This is the third blog in CGAP's Digital Merchant Payments series. Read the first blog on the urgent need to accelerate digital merchant payments and the second blog on why merchants still choose cash.
Across rural trading centers and small market stalls in sub-Saharan Africa, digital merchant payments (DMP) are growing steadily — but the economics behind them remain stubbornly fragile. Payment service providers know that micro-merchants are essential to achieving scale, yet they also confront the hard math: servicing these merchants costs far more than the revenues they generate. As regulators push for lower fees to protect small businesses and financial inclusion goals expand, the central question becomes unavoidable: how can providers build sustainable models that make digital acceptance viable where margins are thinnest?
Providers often generate most of their merchant payments revenue from a handful of medium and large urban merchants. Reaching rural and micro-merchants is a different proposition—it can cost providers six to nine times more to acquire, onboard, and manage these merchants. Some providers report that over 50% of their DMP operating costs fund incentives aimed at driving active usage and strengthening the merchant value proposition.
There are four levers providers can use to build sustainable models: revenue diversification, restructured sales incentives, operational excellence, and technology-enabled cost reduction.
Lever 1: Moving beyond transaction fees - the case for revenue diversification
Mobile money providers face a structural challenge: transaction fee dependence misaligns with micro and rural merchant economics. A micro-merchant receiving 500 USD monthly in digital payments at 1% Merchant Discount Rate (MDR) generates just 5 USD in revenue for the provider, while the cost to serve — customer support, dispute resolution, agent commissions, system maintenance, compliance — often exceeds this. Banks can absorb such revenue losses through lending margins, deposit spreads, and other fees, but mobile money operators depend heavily on transactions that micro-merchants don't generate in volume.
Regulatory caps can compound the problem. In some markets, regulators have mandated zero or very low fees on merchants for QR-based payments. While these measures aim to protect merchants and encourage adoption, they can also make it difficult for providers to cover their costs, making it harder for providers to sustain these services over time.
Mobile money providers face a structural challenge: transaction fee dependence misaligns with micro and rural merchant economics.
The West African Monetary Union (WAEMU) markets offer a contrast. By allowing mobile money operators to earn interest on escrow funds, regulators enabled non-transaction revenue that can subsidize lower-cost merchant services—an option most sub-Saharan African markets prohibit, leaving providers dependent on transaction volumes micro-merchants don't generate.
Where regulation doesn’t enable alternative revenue, market structure sometimes does. M-PESA's ecosystem dominance in Kenya enabled Safaricom to halve merchant fees in 2017—cross-subsidizing micro-merchants from diversified revenues across bill payments, large merchants, and financial services. This pathway exists where platform scale creates surplus; in fragmented markets, providers need different approaches.
Where regulation doesn’t enable alternative revenue, market structure sometimes does.
Beyond initial scale, leading providers sustain merchant engagement by building broader ecosystems that unlock multiple revenue streams. According to CGAP’s Merchant Payments: VAS Playbook, payments alone rarely deliver enough value for micro-merchants — value-added services such as credit, business management tools, and supplier payment integrations are required to build a compelling proposition. For example, Safaricom’s M-PESA layered bulk disbursements, supplier payments, credit partnerships, and business management tools onto its core payments offering, increasing revenue per merchant. MTN has taken a similar approach across Uganda, Ghana, and South Africa. In Nigeria, Moniepoint illustrates how ecosystem design supports viability in competitive markets — pairing instant-settlement payments with free business accounts, data-driven working capital, and smart point-of-service (POS) tools. When merchants can access credit, automate payroll, and manage suppliers through a single platform, payment fees become one element of a broader value bundle rather than the sole revenue driver.
Lever 2: Restructuring the sales engine – paying for usage, not sign-ups
Merchant acquisition is expensive and labor-intensive. Unlike large retailers who actively seek payment solutions, micro-merchants require door-to-door sales, extensive handholding, and continuous support—yet generate minimal transaction volumes and revenues.
The problem deepens with how acquisition is incentivized: third-party agents are paid for merchant sign-ups, not usage. This creates inactive accounts that generate zero revenue while consuming resources. The gap between registered and active merchants is troublingly wide, and Kenya's experience illustrates the challenge: only 37% of registered Lipa Na M-PESA merchants were active as of FY2025.
