Home Latest Insights | News Understanding The Nigerian Payment Gateway Space Using Porter’s Five Forces

Understanding The Nigerian Payment Gateway Space Using Porter’s Five Forces

Understanding The Nigerian Payment Gateway Space Using Porter’s Five Forces

I genuinely disliked academia growing up, partly because in most schools, 80-90% of what is taught can’t be applied in real-life situations, you’re sometimes taught outdated information (some schools still teach COBOL and FORTRAN, I was shocked too), and some of your lectures have this misguided idea that they’re some kind of gods – except they don’t do miracles, signs, and wonders, and instead of healing people as Jesus did, their major superpower is threatening 17 – 21 year olds with poor grades and “you’ll never pass my course”. Like passing their course was the only way to heaven.

However, while academia was weird, I had a different take on professors. Most of the professors who taught me in the university were not theorists – theorists meaning they weren’t teaching me exactly what they had regurgitated from some book and material somewhere where both the author and reader of the book have made little or no contribution to the advancement of their fields.

In fact, one of my Professors at the university was a consultant for Shell Petroleum Development Company and had the privilege of being regularly airlifted with helicopters to production sites to offer insights on how well to get the job done. He once joked that there was nothing a governor enjoyed he hadn’t enjoyed, he had a security detail and occasionally moved with a convoy –  the problem was he never drove (or was driven in) a bulletproof 2021 Mercedes Maybach. As far as I was concerned, that was an academic joke. The major reason it wasn’t funny.

Tekedia Mini-MBA edition 14 (June 3 – Sept 2, 2024) begins registrations; get massive discounts with early registration here.

Tekedia AI in Business Masterclass opens registrations here.

Join Tekedia Capital Syndicate and invest in Africa’s finest startups here.

Michael Porter’s 5 Forces Model is one of the most powerful contributions to business by an academic professor, and one of the most powerful frameworks for understanding competition in any market or industry.

The 5 Forces Model is designed to give a firm a clear understanding of a new market it intends to go into by providing a clear analysis of the various forces that may or may not hinder the ability of that firm to extract enough value and ultimately become profitable.

Porter’s Model gives a picture of the competitive environment and helps in the decision-making process for whether a new market should be explored or not. The goal of this piece is to provide an unfiltered picture of the Nigerian Payments Gateway space using the 5 Forces Model as a framework guide to structure my thoughts.


Before we begin, the big question is why Nigeria? What makes the Nigerian market environment so important and worthy of analysis? Some quick facts: Nigeria has a population of 200 million people, and while many have argued that 200million people isn’t the TSM (Total Serviceable Market) of Nigeria for digital payment products (which I largely second), and someone even said that number is likely around 10million, total unique bank accounts in Nigeria (based on number of BVNs) is about 54 million, and while some of these bank accounts are probably what I call “collection accounts” – money isn’t stored there, just received and immediately withdrawn, the market opportunity for digital payments continues to increase annually.

As of 2017, there were 155,462 deployed POS Terminals in Nigeria for receiving digital transactions at offline merchant locations. As of December 2021, that number had increased to 915,519 (a 489% YoY increase).

The average transaction volume for POS transactions has also dropped from about N9500 (US$16) in 2017 to N6500 (US$11) as of 2021, indicating growing retail adoption of POS payment solutions.

NIBSS Instant Payments (NIP) which is a key interbank payments solution powering the Nigerian interbank ecosystem processed N286.45trn (US$477.4bn) in 2021 alone, making it the sixth largest interbank payment system in the world, ahead of the United Kingdom and the United States and just behind South Korea, Brazil, and Thailand. Here’s an article on the impact of NIP on the Nigerian payments landscape you may want to look at for more info.

On a venture capital basis, Nigerian fintechs raised more than US$850million in 2021 alone, showing investor interest in the region. According to a report by McKinsey, about 40% of Nigerian fintechs are in the payments space, while the rest are distributed between several sub-categories including lending, savings, investments, etc. As a point to note, while all fintechs are not payment gateways, the vast majority of them (if not all) rely on a payments gateway to receive payments from their customers and users.

A good number of novel innovative solutions are also present in the Nigerian market. USSD (Unstructured Supplementary Service Data) is a communications protocol that allows users to process financial transactions in Nigeria in partnership with telcos.

