Introduction
As a business advisor for small and medium-sized enterprises (SMEs) in Nigeria, I've seen firsthand the challenges of navigating the complex world of payments. Whether you're just starting or looking to expand your operations, understanding how payments work in Nigeria is crucial for your business's success.

In this comprehensive guide, we'll explore the various payment methods available, the regulatory landscape, and best practices to ensure your SME is equipped to handle payments efficiently and securely.

Understanding the Nigerian Payment Ecosystem

The Nigerian payment ecosystem is a dynamic and diverse landscape characterized by a mix of traditional and modern payment methods. While cash remains a widely used payment method, electronic payments have gained significant traction recently.
Some of the most popular payment methods used by businesses in Nigeria include:

• Internet Banking: Online banking platforms allow transfers, bill payments, and other financial transactions.

• USSD Banking: This service enables banking transactions through simple text messages.

• Mobile Money: Services like Paga and MTN MoMo have gained popularity, offering various financial services.

• Automated Teller Machines (ATMs) allow cash withdrawals and transfers using cards and sometimes cardless withdrawals.

• Cash: Despite the growth of electronic payments, cash continues to play a significant role in the Nigerian economy.

• Cheques: While less common than in the past, cheques are still used for certain transactions, especially for more significant amounts.

• Point of Sale (POS) Terminals: POS terminals are widely available in retail stores and are used for card payments.

• QR Codes: QR codes are increasingly used for payments, allowing customers to scan a code with their smartphone and complete the transaction.

Facilitators of Nigerian Payments

• The Central Bank of Nigeria

• Nigeria Inter-Bank Settlement System Plc (NIBSS)

• Commercial Banks

• Fintechs, Payment Aggregators

• Mobile Money Operators

Let's explore their roles:

1. Central Bank of Nigeria

The Central Bank of Nigeria (CBN) plays a crucial role in regulating Nigeria's payment system. As the country's apex financial institution, it has several key responsibilities:

• Policy and Regulation: The CBN sets rules for payment systems, ensuring safety, efficiency, and compliance.

• Supervision: Watches payment providers, enforces rules, and addresses risks.

• Innovation: Promotes digital payments and develops payment infrastructure.

• Stability: Manages risks: Protects consumer rights and helps resolve disputes.

2. Nigeria Inter-Bank Settlement System Plc (NIBSS)

NIBSS is a critical institution in Nigeria's financial landscape. Established in 1993, it has played a crucial role in revolutionizing the country's payment system and streamlining inter-bank transactions.

NIP, the backbone of Nigerian interbank transactions, was created by NIBSS, and it’s said to be among the fastest in the world. Banks and fintechs in Nigeria are connected to NIBSS’s NIP.

3. Commercial Banks

Banks are vital in Nigeria's payment ecosystem. They process transactions, offer payment infrastructure, and promote financial inclusion. Their services and infrastructure are essential for the seamless operation of the economy.

Their main functions are:

• Transaction Processing: (Deposits, withdrawals, transfers, and payments)

• Payment Infrastructure: (Automated Teller Machines (ATMs), Point-of-Sale (POS) terminals, etc).

• Financial Inclusion: (Banking services to underserved populations)

4. Fintechs

Platforms like BudPay, Paystack, Flutterwave, and Remita act as intermediaries, connecting businesses with multiple payment options and processing transactions seamlessly.
They are also known as Payment Solution Service Providers (PSSPs).

As payment aggregators, they provide infrastructures, such as payment gateways, enabling businesses to accept customer payments through various channels.

They also give businesses valuable insights into customer behavior and trends, allowing them to make better decisions. Since some fintechs offer a global reach, they can help businesses access new markets and expand their customer base.

5. Mobile Money Operators

They’ve emerged as powerful catalysts for financial inclusion. By leveraging mobile technology, these operators provide a convenient and accessible means for individuals to conduct various financial transactions.

Individuals and small businesses use mobile money providers, such as Paga, OPay, and MTN MoMo, for various purposes.

What are Payment Gateways?

Payment gateways are online platforms facilitating electronic transactions between businesses and their customers. They act as intermediaries, securely processing cards, transfers, USSD, mobile money,
or other payment information and authorizing transactions.

Some payment gateways are available to businesses in Nigeria, each with its features and pricing. When choosing a payment gateway, it is important to consider factors such as:

• Fees and charges: Compare the fees charged by different payment gateways to find the most cost-effective option.

• Security features: Ensure the payment gateway has robust security measures to protect against fraud and data breaches.

• Integration with your business systems: The payment gateway should integrate seamlessly with your website or point of sale system.

• Customer support: Choose a payment gateway with reliable customer support to assist you with any issues or queries.

Staying Compliant

The Nigerian payment ecosystem is governed by a robust regulatory framework by the Central Bank of Nigeria (CBN) and other relevant authorities. As an SME, you must familiarize yourself with the key regulations and guidelines to ensure compliance and avoid potential pitfalls.