Moniepoint in Nigeria demonstrates a better approach. The company built a network of over 600,000 "business managers" compensated for ongoing transaction volumes and not just initial sign-ups. These business managers provide dedicated relationship-based support optimized for merchants rather than product distribution, focusing on transaction success and issue resolution. Critically, Moniepoint paired this usage-based compensation model with infrastructure advantages that merchants value: near real-time settlement, providing immediate cash flow, and instant reversals when payments fail. This combination—aligning incentives with merchant success while delivering operational excellence—helped Moniepoint become Nigeria's largest merchant acquirer, processing over 250 billion USD annually.
Lever 3: Operational excellence as a competitive advantage
Merchants need payment systems as reliable as cash—instant settlements, low failure rates, and immediate issue resolution. But this demands significant investment: robust infrastructure, fraud prevention, agent liquidity, customer support—all for merchants averaging under 10 USD transactions.
Providers face a chicken-and-egg problem: scale requires operational reliability, but building reliability requires investment hard to justify without scale. Providers who solve this—through risk capital tolerating years of losses, cross-subsidization from profitable services, or innovative cost structures—gain commanding market positions. Those who can't remain trapped in unprofitable operations or sub-optimal growth.
Lever 4: Technology-driven cost efficiency
Technology offers pathways to fundamentally reduce acquisition and servicing costs. QR codes and USSD-based acceptance eliminate the capital intensity of POS distribution—merchants onboard with printed materials rather than expensive hardware. Automated support through digital channels and AI-powered chatbots handles routine queries at a fraction of agent costs. Providers who leverage technology to compress unit economics can afford to serve merchants that traditional models cannot reach profitably.
These efficiencies compound at scale. Once providers establish market trust, they can shift to leaner models: self-service onboarding replacing door-to-door sales, automated reconciliation replacing manual processes. Each new merchant costs less to acquire and serve than the last.
Applying the levers: market context matters
No universal template exists for sustainable merchant payment models, but critically, no single lever works in isolation regardless of market context. In Kenya's platform-dominated market, M-PESA's scale-enabled cross-subsidization (Lever 1), but it combined it with operational excellence (Lever 3) to maintain merchant loyalty. In Nigeria's competitive landscape, Moniepoint succeeded by pairing usage-based agent incentives (Lever 2) and cost-efficiency (Lever 4) with instant settlement (Lever 3) and fees for value-added services (Lever 1). Even in WAEMU, where regulatory enablement provides alternative revenue through escrow interest (Lever 1), providers still need ecosystem offerings beyond payments to give micro-merchants a reason to stay active—interest income subsidizes lower fees but doesn't create a compelling merchant value proposition by itself. Providers should focus on enabling the right combination of levers for their market context, recognizing that sustainable models require multiple levers working together.
Key considerations for sustainable growth
Sustainable digital merchant payment ecosystems require alignment between consumer convenience, merchant needs, and provider economics—a balance that remains elusive in most sub-Saharan African markets.
Some actions that could help to strike that balance:
- Enable alternative revenue streams such as interest earned on escrow accounts.
- Allow self-onboarding of micro-merchants leveraging risk-based, tiered KYC approaches.
- Before implementing MDR caps or fee restrictions, work with providers to understand cost constraints and ensure sustainability—caps can hurt provider sustainability and impede financial inclusion.
- Consider investing in shared digital public infrastructure to reduce individual provider costs and enable better industry-wide economics.
For providers:
- Restructure acquisition incentives to reward sustained merchant engagement rather than registration volume.
- Invest in a comprehensive MSME solution addressing daily merchant needs: working capital, business tools, and value-added services.
- Merchants won't pay for payment acceptance alone but will pay for integrated platforms solving operational needs.
- Prioritize operational reliability as a core competitive strategy.
- Leverage mobile-native technology like QR codes and USSD to reduce capital intensity.
For development partners:
- Invest in market research, shared infrastructure, and regulatory capacity building that reduces costs for all providers.
- Facilitate cross-border knowledge sharing to accelerate the adoption of proven approaches depending on market context.
The path to sustainability
Sub-Saharan Africa's digital merchant payment challenge is solvable through business models designed for each market's context. There is no universal template—what works in Kenya's platform-dominated market differs from Nigeria's fragmented landscape or WAEMU's alternative revenue environment.
Sub-Saharan Africa's digital merchant payment challenge is solvable through business models designed for each market's context.
Providers must stop asking how to make micro-merchants pay for payments and start asking what business tools micro-merchants will pay for. When digital payments provide access to working capital, automate operations, and deliver business management tools, costs become investments in capability—and providers gain diversified revenue supporting sustainable operations.
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