Is POS Business Profitable in Nigeria?

Is POS Business Profitable in Nigeria?

Point of sale (POS) systems have become an essential part of doing business in Nigeria. With the country moving towards a cashless economy, POS provides a convenient way for businesses to accept debit and credit card payments.

The POS market in Nigeria is still in its growth phase, offering tremendous opportunities for entrepreneurs.

However, the POS business also comes with significant challenges that need to be addressed.

In this blog post, we will look at the profitability potential of running a POS business in Nigeria, including startup costs, opportunities, challenges, and tips for success.

What is POS and How Does it Work?

A point of sale (POS) system refers to the technology that allows a business to process and accept payments using debit or credit cards.

The main hardware component is the POS terminal which can be a dedicated hardware device or simply an app on a smartphone or tablet.

To accept card payments, the POS system is connected to a payment processor through an internet connection.

When a customer makes a payment using a card, the POS system captures their card details and sends this data to the payment processor to confirm if funds are available in the customer’s bank account.

An approval code is sent back to the POS terminal to complete the transaction if successful.

The merchant’s account is then credited with the payment amount.

POS systems provide many benefits over cash-only transactions such as:

  • Increased sales – By accepting card payments, businesses can serve customers who don’t have enough cash on hand. This leads to higher sales volumes.
  • Better security – Payments are secure with the customer PIN verification and don’t require handling large amounts of cash.
  • Detailed sales reports – POS systems provide detailed reports on transaction history and sales performance.
  • Inventory management – Integrated POS systems allow tracking of product inventory.
  • Customer data collection – Customer details can be stored to build loyalty programs.

Advantages of the POS Business in Nigeria

Nigeria provides tremendous opportunities for growth in the POS market:

  • Huge unbanked population – About 40% of Nigerian adults do not have a bank account indicating a massive untapped market. POS systems can bring financial services to the unbanked.
  • Growing cashless economy – The Central Bank of Nigeria is promoting non-cash transactions. This drives demand for electronic payments.
  • Large retail sector – Nigeria has a rapidly growing formal retail sector with supermarkets, malls and franchises that require POS services.
  • Fintech innovation – Nigerian fintech startups like Paystack, Flutterwave, and OPay are providing payment APIs and tools for small businesses to integrate POS capabilities.
  • Government support – Initiatives like cashless policy, national ID, and agent banking provide infrastructure and incentives for POS growth.
  • Youth demographic – The large youth population in Nigeria is more tech-savvy and likely to embrace cashless payments.
  • Tourism potential – The tourism industry provides opportunities to provide POS systems in hotels, restaurants, etc.

Disadvantages of Running a POS Business in Nigeria

While the opportunities seem lucrative, running a successful POS company in Nigeria comes with the following challenges:

  • Erratic power supply – Frequent power outages mean investing in backup power which increases operating costs.
  • Network and connectivity issues – Unstable internet connectivity hampers seamless POS transactions.
  • Inadequate card usage – Low debit/credit card penetration currently limits addressable market size.
  • Security concerns – Risk of physical theft and cybercrime needs robust measures.
  • Merchant acquisition – Getting merchants onboard requires considerable sales efforts.
  • Lack of awareness – Many customers and businesses are yet to fully understand POS value proposition.
  • Complex regulations – CBN licensing rules and KYC norms for merchants make customer onboarding tedious.

Startup Costs for a POS Business in Nigeria

Launching a POS company requires significant upfront capital investment. The key costs elements include:

  • POS device – Android or iOS based POS devices cost about ₦150,000 per unit.
  • Software and apps – Developing the POS software platform and payment app can cost over ₦5 million.
  • Payment processor fees – Gateway charges for processing debit/credit transactions apply.
  • Office space and staff – A business office including inventory and technical teams is needed.
  • Merchant acquisition – Sales and marketing costs to acquire merchants and customers.
  • Transaction charges – Network, gateway and settlement fees per transaction.
  • Compliance costs – Expenses for licensing, data security and KYC requirements.
  • Contingency funds – Buffer capital for unexpected expenses and cash flow.

Overall, a POS startup would need ₦10 million to ₦15 million in initial capital to cover the necessary hardware, systems, operations, and marketing expenses.

Tips for Running a Profitable POS Business in Nigeria

Here are some tips to ensure your POS business is profitable in Nigeria:

  • Focus on exceptional customer service to merchants and users. This builds loyalty and retention.
  • Build a robust technological platform and leverage innovation in the payments space.
  • Implement competitive pricing of devices and transaction fees to gain market share.
  • Develop strong agent networks across Nigeria to drive adoption in remote areas.
  • Create strategic partnerships with financial institutions, payment networks and large merchants.
  • Drive awareness through merchant sales teams and digital marketing campaigns.
  • Ensure tight risk management by securing card data and preventing fraud.
  • Stay up to date on CBN regulations and ensure full regulatory compliance.
  • Analyze customer data and sales reports to gain actionable insights for the business.
  • Continually enhance offerings by introducing value-added services on the POS platform.

Regulations and Compliance for POS Businesses in Nigeria

To operate legally in Nigeria, POS providers must comply with the following laws and requirements:

  • Obtain a license from the Central Bank of Nigeria (CBN) as a Payment Solution Service Provider.
  • Adhere to the CBN Guidelines on Transactions Switching and Payment Processing.
  • Comply with Know Your Customer (KYC) rules for merchant onboarding and customer due diligence.
  • Implement data protection and PCI-DSS security measures.
  • Connect to payment schemes like Interswitch, eTranzact, Mastercard, Visa, and Verve.
  • Integrate NIBSS protocols like BVN validation for customer identification.
  • Provide transaction monitoring and reporting as required by Anti-Money Laundering regulations.
  • Abide by consumer privacy laws regarding customer data usage.
  • Meet minimum capital requirements as specified by the CBN.

Staying compliant ensures the POS business operates legally and maintains credibility with financial regulators, partners, and consumers.

Key Takeaways

  • POS offers a convenient way for businesses to accept cashless payments in Nigeria.
  • There is huge market potential for POS given Nigeria’s large unbanked population.
  • However, POS businesses face challenges like lack of electricity, network issues and security.
  • With proper planning, POS can be a highly profitable business in Nigeria’s fast-growing economy.
  • Focus on customer service, competitive pricing and innovation to succeed in the market.

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