Last year Duplo, a Nigerian business payments startup raised $4.3 million in seed funding to digitise B2B payments. The two-year-old company could not have known that Nigeria’s central bank was planning a controversial demonetisation of the naira followed by a cash ban that put digital payments in the limelight.
Duplo business-to-business payments solutions focus on helping consumer goods manufacturers and small businesses with multiple branches to make or demand payments to or from suppliers. The strain on cash transactions caused by the central bank’s cashless policy helped strengthen Duplo’s invoicing and payments offering.
Unlike consumer payments, business payments are more formal and administrative affairs with invoicing and payment terms complicating the process. The additional back-office tasks associated with making business payments, make it a chore for both payers and vendors who need to collect payment.
But Nigeria’s $440 billion economy is mostly informal. Estimates of the extent to which the informal sector contributes to Nigeria’s economy vary. A 2015 estimate by Nigeria’s National Bureau of Statistics put the informal sector’s contribution to the gross domestic product of Nigeria at 41%. But a 2017 paper published by the International Monetary Fund (IMF) estimates that between 50% and 65% of Nigeria’s domestic output comes from the informal sector.
A significant proportion of this large informal economic segment depended on cash for day-to-day transactions. Thus when the central bank began restricting the withdrawal of currency notes amidst a currency redesign program, this sector felt the pinch.
The clincher was that parts of Nigeria’s formal economy—the large consumer goods manufacturers as well as the food sector, depended on retail sales to customers who mostly paid cash. But as cash became difficult to find, sales quickly declined. The Stanbic IBTC’s Purchasing Managers Index (PMI)—a survey of 400 companies from agriculture, manufacturing, services, construction and retail—revealed that private sector activity had taken a huge hit. Manufacturing output and new orders from suppliers fell in February and March as purchasing activity sank from 53.5 in January to 42.3
Nigeria’s purchasing managers index receded sharply as the cash crunch bit into new orders by private firms. Data from Trade Economics
Food and beverage consumers who could not make cash payments deferred their consumption and retail outlets which were unequipped to collect digital payments simply closed shop. Sales at Heineken Nigeria, the local unit of the Dutch and second largest brewer in the world fell to a 15-year low as the demonetisation exercise drained roughly 2.1 trillion naira ($4.6 billion) of cash from the pockets of Nigerian spenders.
Small businesses were unprepared for the change and were forced to adopt digital payment channels for collecting payments from their customers. On the other side of the supply chain, businesses which paid their suppliers in cash were forced to seek out digital channels that were designed for the vagaries of business invoicing and payments. Yele Oyekola, Duplo’s chief executive says that his firm saw more inbound enquiries about setting up business payment accounts with Duplo as a result.
“There’s been a significant uptick in payment volumes over the last couple of months,” Oyekola told TechCabal over a call. “I think it had the same effect as when Covid-19 hit a couple of years ago, If you were a digital business then you would have seen a lot of traction with your growth, which is something that is currently happening with a lot of digital payment business now,” he adds.
“We’ve seen manufacturers entice their distributors by giving them discounted prices when they pay [for orders] digitally. And the reason is that no one wants to deal with cash. The guys who are actually exposed don’t want to deal with cash. We’ve seen cases where distributors are giving their retailers cashback to entice them to pay digitally through Duplo,” Oyekola explains.
He concedes though that what was a tailwind for Duplo was also a death sentence for some businesses.