Nigerian Payments Landscape

The country's financial inclusion rate stands at 44%, one of the lowest in sub-Saharan Africa, and lags behind its middle-income peer group. This limited financial inclusion is attributed to a combination of factors, including low mobile money awareness, restrictive mobile money regulation, and a lack of access to financial services. The use of digital channels for retail payment collection presents an opportunity to reach largely rural, unbanked populations at reduced cost, potentially increasing energy access. However, several barriers exist to leveraging digital payments for scale, including low financial inclusion, low mobile money awareness, and restrictive regulation. The Central Bank of Nigeria (CBN) has introduced a new license called the Payment Services Bank (PSB) license, which will allow Mobile Network Operators (MNOs) to take a lead role in administering mobile money services. This move is expected to increase financial inclusion and mobile money uptake. The payments landscape in Nigeria is characterized by a large number of Financial Technology (FinTech) companies driving innovation in the Digital Financial Services (DFS) space. Nigeria has grown into the leading FinTech destination on the continent, with the highest levels of FinTech deal activity since 2010. The large investments into FinTech are driving innovation and growth of DFS in Nigeria, creating a vibrant ecosystem with many prominent players. The DFS system in Nigeria involves four main actors: (Super-)Agents, Mobile Money Operators (MMOs), Infrastructure Providers, and Payment Services Banks (PSBs). Each of these actors has a distinct role in the payment collection process, and SHS companies can integrate with them to provide retail payment collection services. The trade-offs between these actors exist from both a consumer and SHS company perspective, and SHS companies must carefully consider these trade-offs when selecting a payment collection provider. The cost of cash collection in Nigeria is high, ranging between 4.7% and 15.5% of the gross transaction amount. In contrast, using digital payment and collection methods can reduce the costs associated with cash handling, with SHS companies able to pay as little as 1.5% of the gross transaction amount in fees. This presents a significant opportunity for SHS companies to lower their operational costs and increase their access to their target demographic. To overcome the barriers to leveraging digital payments for scale, SHS companies can leverage the existing agent networks of Mobile Money Operators (MMOs) in Nigeria. This can further expand their access to their target demographic, a largely rural, unbanked population. Additionally, SHS companies can negotiate distribution for a reasonable sales commission, which has the potential to increase revenues without having to build out proprietary distribution channels. The Payment Collection Provider Matrix is a tool that SHS companies can use to select the optimal payment collection provider for their use case, depending on their prioritization of customer affordability, reach, integration cost, and ongoing transaction fees. The matrix profiles nine of the most prominent payment collection providers in Nigeria, focusing on their most appropriate payment collection products/services for bottom-of-the-pyramid consumers. Overall, the Nigerian payments landscape presents both opportunities and challenges for SHS companies seeking to deploy PAYG solar units. While the use of digital channels for retail payment collection presents an opportunity to reach largely rural, unbanked populations at reduced cost, several barriers exist to leveraging digital payments for scale. By carefully considering these trade-offs and leveraging the existing agent networks of Mobile Money Operators (MMOs) in Nigeria, SHS companies can increase their access to their target demographic and lower their operational costs.