We often get questions from African businesses searching for payment solutions, which would allow them to process electronic payments internationally. So, in this article we will try to outline the key options available for and problems faced by African merchants.
Africa, definitely, has tremendous potential for development of both regional and continent-wide electronic payment solutions. A universal solution, such as online payment gateway for Africa would allow multiple local businesses to accept electronic payments. By mid-2021 there were about 100 million micro-, small, and medium enterprises (MSME) working in Africa. Again, by mid-2021, most of them still relied on cash. However, these enterprises would definitely benefit from payment solutions allowing them to accept electronic payments as well.
Implementing payment solutions in Africa: key challenges
In Africa, when it comes to electronic payments, both vendors and customers experience problems. Conceptually, these problems can be divided into two groups.
Hardware for payment solutions
First, in order to be able to accept card payments at a retail store (as it is done in Europe), a business needs respective equipment. That is, online payment methods in South Africa, Nigeria, or elsewhere, involve some additional special hardware. In some cases, this hardware (such as terminals, card readers etc) is rather expensive (especially, from MSME perspective). So, making installation of this equipment affordable and logistically possible is, indeed, a challenge. Someone has to deliver all the terminals, card readers and/or dongles to points of sale.
Usage of SoftPOS solutions might solve this particular issue, especially for smaller-size merchants. SoftPOS systems are apps installed on gadgets, equipped with NFC circuits. These solutions do not require any additional payment hardware.
Another option, allowing a merchant to reduce the cost of the terminal is to include it into subsequent monthly payments. However, there is a risk of merchant not actually paying those to provider.
In either case, you need to make sure that the entity (person), that actually processes payments (and controls the payment equipment) maintains business ethics and is not prone to fraudulent activity.
Merchant fraud, underwriting, and background verification
Another challenge is related to merchant underwriting (issuing of merchant accounts) and potential merchant fraud. As of now, only a few acquiring banks and payment gateways in Africa provide their services to local businesses.
The key problem related to merchant underwriting, particularly in Africa, is background verification.
In such countries as India background verification of individuals and businesses is still a challenge. However, they already have more centralized data repositories available to accomplish this task. In Africa it is even more challenges to find such reliable sources, especially across multiple countries. So, it might be problematic to verify the background or credibility/trustworthiness of a particular merchant.
Payment solutions currently available to African businesses
Some payment solutions are already available to existing and prospective merchants from African region.
South Africa is at the forefront of electronic payment industry among African countries. Major online and card payment processors in South Africa include SnapScan, Yoco, PayFast, PayStack, Zapper, and others. These are mostly local payment solutions, targeted at MSMEs. They process electronic and mobile payments, and their commissions range between 2.2 and 3.5 % of transaction amount.
Multiple e-Commerce websites are offering products and services to their customers. So, some providers, such as African Payment Solutions, bridge the gaps for multinational e-Commerce merchants entering the African market.
Large providers are gradually entering African market as well. For instance, Stripe Atlas solution, founded in 2016, is available to startups worldwide (including Africa). The solution targets various types of businesses, including e-commerce websites, SaaS companies, online marketplaces, platforms, other. Nigeria (Africa’s largest economy) displays a record year-by-year growth rate of 400% in terms of new startup numbers. Moreover, pandemic years witnessed the most dramatic growth of new startups switching to electronic payment rails.
Unconventional and crypto payment solutions
Like we said, there are many startups and digital freelancers in Africa. They work in remote mode and service customers in Europe, the US and other regions. These entities would like to accept payments in these respective regions in their respective local currencies. Otherwise, they need to convert these currencies (EURO, USD, other) to local currencies and back. These conversions cost a lot and take time (as we wrote in our articles on cross-border and multi-currency transactions). Due to merchant underwriting-related issues, it is still problematic for such people and businesses to accept payments worldwide.
One of potential solutions might be usage of crypto rails instead of classical bank payments. Crypto transactions do not require merchant underwriting. For instance, instead of accepting payments in USD, a small business might accept them in USDC. Later on, it can convert USDC into USD through a wallet or exchange service. For example, a citizen of Nigeria should be able to open a crypto wallet. USDC can be funded to this wallet, then converted to USD and transferred to a conventional bank account or elsewhere.
Concluding remarks: payment platforms and beyond
If you are a software platform or a business looking to build a conventional or crypto-friendly payment solution, you might want to consider an omni-channel payment technology, such as UniPay Gateway.
Implementation process will largely depend on specifications you get from your acquirer. If your estimated processing volumes are not large, then a hosted version of the gateway product would be a better option. Then, as your business grows you can license the open-source-code version of the product and tailor it according to your needs. A solution like UniPay Gateway is a plausible white label payment gateway option for South Africa, Nigeria or any other African country.
Feel free to consult our payment experts at UniPay Gateway and learn about payment solutions available to your specific business.