Traction, a Nigerian merchant solution platform, has reached an important step in its path to address the financial services difficulties faced by the country's micro, small, and medium-sized enterprises (MSMEs). The fintech startup is now better equipped to empower SMEs by providing them with access to a comprehensive ecosystem of digital tools and financial services, thanks to a successful $6 million seed round investment led by Pan-African investor, Ventures Platform and Multiply Partners, with participation from P1 Ventures and other investors.
MSMEs play a vital role in the Nigerian economy, contributing over 60% of GDP growth and serving as key drivers of job creation. However, a staggering 87% of these businesses operate informally, relying primarily on cash transactions and paper-based activities. This informal nature of their operations hinders their ability to develop and capitalize on economies of scale, making it challenging for them to access crucial financial services like credit, savings, and payment solutions.
One of the major roadblocks for many small businesses has been their inability to obtain banking solutions from large financial institutions. Banks frequently lack a thorough grasp of the activities of SMEs and provide insufficient financial services, leaving these enterprises underserved and failing to develop. This is where Traction comes in with its innovative platform which enables an end-to-end sales payment cycle as well as access to a variety of vital services for business growth.
Traction was founded in 2020 by Mayowa Alli and Dolapo Adejuyigbe, both former McKinsey consultants, and its aim is based on their earlier experience in developing financial inclusion projects in Nigeria. They experienced firsthand the issues faced by small and medium enterprises across the country and set out to establish a platform that would cater to their specific needs and offer them the resources they needed to thrive.
It platform caters to two types of merchants: traditional and premium. Traction is typically the initial point of contact for traditional retailers, such as street food vendors and tiny neighborhoodsment acceptance and financial services. These merchants account for 75% of the platform's users. Premium merchants, on the other hand, who are more formalised in their operations, find Traction's goods more enticing than traditional banks, driving them to transfer to the platform.
The fintech's platform offers a seamless and user-friendly experience, starting with point--sale software to record sales, manage inventory, and handle customer interactions, along with POS terminals and virtual accounts for accepting payments. From there, Traction expands its services to include merchant wallets, cash advance loans, savings options, and bill payments, catering to specific verticals such as food and restaurants, FMCG and grocery chains, fashion and lifestyle enterprises, electronics stores, and healthcare facilities.
Traction's unique approach to serving merchants sets it apart from many of its competitors in Africa's financial services sector. Unlike platforms that distribute POS terminals first and then add software and business tools, Traction's platform was tailor-made for merchants from day one, providing a seamless integration of essential services. This approach has led to its impressive metrics, with the company experiencing a 7x increase in revenue and an 8x increase in transactions last year, serving over 70,000 businesses across Nigeria.
This new investment will undoubtedly bolster Traction's efforts to address the financial services stumbling block faced by SMEs in Nigeria. Armed with sufficient capital, the fintech aims to accelerate its growth in the country, strengthen its team, and drive expansion beyond Nigeria's borders. While the approach in other countries may differ, the core goal remains the same: to provide retail SMEs with the necessary tools and support to thrive.
With its payment solution services license, Traction can operate as a payment solution provider across various payment categories, further expanding its capabilities to serve the needs of merchants across diverse sectors. The company's commitment to addressing the financial inclusion gap is evident in its impressive track record of disbursing over N2 billion in loans with one of the lowest non-performing loan ratios in the industry.