USSD allows customers to perform digital transactions with just their mobile devices and without an internet connection. As of 2020, more than 762.19million USSD transactions were performed in Nigeria, valued at billions of US Dollars. Fintech companies like CoralPay are responsible for providing infrastructure that makes paying with USSD possible on payment gateways.

Nigeria is also a market leader in interbank payments, a space that developed economies (especially in Europe) are still trying to catch on to. While NIBSS Instant Payment (NIP) is a key interbank payments product in Nigeria, a sparse number of fintechs still offer solutions in that space, one of which is Remita, a household name in the Nigerian market and a silent payments juggernaut that processed N20.7trn (US$34.5bn) in payments volume in 2019 alone according to publicly availably CBN data. Remita has infrastructure across all Nigerian deposit banks giving it a prime position and allowing it perform A2A (Account to Account) transactions without the need of an intermediate payment token (card, USSD, etc.) to consummate transactions.

The Nigerian market has also enjoyed steady growth in payments volume recording 71% growth between Full Year 2020 and 2021, and already recording 42% YoY growth in H1 2022 payments volume compared to H1 2021. The Nigeria payments space is a ripe and important market for a good competitive analysis.


A payments gateway is simply an API tool that allows merchants, businesses, etc. to receive payments from their customers digitally via a variety of payment channels (Cards, USSD, M-Pesa, Bank account, etc), and have all their collections properly reconciled for accounting purposes.

A Payments Gateway makes it possible for a business to receive money from a customer who wants to pay for a good or service online and digitally.

Payments Gateways are largely responsible for the growth of the Nigerian eCommerce space in Nigeria, a space that is expected to grow at an annual growth rate of 13.86% according to Statista.

Merchants now have the ability to receive payments from their customers online as against being constrained to paying in cash and therefore defeating the purpose of eCommerce, or forcing merchants to adopt Pay on Delivery which is another story entirely.

Today, there are a plethora of payment gateways in Nigeria with different offerings, value propositions, and market domination strategies. Some notable names in the Nigerian payment gateways space include: Paystack, Remita, Interswitch, Flutterwave, etc. a number of fintechs (both globally and locally) also offer payment gateway solutions to compete with the big players in this space and get a piece of the pie. This piece may help such players properly understand and dimension this market for entry purposes.


Michael Porter’s 5 forces as described earlier gives a framework approach to understanding the Nigerian Payments Gateway space for analysis purposes. Here are the 5 forces in no particular order:


While it is normal for a growing market to have new entrants springing up every now and then to try and vie for a piece of the pie, some markets are somewhat more difficult to enter into and succeed in.

In Nigeria for instance Dufil Group (makers of Indomie Noodles) have proven that when God was sharing gifts to men, he gave them the ability to dominate the noodles business. Their dominance of the Nigerian noodles space is so severe that the household name for noodles in Nigeria is Indomie. Even the almighty Dangote Group had to sell their Noodles business to Dufil in 2017 because it didn’t make any sense to compete with them anymore. The few competitors in this space are in my opinion probably playing at the fringes of the market.

The threat of new entrants into the Nigerian Payment Gateway space is somewhat high. While the risk may not necessarily be from other up-and-coming fintechs, as regulatory requirements (N250 million (US$417,000) for a Payment Solution Service license from the Central Bank of Nigeria may hamper some players from coming onboard unless they are well funded, and the strong brand identity of present players may be a hindrance to upcoming players thinking of displacing incumbents, the major risk, however, comes from the Nigerian Deposit Money Banks.

Nigerian Banks have begun adopting a HoldCo strategy to allow them play in the fintech space actively. One of such banks adopting this strategy is GTBank (now GTCo), who recently launched a payments division called Squad and acquired a switching license from the CBN via its Habari Pay subsidiary. A switching and processing license is the apex regulatory cover available to a payments business in Nigeria and allows a fintech perform a plethora of activities including Switching, Card Processing, non-bank acquiring while acting as a PSSP, POS terminal issuer, and running a Super Agency network. Companies like Interswitch, Remita, CoralPay, etc. are also holders of this license including more recent players like Paystack, TeamApt, and Flutterwave.

