The possibilities that the internet brings to businesses are limitless. It has expanded the reach and breadth of how individuals, small businesses, and large organizations sell their products and services. With the largest population in the continent and the youngest in the world, Nigeria's internet penetration is around 55 percent and is projected to increase. This growth is primarily driven by internet-enabled mobile devices, which account for the majority of web traffic. As smartphone usage rises, people are using their devices for everything from texting and calling, to payments (e-commerce, airtime purchases, etc.) and browsing.
As a developer building fintech products in Nigeria, this means you need to know the right payment methods that suit your client’s needs. Whether it’s an individual who stays in Ikeja looking to sell to both local and international clients all the way in London, or a large enterprise that manages its infrastructure and wants a bit of control on how they process online payments, it’s important to not only understand how payment works but also choose the payment method that best aligns with the business model and customer preferences.
In this article, we’ll discuss what a payment method is, its benefits, and how to choose the right one that is well-suited to your customer needs.
What is a Payment Method?
A payment method is a way for individuals or businesses to pay money in exchange for goods and services. Basically, it defines a channel in which a transaction is completed between the buyer and seller. Common payment methods in Nigeria include:
- Cash: Physical currency used for transactions.
- Debit Cards: Plastic cards linked to your bank account that allow you to make purchases using the available funds.
- Bank Transfers: Electronic transfers of funds between bank accounts.
- Direct Bank Debits: A direct method where the recipient requests the funds from the sender's account.
- Credit Cards: Plastic cards issued by financial institutions that allow you to make purchases on credit.
- Mobile Wallets: Digital payment systems on smartphones that store payment information and allow for various transactions.
- Cheque: A written order instructing a bank to pay a specified amount of money to a designated recipient.
- Unstructured Supplementary Service Data (USSD): Simple text-based interactions on mobile devices, often for financial services.
The choice of payment method often depends on factors such as the amount of the transaction, the buyer's preferences, the seller's requirements, and the available infrastructure. Overall, selecting the appropriate payment method can be beneficial because it allows you to meet your client's needs in several ways:
Reach More Customers: For clients that want to sell to local and international customers, you'll be able to meet their needs by offering multiple payment options. This flexibility allows their customers to choose the method that best suits them.
Optimize Transaction Costs: Sometimes, your clients want to enable or disable specific payment methods based on regions or products. You can account for these business decisions and manage the associated costs.
Reduce Fraud and Disputes: Pay on Delivery (PoD) is one of the most preferred options for many customers in Nigeria, as it offers them the flexibility to inspect the product and take necessary precautions before making a payment. However, many business owners see it as an unsustainable model due to higher costs when packages are rejected or risks associated with malicious customers. With this in mind, you'll be able to advise your clients on how to mitigate risks related to online payments by choosing methods that protect both the business and customers.
Increase Conversion: The ultimate goal of any business is to sell products and receive value in return. By providing the right mix of payment options for your client, you can increase the likelihood of successful transactions.
How to Choose the Right Payment Methods
Before you choose online payment methods, you must carefully consider the nature of the transactions, the region where your customers are located, and, most importantly, what the business model supports. Specifically, you should consider whether the business:
- Supports recurring payments.
- Supports refunds.
- Supports disputes (the right to dispute a credit or debit card transaction).
- Supports payment confirmation.
With these factors in mind, you can select the right payment method that best aligns with the business model. Let’s look at some businesses and the type of payment methods that are most suitable for them.
E-commerce and Marketplace
E-commerce and marketplace facilitate the buying and selling of goods or services over the internet. They allow businesses to sell products directly to consumers (B2C), to other businesses (B2B), or between consumers themselves (C2C).
The e-commerce market size in Nigeria is estimated at USD 8.53 billion in 2024 and is expected to reach USD 14.92 billion by 2029. It's gaining such adoption because it offers convenience, accessibility, and gives end users the flexibility to choose from vast products and services.
