Leveraging the Naira Scarcity to Scale the eCommerce Sector in Nigeria
Since the Covid-19 surge resulted in the lockdown of cities across the world in 2020, the eCommerce sector has witnessed a surge in activities and exponential growth. Here in Africa, the sector has witnessed a bull run in the past six years, generating over $37 billion in revenue in 2022 from about $13 billion in 2017, and is expected to reach over $82 billion according to Statista Digital Market Outlook.
Nigeria, the continent’s economic powerhouse and one of the leading tech startup capitals in the region was the 38th largest market for eCommerce with revenue of $7.6 billion, contributing 18% to the worldwide growth rate in 2021, placing it ahead of Pakistan and behind Finland. According to Statista, the sector’s revenue projection is expected to hit $9.02 billion this year with an annual growth rate (CAGR 2023-2027) of 11.74 percent, resulting in a projected market volume of $14.06 billion by 2027.
In terms of investment, eCommerce startups in Nigeria have been doing remarkably well, only second to fintech with 58 startups accounting for 12.1 percent of the Nigerian total tech startup funding ($2,068,709,445) since 2015, according to Disrupt Africa’s Nigerian Tech Startup Ecosystem 2022 Report.
The recent scarcity of physical cash in Nigeria has created a unique opportunity for e-commerce startups in the country to scale their businesses and drive widespread adoption of digital payment solutions by providing solutions that can help mitigate the difficulties faced by consumers and businesses alike. To fully capitalize on this opportunity, these startups must address the unique challenges of the Nigerian market, including low financial literacy, limited internet penetration, and distrust of online transactions.
Leveraging the Cash Crunch to Scale eCommerce in Nigeria
Developing partnerships with financial institutions and mobile operators is one clear way to leverage the cash crunch to scale the Nigerian eCommerce sector. These collaborative efforts can aid in overcoming the challenges of low financial literacy and limited internet penetration by providing access to resources and expertise that can help drive digital payment adoption. Partnerships with financial institutions can also assist e-commerce startups in providing secure and reliable payment solutions that are fully integrated with existing banking systems customers. For example, eCommerce startups can collaborate with financial institutions to offer co-branded payment solutions tailored to the Nigerian market. These solutions can offer customers the advantages of digital payments, such as faster and more convenient transactions, while also maintaining the security and dependability of traditional banking systems.
Mobile operators can also play an important role in driving digital payment adoption in Nigeria. With over 80 million active mobile phone users in the country, eCommerce startups have a large and diverse customer base through mobile devices. Ecommerce startups can make it easier for customers to shop online and pay for goods and services using their mobile devices by developing mobile apps and mobile-optimized websites. E-commerce startups, for instance, can join forces with mobile operators to develop mobile payment solutions that allow customers to make online purchases using their mobile devices. These solutions can be combined with existing mobile money services, which are already widely used in Nigeria, to offer customers a seamless and convenient way to shop online and pay for goods and services.
E-Commerce Operators Must Gain Nigeria Trust in the System
Also, for Nigerian e-commerce startups to use the current cashless policy and financial inclusion drive by the CBN as a launching pad to accelerate their growth, the country’s lack of trust in online transactions must be addressed. Despite the country’s growing use of digital payments, many consumers are still hesitant to provide financial information online. This is partly due to Nigeria’s high incidence of cybercrime and in part to Nigeria’s high incidence of cybercrime, as well as a lack of regulation and oversight in the digital payments space. To address this issue, e-commerce startups must prioritize security and transparency in their operations and they must be proactive in communicating to their customers their commitment to these values.
Using encrypted SSL certificates and two-factor authentication for all transactions is one way to accomplish this. This protects consumers’ personal and financial information from theft and fraud and gives them peace of mind when making online purchases. Furthermore, e-commerce startups can invest in fraud detection and prevention technology to help prevent malicious activity, as well as clear and transparent dispute resolution processes to ensure that customers have confidence in the security of their transactions. Furthermore, the e-commerce industry must make deliberate investments in technology and innovation to ensure secure and dependable payment solutions that are fully optimized for mobile devices and other technologies. Again, investments in blockchain technology are required to develop secure and transparent payment solutions that can help to increase trust in online transactions. E-commerce startups can also invest in artificial intelligence and machine learning algorithms to improve the customer experience, reduce fraud, and boost operational efficiency.
Customers Education
Aside from technology, e-commerce startups can benefit from the cash crunch by focusing on customer education and engagement. This can aid in the development of trust in online transactions and the widespread adoption of digital payments in Nigeria. Sector stakeholders can collaborate to launch educational campaigns that educate consumers on the benefits of digital payments and how to use these solutions safely and effectively. This can be done through online content, TV and radio advertisements, in-person events, and other channels. Furthermore, startups can create training programs and resources to help merchants understand how to accept and process digital payments, thereby increasing adoption among small and medium-sized businesses.
Additionally, e-commerce startups can work with government agencies to create a supportive regulatory environment for digital payments in Nigeria, which will help to increase trust in online transactions and encourage the widespread adoption of digital payment solutions. This could be in the form of partnering with government agencies to create a digital identity system that provides consumers with a secure and reliable way to verify their identities online. This can help to reduce fraud and increase trust in online transactions, which will encourage more people to embrace digital payments in Nigeria.
Finally, the current reality in Nigeria may be the catalyst that e-commerce startups require to scale further in the region’s largest market, primarily by re-strategizing and focusing on providing a seamless and user-friendly experience for customers. Consumers in Nigeria want digital payment solutions that are quick, convenient, and dependable, and they will abandon a platform if it is too complicated to use. E-commerce startups should focus on creating a simple and intuitive user interface, as well as making sure that their platforms are fully optimized for mobile devices, to ensure that their platforms are appealing to customers.