The unnamed banks will start using Bluecode within the next two weeks, says Gardiner in Johannesburg. Further Nigerian banks are in the pipeline, he adds.
Bluecode, Gardiner explains, is a “pull-based” payment system. It works like a cheque or a credit card in that it gives a merchant a means with which to “pull” a payment out of a customer’s bank account. That contrasts with “push” payments which are initiated by the customer.
For Gardiner, the difference is crucial. While push payments provide no extra information to a bank, pull payments are data-rich. That means they can open the door for the bank to selling a wider range of financial services to merchants.
Insurance for crops, buildings, equipment and even life cover could then be sold, says Gardiner.
In a country such as Nigeria, the fact that about 65% of the economy is informal makes it “opaque” to banks, he argues. Merchant pull payments “increase the size of the addressable market for banks.” For merchants, the value added from digital payments “must exceed cash removal. They really need more services.”
READ MORE Nigerian banks want a slice of the lucrative digital pie
The payments solution, Gardiner argues, helps to achieve a viable price point for both merchants and banks. “It’s very difficult without a digital channel.” Bluecode is in talks with a total 30 banks in Nigeria, Ghana and South Africa. The aim, Gardiner says, is to “light up the informal economy.”
‘Offshore Dependency’
Bluecode was founded in Austria, and the solution is widely used in Austrian food stores. In December 2019, the company raised 12 million euros in financing before expanding into Africa this year. The system works by scanning the barcodes straight onto a smartphone. Bluecode doesn’t store any information about the client, or their bank account.
Development in Africa hasn’t been hampered by COVID-19. Gardiner has been able to source new relationships remotely rather than in person. The experience, he says, show that “the culture was driving (business) travel, not necessity.”
READ MORE ‘Nigeria VS Coronavirus: Hardest hit least helped, informal workers
Europe, Gardiner says, has “lost control over its payments destiny” through its reliance on Visa and Mastercard. He argues that Africa has the opportunity to avoid creating an “offshore dependency” which is impossible for regulators to manage.
- Digital payments which involve data leaving the country, he says, create exposure to the risk that the destination country will at some point be subject to international sanctions.
- Banks will suffer “disintermediation” and lose potential customers if they let “Trojan Horse” credit card companies manage their transactions, says Gardiner.
- In regulatory terms, Gardiner sees Nigeria as being more promising than South Africa, where local fintech is “locked out” by the dominance of card payments. Gardiner traces this to the long-standing relationship between banks and the card companies.
- Bluecode has two local tech partners in Lagos, and Gardiner expects to be holding talks with regulators there.
- “If it works in Nigeria, it works anywhere,” he says.
Bottom line
Pull payments give banks more access to merchant data – the hard part will be designing products those merchants can afford to buy.
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