If you’re building this kind of platform, it's important you provide a streamlined array of payment methods that give your customers what they want and when they want it.
Recommended Payment Method:
- Cards: Cards are one of the most commonly used payment methods in Nigeria, and you need to support relevant card brands (Mastercard, Visa, etc.) to optimize conversion and costs on your e-commerce platform. Card payments typically require verification and lower the risk of disputes. Additionally, because the information stored is only done once, your customers will be able to leverage a one-click checkout experience.
- Bank Transfer: Allow customers to send payment for products or services to a designated bank account and then confirm the transaction.
- USSD: This payment method has the lowest barrier to entry, as your customers don't need a high-end phone to make payments in Nigeria.
Instant or On-demand Services
Instant or on-demand services are services that can be requested and delivered immediately or within a short timeframe, often through mobile apps or online platforms. Examples include:
- Transportation: Ride-hailing apps like Uber and Bolt.
- Food Delivery: Services like Chowdeck and Glovo.
- Grocery Delivery: Services like GoLemon.
- Home Services: Services like My Eden Life.
- Entertainment: Movie streaming, video game rentals, and concert ticket booking.
If you’re building for an on-demand service, you need to consider payment methods that offer immediate confirmation of whether the payment was successful or failed. Recommended payment methods include:
- Cards
- Wallets
- Bank Transfer
These payment methods can also support a one-click checkout experience because you can store customer payment details on file.
SaaS and Subscription-based
Software as a Service (SaaS) and subscription-based businesses operate on a model where customers pay a recurring fee to access software or services over the internet. When customers pay the subscription fee, they can access the product for a specific period, such as monthly, quarterly, or yearly.
If you’re building a business that uses recurring payments, you need to consider whether the payment details can be stored and reused. This capability allows you to automatically initiate payments on a scheduled basis without requiring any action from the customer. Recommended payment methods include:
- Cards
- Wallets
- Bank Debits
Challenges of Online Payment Methods
While payment methods come with a lot of convenience for sellers and buyers, they can present various challenges for businesses and consumers. Below are some common issues you would likely run into when dealing with payment methods:
Security Concerns
When security measures are inadequate, sensitive payment information can be compromised. Additionally, dealing with a large number of customers whose intentions you cannot always predict makes the system vulnerable to credit card fraud, identity theft, and other fraudulent activities.
Technical Overhead
Technical glitches and outages are leading causes of disruptions in payment processing. It's also important to consider the devices, software, or systems your customers use to make payments, as not all payment methods are compatible with every setup.
Associated Cost
A major source of concern for most businesses is the cost associated with disputes. When a customer returns an item, businesses may incur chargeback fees and other payment processing fees, which can impact profits. This is something you need to be mindful of when selecting payment methods.
International Transactions
Fluctuating exchange rates are a major concern for most businesses as it affects the cost of international transactions. Additionally, different countries have varying regulations and tax laws that you need to navigate when choosing payment methods.
Regulatory and Compliance
Payment-related laws are strict in many countries. You need to factor in changes to regulations and keep your system up-to-date. Furthermore, data privacy laws must be considered to ensure compliance for your system and customers.
How Flutterwave Can Help
The challenges payment methods bring can be overwhelming for both individuals and organizations. There are many moving parts with regulations, technical issues, associated fees, and other payment-related issues that you need to account for.
Flutterwave is a payment provider that enterprises, individuals, small businesses, emerging markets, and startups can use to accept multiple payment methods and simplify global operations. Flutterwave is actively adding new payment methods to cover your business needs and meet regulatory obligations. With Flutterwave, you’ll get:
- A simple payment method setup.
- A monitoring and reporting dashboard.
- A dedicated sandbox to simulate your payment experiences before going live.
- Seamless integration for your business models.
If you need further support or clarification, we have a dedicated team ready to assist you every step of the way. Reach out to Flutterwave support to get started.
You can also join our Slack community to stay up-to-date with our latest developments and connect with a vibrant network of fintech users and developers.
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