Why e-payment start-ups fail in Nigeria

For the electronic payment sub-sector of Nigeria’s Information and Communications Technology (ICT) industry to grow its start-ups, some limiting factors must be overcome completely.

Challenges currently identified as stunting the growth of payment start-ups in Nigeria, include un-scalable business model; insufficient funding; no advantage over existing solutions; skills shortage; regulation and too much competition.

Africa Payments Innovation Jury 2017, an insider’s view to the Continent’s payment and Fintech services, presented at the just concluded Interswitch organized ‘Connect Conference’ made available to The Guardian, said the electronic payments industry experiences continuous innovation on a worldwide basis, with new entrants aiming to grab a share of the market, and established players trying to defend and grow their existing business.

Africa, according to the jury, is no exception to that trend, and there is additional impetuses in the region to innovate because of the opportunity to bring large sections of the population that currently have access to electronic payment services into the digital payment world.

However, according to them, there are challenges for the industry because operating margins are always under pressure, but the payment sector remains attractive because the market continues to expand, and there is opportunity for players to participate in the transaction value.

Giving further insight, the Jury explained that un-scalable business model accounted for 27 per cent of reasons for payment start-up failures; insufficient fund 24 per cent; no advantages over existing solutions 15 per cent; skills shortage 13 per cent; regulation 12 per cent and too much competition nine per cent.

The Jury disclosed that African payments and Fintech entrepreneurs are faced by a shortage of venture capital — more acute than in other regions of the world, which is restricting their ambitions.

They stressed that the shortage of investment is marked at the angel and series level. A stage with many investors opting to wait until the business model is proven and the company is profitable.

The Chairman, Africa Payments Innovation Jury, John Chaplain, said the main reason for the failure of start-ups is that the business models are not scalable, which is attributed to a shortage of strategic and product development skills.

Chaplain advised that when introducing electronic payments into substantially under-banked markets, although breadth of service offering is critical to long term profitability. “It is important to identify the first use cases that encourage consumers to use digital payments services. Arguably when a consumer uses one electronic payment service regularly, it is easier to encourage them to use further services—but the first service is key.”

The Global Jury, which includes eight African members, rated Asia as the home to most payments innovation over the next two years, a position that it has held since inaugural 2008 jury.

The top rating for Asia comes from China now being widely seen as the global Fintech leader and other countries such as Malaysia, Singapore, and Thailand rapidly modernising their payments infrastructure. Africa is rated just behind Europe and ahead of North America and Latin America.

According to the Jury, with 81 per cent preference, Africa is seen as the best location to start payments business today.

‘Africa is at the beginning of its growth curve with significant opportunity for leapfrogging international trends. The potential is very promising and the market is still virgin. East and West Africa would be the preferred markets,” the Jury stated.