe we don’t need to send people off to pay in banks anymore’, and importantly, ‘maybe we can put that payment experience inside our school website’. With this, payments became integrated into digital experiences.
The customer did something on the school’s website, money left the account of the customer, the money appeared in the account of the school at some point. Good for everyone. At times it’s integrated card payments, virtual accounts, or some USSD magic. It became the norm for a while as more businesses went digital and e-commerce became a thing just a little over a decade ago.
The inefficiencies with the card networks and payment infrastructure forced several businesses to take things to another level.
Iteration #3 – Wallets
With the card networks, payment success rates can be as low as 60%. That’s potentially a 40% opportunity loss! At some point, businesses started to introduce wallets – their own store of value – as a way to smoothen payment experiences as a way to deal with these issues.
In this iteration, you sign up on a website, they tell you that you have a wallet with them, they create all sorts of ways (and incentives) to get you to put some money in that wallet. Then when they need to take money from you, they can simply display the balance in this wallet and ask you to pay from that in one click.
The challenge? These wallets all had a single utility (usually). And it didn’t make a lot of sense to most consumers to keep money with a business that they can not use for anything else. Coupled with the regulatory question mark on such businesses. If they added more utility to such wallets to solve the consumer problem, they would be deemed to be holding deposits and have to deal with the regulatory overhead to do that. So, we have a catch 22.
Some of the more prominent e-Commerce players were able to evolve to address this by spinning off regulatory compliant product lines like JumiaPay and KongaPay. Not everyone could move in this direction.
Iteration #4 – Integrated lending
From businesses just accepting payments, the landscape evolved even further into a phase where lending is now integrated into the payment experience. While this phase is still not fully formed in Nigeria, it is more common in the American and European markets and has made it possible for people to make purchases and pay later. Some available providers may not be used by people because they are not so aware of this service, or even outrightly put off by the interest rates.
One great example here is Afterpay, a service where you can shop on your favourite stores and at checkout; you select it (Afterpay) as your payment method. You then have up to six weeks to spread your payment, and there is even a claim on its website that it would be interest-free.
The point here is that the business has not only made it possible for you to pay, but as part of the payment experience, it has also become possible for you to apply for a credit system to aid that purchase. This is especially important when you either cannot or do not want to pay in full at once. How it benefits the business is that you may end up spending more with them on things you could have forgone.
Part of the new payment experience is flexibility over how you pay for goods and services, putting you in better control of how your funds are deployed, and not having to go out to secure credit, then coming back to pay with it.
In these two instances of web-based payment and the possibility of getting credit, there is often a common denominator before one can transact; a debit or credit card.
Where things are going
Several global players are starting to take things to the next level. A fusion of #2, #3 and #4.. A business offers its customers a full-blown bank account with a card and a credit line linked to it! In this scenario, you are able to “keep” your money on a non-banking platform, from where you can then spend it as though it were domiciled with a traditional financial service provider. Walmart has a product called Go2Bank, Uber has Uber Cash, etc.
At the point of payment, they are then able to create much deeper integrated and frictionless experiences that include one-click payments if you have the balance, buy now pay later if you don’t have the balance, etc. What makes this iteration interesting is that the brand effectively wants to become the consumer’s bank, making them able to do more with money, beyond the options their actual banks would typically provide.
Let’s localize this.
As a GOTV customer, imagine that a bank partnered with GOTV so that your IUC number could become an account number or have an account number linked to it, which you can keep topping up like you do a regular account.
And then imagine that GOTV provided you with a digital experience through which, you can do everything your normal bank account can do, while still paying for GOTV services and even sending payment anywhere else you use a service, including bills, cash withdrawals and utility payments.
Good enough, there is a GOTV app already, which can be taken further to feature embedded finance, offering users financial products and an opportunity to carry out financial services.
You can receive and send money from that account provided by a cable TV company, and the activity on that account could form part of your credit history. Heck, you could even pay another cable TV service provider from that same GOTV wallet. Isn’t that incredible? More so, without the need for a banking license!
The benefits to the consumer would include the fact that as a corporate entity, the company behind GOTV would have negotiated commissions or corporate pricing which they can pass to consumers in the form of discounts and benefits that serve as a reward for remaining a consistent user.
The customer gets benefits, the business gets seamless payment experiences and customer loyalty, and the bank gets increased digital transaction volumes. And when credit kicks in, the bank can underwrite and better drive their LDR requirements and financial inclusion objectives.
This is the future. Businesses will embed banking. And it will benefit everyone.
These trends in the evolution of payment and the endless possibilities are not about to stop. As people turn financial services into something they fuse into their own experiences, embedded finance providers with a partnership and ecosystem mindset such as OnePipe remain the most realistic vehicle in pushing that agenda forward and faster too.
When the individual is able to pay with more ease, the person making it possible for them to ‘easily part with money’, also stands to gain more. A win-win situation is yet to be fully explored.