While entering this market isn’t a walk in the park even for the banks, the native nature of banks, and the fact that some of these merchants that use Payment Gateway solutions are bank customers may be an opportunity for banks to cross-sell their solutions to these merchants.

Banks are in no way guaranteed victory, but they remain a threat nonetheless.


The threat of substitutes force simply speaks to the possibility of a customer deciding to use another solution that somewhat solves the problem they face but doesn’t compete directly with other players.

For example, Amazon Prime has now launched in Nigeria and is decorating Lagos with billboard adverts (AWS money at work ;)). However, Amazon Prime doesn’t just compete with the likes of Netflix and other streaming platforms, they also compete with DSTV and other MultiChoice products.

They aren’t direct competitors, but like Netflix, Amazon Prime competes with DSTV in entertaining and keeping the attention of users. Which is a real threat considering the growing number of young people choosing to rely on streaming platforms for entertainment as against cable TV.

Substitution in the Nigerian Payments Gateway space is probably a distant threat. While it is possible for merchants to want to use single channel solutions directly embedded on their digital touch-points as against a payments gateway (i.e embed a pay with bank transfer API directly on their site instead of a full payments gateway), the fact that a payments gateway already offers this as a choice to merchants along with other payment channel choices – cards, USSD, pay with bank account, etc. may make such a proposition look weak to a merchant and may not fly especially as a stand-alone payment option considering merchants are seriously interested in giving their customers the option of choice.

The threat of substitutes may not necessarily be a serious threat to this industry.


Lagos traffic is a very unique place, excluding the fact that it can be the determining factor between your house and your 6:15 pm Emirates flight to Dubai, it’s also a great place where all kinds of items are sold.

While there are the normal and fixed value items like Gala, plantain chips, and soft drinks that cannot be price haggled, there are the other not so normal items that can be haggled with. Anything from artwork, footballs, puppies, children’s toys, and sometimes raw food stuff (surprised me too) are sold in Lagos traffic. I’ve literally seen someone hawking a Christmas Tree in Lagos traffic. No joke.

In situations like this, the bargaining power of customers is usually high. The hawker is trying to make a living and is desperate to make a sale considering items of that sort aren’t acquired as frequently as the other FMCG products sold with them, while the buyer (usually in the comfort of a car) is looking for a cheaper alternative as he/she can easily buy the product from a store and probably doesn’t have buying that product as a top priority for them (not sure anyone buying a Monopoly board thinks to his/herself we should probably enter Lagos traffic to see if they sell it there).

Growing up my mum was very dangerous at price haggling (she still is), I remember once someone told her the price of a product was N5,000 (US$8.0) and she asked if he could give her for N700 (US$1.2). It was the audacity for me.

The main customer profile for a payments gateway in Nigeria is largely a merchant selling products via a digital touch-point (i.e mobile app, website, etc.) or a firm offering services to customers via its digital touch-points. The bargaining power of customers is largely modest and depends on who the customer is.

In Nigeria, processing fees are regulated by the Central Bank of Nigeria, and players are not permitted to charge more than 1.5% in Merchant Service Charge to their customers. While there are a few players who charge below this number i.e Flutterwave (1.4%), the majority keep their prices in this same range.

However, large-scale customers that can bring in significant transaction volumes like eCommerce players like Jumia, Konga, etc. may haggle for competitive pricing and a drop in MSC for their collections. When a company like Jumia with annual GMV of more than US$1 billion asks you to cut your price as a prerequisite to process their transactions, you’ll need to think really well before saying no.


Electricity is a key product required for any economy to run effectively. While governments in most developed economies are responsible for supplying this product, in Nigeria, this is not the case. There are two main suppliers of electricity in Nigeria – PHCN (The Power Holding Company of Nigeria), and the over 10 million generator sets steadily supplying electricity to millions of homes to help people power their TVs, cool their food, and charge their phones when NEPA (more widely acknowledgeable name for PHCN) is not acting right.

There are people in Nigeria who do not rely on NEPA, they have forsaken NEPA and decided to take laws into their own hands. One of my uncles who was literally having the worst of power uptime told the officials to carry their wire and be going when they came to threaten him with power disconnection (for a service he wasn’t properly consuming and they were billing him astronomically for ). They eventually carried their wire and he honestly didn’t care. The last time I checked, he was still running on generators.

