Leveraging a Merchant of Record for Nigerian Startups

Nigeria has turned out to be one of the most vibrant tech scenes in Africa. The nation is leading the digital revolution in Africa, currently having above 3,300 startups, with Lagos state alone playing host to over 88 per cent of tech companies in Nigeria. With more than $1.37 billion in funding in the fintech industry alone in 2021, this trend has only been gaining traction as global investors shift their interest to Nigerian innovation.

This promise notwithstanding, one significant bottleneck persists to plagues Nigerian technology startups and other e-commerce-related businesses: making and receiving payments and meeting regulations related to international payments. Global tax regulations, chargebacks, multi-currency transactions, and regulatory compliance are not only frightening but operationally challenging to the typical Nigerian startup that aspires to go global.

Meet the Merchant of Record (MoR): a business solution that allows Nigerian startups to avoid logistical nightmares and open the door to smooth international payments to Nigerian startups. In this blog, we explore the concept of MoR, its huge potential, and how this can be a game-changer for startups in Nigeria and the rest of Africa.

 

What Is a Merchant of Record (MoR)?

A Merchant of Record (MoR) is a third party which processes the entire payment cycle on behalf of a company. This involves payment collection, tax management, chargeback management, international tax compliance and providing financial reconciliation. In essence, MoR emerges as the seller as far as banks and payment processors are concerned.

To Nigerian startups, this model implies:

- No requirement to establish elaborate foreign laws

- Instant availability of international markets

- Ease of compliance and regulatory nightmare

- Efficient international payments

 

Why Nigerian Startups Need a Merchant of Record

What are the strategic advantages of MoR to Nigerian startups and e-commerce websites? Let us find out:

1. Accelerating International Expansion for Nigerian Startups

Beyond borders, scaling is an imperative of growth. But the internationalization in the Nigerian style comes with legal, tax and currency battles. A MoR looks after:

- Collection and remittance of VAT/GST in the world.

- Guidance through the U.S. sales tax rules

- Guaranteeing GDPR, PSD2 and PCI-DSS compliance

This compliance infrastructure helps Nigerian tech startups to spend their time growing and developing their product rather than on red tape.

 

2. Enabling Seamless Cross-Border Payments Nigeria Can Trust

Per McKinsey, the cross-border payments will reach $250 trillion by 2027. Nevertheless, startups in Nigeria experience a high rate of rejection, delays, and failure of transactions because of banking restrictions and sanctions. MoRs offer payment gateway solutions that are integrated, offering more than 100 currencies, local payment options as well as fast disbursement.

This enhances customer experience and increases conversion of revenue conversion globally.

3. Centralized and simplified Startup Compliance Africa

African Continental Free Trade Area (AfCFTA) is projected to expand intra-African trade by 52 per cent by the year 2025. But compliance is not simple. MoRs can deal with this through dealing with regulatory filings, being the liable party on transactions, and providing audit-ready reporting to both Nigerian and international regulators.

 

4. Minimizing Operational Risk and Chargeback Exposure

Chargebacks and fraud can murder startups at the infant stage. Over $41 billion in e-commerce fraud occurred throughout the world in 2022 alone. MoRs accept this liability and actively work to detect fraud, deal with customer disputes and reduce risk through the management of fraud detection systems.

 

5. Nigeria requires Tailored E-Commerce Solutions

MoRs do more than handle payments in the case of e-commerce businesses in Nigeria. They offer:

- Recurring billing, Subscription billing

- Localised checkout experiences

- Tax-composite pricing models

- Electronic delivery of products

Such customization assists startups in providing a flawless customer experience and competitive international services.

 

Real-World Use Cases and MoR Success Stories

Although Flutterwave and Paystack are essentially payment gateways, they have also developed to support MoR-like features on some services, enabling Nigerian startups to become global.

Nigerian SaaS startups are growing quickly, and they are using MoRs to enable them to sell to customers in the U.S. and EU without the need to incorporate overseas or deal with the complications of multiple tax registrations.

Sellers of digital products, such as course creators, app developers, and freelancers, can now charge in USD or EUR and remain compliant with local and international legislations.

 

A Guide to Selecting the Appropriate MoR for Your Nigerian Startup

1. Global Reach, Local Knowledge Select an MoR who understands the Nigerian regulatory environment very well and who has extensive connections across the world.

2. End-to-End Compliance Functionalities Make sure they provide end-to-end tax remittance and data protection compliance (such as GDPR) and audit capabilities.

3. Adaptable Integration Flexible solutions can be found, such as APIs, Shopify/WordPress plug-ins, and multiple currencies support.

4. Open Fee Schedule No secret MoRs. Choose providers who have transparent fee structures and performance-based pricing.

5. Customer Support and Dispute Resolution Make sure that there is 24/7 customer support that is responsive to resolve chargebacks and disputes, as well as prevent fraud.

 

Key Players Offering MoR Services in Africa

- Paddle: It is particularly helpful in the cases of SaaS businesses that seek end-to-end tax and billing options.

- Payoneer: Provides a combination of MoR and payment gateway features.

- Xendit and Rave by Flutterwave: On the way to the complete MoR options.

- Quaderno and Taxamo: aim at tax compliance within MoR structures.

 

Conclusion

The world is for Nigerian innovation as long as startups are armed with the proper tools. The benefit of using a Merchant of Record in Nigeria is an efficient, compliant, and simple path to international expansion. Whether by facilitating cross-border payments that Nigerian startups can depend on or by streamlining startup compliance across the African continent, MoRs give founders the freedom to do what they do best: developing scalable, revolutionary solutions.

In an agile, scale-defined digital economy, selecting an MoR is a strategic necessity, as well as a financial one. The startups in Nigeria that are looking to succeed in the global markets will have to reconsider their approaches to payments, compliance and customer experience. MoRs give the facilities and understanding to achieve just that.

And as long as Nigerian tech remains at the forefront of the digital transformation of Africa, the adoption of such tools as MoRs is not a choice. It’s foundational.