Nigeria is still very much a “cash first” society, several fintech startups are looking at lowering the barriers to entry for both businesses and consumers as internet penetration spreads. One grand promise of Nigeria’s tech ecosystem is to bring hundreds of thousands of small businesses in the sprawling informal economy online.
The informal sector is estimated to be up to 65% of the Nigerian economy, according to the IMF. “The informal sector provides employment and income to many people who might otherwise be unemployed in the absence of sufficient opportunities in the formal sector,” says IMF. But, because ecosystems don’t exist in a vacuum, small businesses, particularly those hoping to enter the formal economy, often face real-world barriers ranging from difficulty registering a business, accessing credit and facing multiple taxes to maintaining expensive corporate accounts.
Several tech companies have focused in particular on enabling small businesses receive online payments. Through their merchant marketplace models and in-house payment platforms, Konga and Jumia, Nigeria’s biggest e-commerce companies, have been responsible for much of the progress seen with unregistered businesses getting online and receiving payments. Neither company requires certificates of incorporation or a corporate account for merchants to operate on its platform.
Paystack, a two-year old Lagos-based payments company, is the latest startup looking to make it easier for unregistered businesses to plug into the digital economy. Paystack has removed the compulsory requirement for businesses to provide a certificate of incorporation and a corporate bank account. It will now allow “starter businesses” to use its platform by verifying business owners’ phone numbers with Truecaller’s crowd-sourced verification system thanks to a new partnership between the two companies. In addition, Paystack will also require merchants to provide verified personal bank details and a national ID.
Longterm, Paystack is hoping for similar results. To prevent unregistered businesses from operating perpetually on its platform, Paystack has capped amounts these businesses can receive at three million naira ($8,400) after which they will have to “formalize” their operations. “The explicit thinking behind starter businesses is that overtime, they will become a registered business,” Emmanuel Quartey, Paystack’s head of growth, tells Quartz.
Given the many millions of Nigerians with a small “side hustle” cash-based business, enabling such entrepreneurs accept online payments could easily be worth billions of dollars in the long run.
VoguePay, a payments company founded in 2012, also allows unregistered businesses with verified bank details, national IDs and utility bills operate on its platform. However, to provide an incentive to become fully registered, there are restrictions such as limiting the number of bank cards they can receive payments from. “We are deliberate about letting users understand the benefit of having registered businesses,” Wole Ogunlade, head of digital strategy at VoguePay said.