• Know Your Customer (KYC) Requirements: All users of financial services must comply with KYC guidelines, which involve collecting and verifying customer information.

• Anti-Money Laundering (AML) Regulations: Financial institutions are obligated to report transactions above certain thresholds, and Businesses must adhere to AML policies.

• Payment Solution Service Provider (PSSP) Licensing: Businesses that offer payment services or act as intermediaries must obtain the necessary licenses and approvals from the CBN.

• Data Protection and Privacy: The Nigeria Data Protection Regulation (NDPR) outlines the requirements for handling and securing customer data, which is crucial for payment processing.

Many financial institutions offer varying account tiers depending on customer compliance.

As a business owner in Nigeria, you can confidently navigate the Nigerian payment ecosystem by staying up-to-date with the evolving regulatory landscape and seeking professional advice when necessary.

Additional Security Requirements for Financial Technology Operators

Top fintechs go the extra mile to obtain additional quality and security certifications They all serve different purposes: keeping payment companies in check and protecting customers.
Most importantly, a fintech with these security measures is better positioned to win the trust of the individuals and businesses it serves and plan to stay in business for the long haul.

These measures include:

• ISO 27001: Protects sensitive data with a comprehensive information security management system.

• ISO 22301: Ensures business continuity and resilience in the face of disruptions.

• PCI-DSS: Protects cardholder data and prevents payment fraud

As a business owner, Protects cardholder data and prevents payment fraudhere are some proactive steps you can take to safeguard your business against fraud and data breaches. Some critical security measures include:

• Strong passwords: Use strong, unique passwords for all online accounts.

• Regular updates: Keep your software and systems up-to-date with the latest security patches.

• Employee training: Educate your employees about security best practices and the risks of phishing scams.

• Data encryption: Encrypt sensitive customer data to protect it from unauthorized access.

• Regular monitoring: Monitor your accounts for suspicious activity and report any unusual transactions to your providers.

Understanding how payments work in Nigeria and taking appropriate security measures can enhance SMEs' business operations and mitigate risks.

Settlements, Transaction Fees, and Chargebacks

Settlements

Payment settlements refer to the process of transferring funds collected via a payment gateway to designated accounts. They are usually completed twenty (24) hours after they are initiated.

Chargebacks

A chargeback occurs when a customer disputes a transaction and requests refunded funds. This often happens when goods or services are not delivered, the product or service is faulty, or the product or service is not as described.
Chargebacks can be costly for businesses, as they may incur fees and potentially lose revenue. To minimize chargebacks, strive to:

• Provide clear descriptions of products and services.

• Ensure timely delivery and quality.

• Have a clear refund policy.

• Address customer complaints promptly.

Transaction Fees

These are charges levied on each transaction. They can vary depending on the:

• Payment method: Credit cards, debit cards, mobile money, or bank transfers have different fee structures.

• Transaction amount: Larger amounts might incur higher fees.

• Business size: SMEs may face different fee structures compared to large corporations.

• Payment service provider: Different providers have varying fee schedules.

How to cut down payment transaction costs

• Try Online Collections: Online payments can help businesses simplify collections, especially providers with flexible pricing.

• Opt out of SMS Charges: Use email notifications instead of SMS to save on fees. Email offers more detail and can be scheduled.

• Consider Weekly Settlements and Reconciliations: Less frequent settlements can save on transaction fees but balance this with cash flow needs.

• Leverage Sub-Accounts: Use sub-accounts to track payments for different products or services and identify cost-saving opportunities.

Navigating International Payments as a Nigerian Business

As your business expands its reach, the need to handle cross-border payments may arise. This can introduce additional complexities and considerations, which include:

• Currency Conversion and Exchange Rates

• International Payment Methods

• Regulatory Compliance

What can you do to ensure your business can serve international customers?

Choosing the Right Payment Solutions for Your Businesses

Your business's selection of payment methods should be based on carefully analyzing your needs, customer preferences, and the associated costs and risks. This article gives more details on what to look out for.

Conclusion

As a business, you’re better positioned to leverage payments to grow your businesses when you understand how the entire ecosystem works.

As this guide outlines, it’s essential to understand the key players, the regulatory landscape, and best practices for implementing secure and efficient payment processes. Remember, the key to navigating the world of payments in Nigeria is to stay informed, adaptable, and customer-centric.

Want to see how BudPay’s Payment solutions work? You can get started using any of the following options.

Sign up and see how our products work in real time.
Explore our products on our website or try a live demo.
Book a meeting with our team to learn how BudPay can support the growth of your business.
Send an email to marketing@budpay.com

If you have any further questions or need assistance implementing a robust payment strategy for your SME, don't hesitate to contact us. Our team is here to help.