A payment gateway is a technology that facilitates online transactions by securely transmitting payment information between a customer, a merchant, and the financial institutions involved. It acts as an intermediary that encrypts sensitive data, such as credit card details, ensuring a secure and smooth transfer of funds during online purchases.
Payment solution service providers (PSSP) otherwise known as payment gateway service providers, are fintech companies that act as fund collectors on behalf of their customers. They serve mostly the interest of merchants by enabling payment through the web.
Like payment switching and processing services, payment gateways play a critical role in financial sector of any economy as they provide solutions that enable seamless digital transactions and enhance financial inclusion.
These Fintech companies act as intermediaries, routing and processing payments between various entities, including banks, merchants, government institutions and consumers.
The digital economy especially the e-commerce industry so much depends on the operations of these companies driving innovation and expanding access to financial services. Owing to their vitality, no Fintech company can engage in payment gateway services without obtaining license from the Central Bank of Nigeria under the CBN payments framework.
Prospect of Payment Gateway Business in Nigeria
Nigeria and Nigerians are quickly adopting to E-commerce and digital economy in general, buying goods and services online and paying for them online as well. A country of 220 million people where about 55.4% has access to internet.
There are currently 8 payment gateway companies in Nigeria. They are:
- Paystack
- Remita
- Flutterwave
- Interswitch
- SeerBit
- Monnify
- DPO
- Squad
- Kora
These payment gateways are not enough as customers usually experience downtime while using any of these payment gateways which is not unconnected to heavy user traffic beyond their carrying capacities.
How Payment Gateways Make Money
Payment gateway companies make money through what’s called payment gateway fees. Payment gateway services providers charge a fee for processing transactions on their platforms. These fees can either be a percentage of the amount of payment processed or a fixed fee per transaction.
Related Article:
How Fintech Companies Make Money
Steps in Setting Up Payment Gateway Services Company in Nigeria
- Feasibility Study
- Writing Business Plan
- Developing Software infrastructure
- Business Incorporation
- Raising Capital
- Obtaining license
- Commencement of business
Feasibility Study
Before setting up payment gateway company in Nigeria, you need to carry out feasibility study. The feasibility will tell you if payment gateway services business opportunity is viable at the given time and place or not. A business that was feasible yesterday in a given place may not be feasible today due to economic and environmental changes. Feasibility study is a precursor to business plan, and you would need to submit a feasibility report of the proposed Fintech to CBN for issuance of operating license.
Writing of Business Plan
Having carried out feasibility studies, it’s the time to write your business plan for the proposed payment gateway. Business plan is a document that outlines how you intend to run your business, requirements and projections. It allows you to create business operations on paper and manipulate and evaluate scenarios without the risk of investing resources. If you want to source finance from venture capitalists, you will need to present a business plan to convince them that your business idea is worthwhile.
Payment Gateway Software Development
Payment Gateway software development involves the use of technology to create financial payment processing services that are faster, more convenient, and more accessible than traditional financial payment services. Software infrastructure is the most important infrastructure needed for payment gateway services business, and the development of the software should be given utmost attention. As the pivot of Fintech business, there are certain things to keep in mind while developing software for payment gateway system.
User Experience
While developing a payment gateway software system, user experience (UX) is one of the paramount areas to consider. Payment gateway software should be easy to use, intuitive, easy to navigate and provide a seamless experience for users. The design should also be visually appealing and consistent with the branding of the company. Have end-user in mind and test the system with real users to ensure that it meets their needs and expectations.
Security
Payment Gateway software handles sensitive personal and financial information, therefore, it is very crucial to make sure that the software is secure and that user data is protected. As Fintech continues to grow, cyber attackers continue to device means of attacking the systems, as such, payment gateway software should use strong encryption, two-factor authentication, and other security measures to prevent unauthorized access and data breaches. Security should be built into the software right from the beginning, and there should be regular security audits to identify any threats and ensure that the software remains secure.
Compliance
Fintech software development is subject to various regulatory standards and compliance guidelines, depending on the jurisdiction in which the software is being used. In Nigeria, fintech software must comply with National Information Technology Development Agency Act, and the CBN regulatory guidelines on Open Banking, Payment System regulatory guidelines etc. Since payment gateway may be integrated to e-commerce stores where some shoppers may be from outside Nigeria, it is important to ensure that the payment gateway software complies with all relevant regulations and standards, such as GDPR, PCI DSS, and AML/KYC. Get the knowledge of these regulatory laws and build your software in compliance with these laws from the beginning, and continue to monitor and test the system to ensure that the software remains compliant.
Scalability
Every startup business should have plans for growth and expansion, as such, payment gateway software should be designed to scale as the business grows. As the number of users and transactions increase, the software should be able to handle the increased load without sacrificing performance or reliability. Payment Gateway software should be designed with scalability in mind, and should be tested to ensure that it can handle large volumes of users and transactions.
Integration
Payment gateway software should be able to integrate with other systems and platforms that the business uses. Integrating with banking systems, platforms that use it as their payment gateway, and other third-party services. Integration should be designed into the software from the beginning, and APIs and other integration points should be well-documented and easy to use.
Innovation
The fintech industry is constantly evolving, and it is important for payment gateway software to keep abreast with the latest technological trends and innovations. Payment gateway software should be designed with innovation in mind, and should be flexible enough to adapt to changing market conditions and user needs. Payment gateway companies should invest in research and development to stay ahead of the curve and maintain a competitive edge in the ever competitive market.
Support and Maintenance
Payment gateway software requires ongoing support and maintenance to ensure that it remains secure, compliant, and functional. Fintech companies should have a dedicated support team that can respond to user issues and provide timely assistance. Regular software updates should be released to address bugs, security vulnerabilities, and other issues. Payment gateway companies should also have a plan in place to handle emergencies and downtime to minimize the impact on users.
Business Incorporation
Having developed a software product, the next thing to do in establishing a payment gateway business in Nigeria is to register your company to qualify to do business within Nigerian territory. A company intending to do Fintech business in Nigeria will have to register with the Corporate Affair Commission (CAC) as either a limited liability company or a public liability company, and maintain a minimum of N100,000,000.00 (Hundred Million Naira) initial paid-up share capital.
Business registration in Nigeria can be done within 48 hours either online or at CAC's offices in all 36 states of the federation provided all the requirements are met.
- Certificate of Registration of the company with the Corporate Affairs Commission
- Evidence of minimum of paid up initial share capital of N100 million. Minimum initial share capital for a Payment Solution Service Provider company in Nigeria is N100 Million
- An application must be made to the CBN with all accompanying documents
- Payment of application fee of N100,000
- Payment of the licensing fee is N1 Million.
- Payment Card Industry Data Security Standard (PCIDSS),
- Payment Terminal Service Aggregator (PTSA), etc.