The reasons were simple: Cash is known and trusted, and consumers (especially Nigeria’s large unbanked and underbanked population) preferred paying bills in person with cash. That is until COVID-19 hit.
Alabraba said the pandemic made transacting physically much more difficult as companies closed their doors, and the need for digital options skyrocketed.
“We saw significant upsurge in the number of signups — about five times growth in the first two months of Q2 versus Q1 for new registrations,” he said. “We also saw a significant growth on the merchant side when it came to taking noncash payments as well. The number of merchants recruited during the lockdown period pretty much doubled from what we had in January and February.”
Trusted Local Agents Are Key
For Paga, the “secret sauce” for its growth has been an agent network that provides an easy cash-in/cash-out point for users. Alabraba said that’s critical in a cash-dominated economy like Nigeria’s, where capturing consumer usage requires ready access to cash. He said no one will put money into a system unless they know they can easily remove it as cash when they want to.
But as Paga’s system has grown, customer relationships with its agents have expanded. Alabraba said most of its agents are located in stores, creating a critical infrastructure of easy access points.
“We have evolved a system where agents actually can perform transactions on behalf of customers,” Alabraba said. “That allows the customer to say: ‘Let me go and get served by this person so that if there are issues, that person deals with this.’ The beauty of it is that these agents have a fixed location, and they can be the service point in a community that people recognize. I mean, at the same place you send your little brother to go buy bread or milk, they can also go to withdraw money or make the transfer to pay that utility bill.”
Merchants Are Signing On Amid The Pandemic
Paga agents are distinct from the Paga merchants who actually use the service to take digital payments. How merchants accept payments can vary, as Paga works with QR codes, near-field communication (NFC) and app-based direct transfers from customer accounts.
Alabraba said that’s not a very large part of the Paga ecosystem today, but that the company is rapidly approaching a turning point. He said merchants are seeing the need in the pandemic era not only for cashless payments, but for contactless ones as well. And they’re just warming up to investing in the tools that will allow them to accept such payments.
“As far as contactless payments go, it's still very much in its infancy,” Alabraba said. “You see pockets of QR code deployment in certain places, but I would say broad penetration of QR solutions hasn't really hit yet. It is only just getting ignited now” because of the pandemic.
Handling Payments Is Only The Beginning
But Alabraba said the massive shift that the pandemic has created is a starting point, not an ending one. Pushing digital forward in Nigeria post-pandemic will be about what value-added services companies can build into the digital conversion.
He said that unlike some countries’ governments, Nigeria’s isn’t pushing contactless with rewards or other incentives. However, government limitations on how much cash someone can deposit per day acts as an indirect push toward digital payments for both consumers and merchants.
On the merchant side, companies can leverage digital payments capabilities to create profiles for the business that will let them access services like insurance, as they can demonstrate revenue. Or, businesses can create a customer database that allows them to track and reach out to their regulars over time.
“Going cashless and touchless isn’t in broad use in Nigeria, but I think it will come, especially with the desire to stop touching cash and to stop punching keypads on POS terminals,” Alabraba said. “But there are some things that we will need to do to educate the market a bit better.”
Cash Won’t Go Away, But Neither Will Digital Payments
Alabraba said he doesn’t expect cash to completely disappear in Nigeria, but he said consumer and merchant relationships are already changing — and that’s unlikely to reverse.
“I think there will always be a place for cash; in certain cultures, there will be a need to have that anonymous option for payments,” he said. “But we’ve seen from the COVID situation that we need more than just cash. So, we’ve seen the accelerated uptake of digital payment options and a willingness to take them on by consumers and merchants.”