Bluecode Targets Nigeria’s informal Economy in New Expansion Drive

The Bluecode payments solution is about to go live in Nigeria with two partner banks, according to Murray Gardiner, managing director of Bluecode Africa.

Gardiner explained that, Bluecode 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, said 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.”

The payments solution, Gardiner argued , 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 said, is to “light up the informal economy.”

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.”

Europe, Gardiner said, has “lost control over its payments destiny” through its reliance on Visa and Mastercard.

He argued 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 said, 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, said Gardiner.
• In regulatory terms, Gardiner saw Nigeria as being more promising than South Africa, where local fintech is “locked out” by the dominance of card payments. Gardiner traced 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 said.

Bottom line

Pull payments give banks more access to merchant data – the hard part will be designing products those merchants can afford to buy.