Interswitch has enjoyed strong growth and cash flow generation across all areas of its business, with mid double digit revenue growth over the last decade.  The firm’s entrepreneurial culture flourished in the nascent but rapidly growing electronic payments industry in Nigeria, providing payment solutions to a broad set of clients and customers in every sector of the Nigerian economy. By focusing on developing innovative payments solutions for non-bank clients, today, Interswitch now has one of the largest online bill payment and collections platforms for both corporate and government entities in Nigeria.
A few years ago, Interswitch owned and managed the largest card scheme in Nigeria by a large margin, enjoying market share dominance with little competition. As Visa and Mastercard increased their presence in the country however, banks pounced on the opportunity to offer their high-end depositors cards that were usable internationally. Interswitch’s lower fees, denominated in local currency have enabled significant customer retention, but competitive pressures in the card market will only increase as Nigeria’s middle class continues to emerge.
Furthermore, competition from agile Nigerian start-up Union Pay, and pan-African platform EMPH have added pricing pressure to Interswitch’s payments processing business.
Time to pivot
The company has deftly responded by investing in ways to serve several key segments of the Nigerian economy:
Government and corporates – In a country striving to establish a cash-less economy to reduce corruption and theft, Interswitch’s payments and collections platform has been central to stem cash handled by billers, tax authorities and government entities. A recent example of this is the company’s recent partnership with a Nigerian state government to develop a bulk-payments solution that now allows the government to pay regular benefits to civil workers, track such payments and identify any ghost workers, thus reducing overall leakage in the system.
Retailers – Interswitch has developed an integrated POS (point of sale) product to retailers which allows for the collection of multiple forms of payment at the till, including mobile payments, supported by an integrated inventory management system. This has been particularly useful for retailers with a diverse customer base with various levels of financial sophistication. The availability of Interswitch’s secure payment gateway has also provided the enabling infrastructure for various online retailers to accept electronic payments from their customers and grow their online footprint.
Consumers – After failed attempts to drum up support for the Verve card in London and Dubai, the top travel destinations of Nigeria’s elite, Interswitch shifted its focus to developing Quickteller. This is an e-platform that allows customers to buy mobile phone airtime, pay bills and transfer funds at various touch points, including ATMs, POS terminals, the Internet and mobile devices. Users can now withdraw cash from their mobile money accounts at Quickteller-supported ATMs across Nigeria by entering a numerical code.
The unbanked – Despite Nigeria boasting a natural resource-rich economy larger than that of South Africa, with mature telecoms, and banking industries, income inequality has resulted in 54% of the adult population living off less than $2 a day, and 40% without access to a bank account.[2,3] Interswitch recently began the development of Quickteller Paypoint, an agent network, similar to that of East Africa’s M-Pesa, through which these individuals can save, transfer funds and one day borrow from kiosks spread throughout urban and rural Nigeria. By utilising existing third-party shops, and simple technology, this is a minimal capital intensive way to develop a 150,000 agent network over the next 5 years.
Tech start-ups – Interswitch recently launched a $10m e-payments growth fund designed to make investments in smaller, new payments technology and supporting businesses on the continent. The fund serves as a catalyst for funding innovation and disruptive businesses within the payment industry across Africa, and enables the company to collaborate with African entrepreneurs and start-up businesses developing innovative products and services.
Over the last few years, Interswitch has benefited from a leading market position, high switching costs, and favourable secular trends and regulation, but without its nimble, innovative approach to sudden headwinds, I doubt it would have retained its current position as Africa’s payments leader across the value chain. Further opportunities do exist, and Interswitch’s future will depend on its ability to capitalise on consumer’s demand for faster, simpler online payments, and the collection and analysis of the deep pool of data at its fingertips.