Suppliers in the Nigerian Payments Gateway space are the processors that make transactions happen via the various payment channels made available by a payments gateway. For example; when a user decides to pay for a transaction with his card, there is usually a card processor responsible for processing that card transaction and making it go through.

This is the same with USSD transactions, pay with bank transfer, pay with bank account, etc.  For card transactions which is still a somewhat dominant payment gateway channel, there are multiple card processors and most payment gateways do not rely on one processor. An average payment gateway may have multiple card processors and route card transactions to each of them based on which is more favorable at the time.

So for example, it may be smart to route a Verve card via an Interswitch card processor or a VISA card via Cybersource, or another card transaction via PayU because of cost, and other considerations.

For USSD transactions, CoralPay is a key player in this market responsible for processing a large number of USSD transactions going on via payment gateways.

Although there are competitors like eTranzact etc. CoralPay is still a strong contender in this space. For a merchant whose key customers are more comfortable using USSD, CoralPay may have a strong impact on the payment gateway especially if that merchant is a key business for them, but in most cases, USSD may not necessarily be the most dominant transaction channel.

The bargaining power of suppliers in the Nigerian Payments Gateway space is largely modest.


Transsion Holdings (parent company of Tecno, Infinix, Itel, and Oraimo) is a unique organization. They entered the Nigerian market in 2008 with feature phone devices referred to as Chinko phones in the days.

They studied the market, applied their glocalization strategy, and became one of the first OEMs to offer affordable smartphones to the Nigerian market and snatched a dominant position for themselves.

While they continue to grow and launch new products, competition in the Nigerian smartphone space has grown immensely. Firms like Huawei, Xiaomi, Samsung, and even Nokia have begun to offer affordable and high-quality smartphone devices to attempt to capture a significant portion of that market.

While Transsion Holdings via its Tecno, Infinix, and Itel product lineup has kept its leadership position and still controls a significant share of the market, competition continues to grow and be a huge threat.

Competition in the Nigerian Payments Gateway space is downright gangster, to say the least. Between the leading players in this space – Paystack, Remita, Interswitch, and Flutterwave, competition is tense, some firms differentiate on product simplicity, ease of use, and product innovation, however, no one has a monopoly on any of those attributes.

Some also offer payment channels synonymous with their strategies and unique to them as a way to drive merchant and customer acquisition. Paystack offers Apple Pay (users can pay with Apple Pay), Flutterwave offers Google Pay, while Remita offers Pay with eNaira and is one of the first CBDC-enabled payment gateways in Africa.

Firms also compete on branding and marketing strategy, the venture-backed firms here tend to have a clear advantage in this space and can burn through hundreds of thousands and even millions of dollars to make a statement and bolster awareness of their product offerings amongst prospective customers.

Talent is the backbone of every payments business prompting different players to offer employee incentives and seriously invest in their corporate cultures while adopting various employer branding strategies to position themselves and their businesses as the ideal place to work thereby attracting high-quality technical and non-technical talent to their folds.

Competitive rivalry in the payments gateway space is exceptionally cutthroat, and although the market is a growing one with opportunities showing up every day, players are increasingly expected to put their best foot forward to avoid losing market share to aggressive competitors.


The Nigerian Payments Gateway space continues to be a growing space with immense opportunities and new frictions for players to capitalize on.

While the market may seem overtly crowded there may still be opportunities for new players to differentiate themselves and offer competitive solution to the market as a strategy to draw more merchants their way.

Inspired By The Holy Spirit

No posts to display

1 THOUGHT ON Understanding The Nigerian Payment Gateway Space Using Porter’s Five Forces

  1. This is a well researched analysis of the Nigerian fintech industry. There’s no doubt in the abundant opportunities available in the African fintech industry. African market is still growing as people are gradually welcoming the possibilities of executing their financial transactions with ease. The rural dwellers, including those with low literacy level can now walk to a POS stand to transact. This is a clear sign that fintech is the future of banking. As the awareness grows, so is the opportunity for new entrants.

Post Comment

Please enter your comment!
Please enter your name here