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Traction raises $6M seed as Nigerian merchant acquiring space continues to heat up


Micro, small, and medium-sized firms (MSMEs) constitute the backbone of the Nigerian economy, accounting for more than 60% of GDP growth and playing a crucial role in job creation. According to the National Bureau of Statistics, there are over 39 million such firms, and 87% operate informally, meaning they primarily receive cash and perform activities on paper.

As a result, many small merchants struggle to develop and capitalize on economies of scale by gaining access to an ecosystem of digital tools and financial services (credit, savings, business tools, and payment solutions). While some SMEs are unwilling to attempt financial products, accessing banking solutions from big financial institutions is not easy.

This is where startups come into play. Thousands more businesses have gone digital in the last five years, opening bank accounts and accepting payments via point-of-sale terminals from some of these upstarts, including Traction, the Nigeria-based merchant solution platform that today announced a $6 million seed round. The investment was anchored by Pan-African investor Ventures Platform and Multiply Partners, with participation from P1 Ventures and other investors.

Traction, founded in 2020 by Mayowa Alli and Dolapo Adejuyigbe, is a fintech that allows small companies to receive payments, manage accounts, and access operational tools. In an interview with TechCrunch, the founders, both ex-McKinsey consultants, discussed how their prior work, which included devising financial inclusion initiatives in Nigeria, highlighted the plight of small and medium businesses across the West African country.

Co-CEO Adejuyigbe, on the call, contended that banks lacked a comprehensive understanding of SMEs’ activities and provided inadequate financial services. Consequently, he and Alli set out to create a bank-agnostic platform that would enable an end-to-end sales payment cycle as well as access to additional services to assist these firms in growing. That end-to-end digitization looks like this: starting with point-of-sale software (to record sales, handle inventory, and manage customers) and POS terminals and virtual accounts (to take payments), then progressing to offer other services such as merchant wallets, cash advance loans, savings, and bill payments.

“That has been our thesis from day one. It was like an organic product journey built from what we had understood, interviewing and meeting prospective SMEs or customers,” said the startup’s co-chief. “What that affirmed was essentially like an offline merchant acquiring model that we’ve also seen in the U.S. with Square, in Latin America with StoneCo, in Europe with SumUp and BharatPe in India. It’s a clear playbook that has guided what we’ve built to date.”

According to Alli, Traction serves two categories of merchants: classic and premium. He cited street food sellers and tiny neighborhood convenience stores as examples of this first category. He said that Traction is generally the first engagement with digital payment acceptance and financial services for these merchants, who comprise 75% of the platform’s user base. Premium merchants, on the other hand, are more formal and have left banks in favor of Traction’s more appealing products. Notably, both categories occur in various sectors, including five verticals for which Traction has developed customized solutions: food and restaurants, FMCG and grocery chains, fashion, beauty, and lifestyle enterprises, electronics stores, and healthcare facilities.

The three-year-old fintech gained these merchants in a different way than many of its competitors in Africa’s largest financial services sector. Traction’s product met the specific needs of its retail business owners right away, in contrast to platforms such as FairMoney subsidiary PayForce, Nomba, OPay, and Moniepoint, which used agent-led models by distributing POS terminals before adding software and business tools to complement the terminals. It also partnered with other ecosystem players to provide the aforementioned vertical-specific offerings. For example, businesses in the restaurant and hotel industries may access their menus and reservation management systems, which are seamlessly integrated with their payment systems.

Furthermore, Alli argues that while most merchant banking systems may eventually converge in terms of product offerings, integrating point-of-sale software on thousands of terminals at scale is arduous, something Traction does not have to deal with. “From day one, our entire system and design was tailored for merchants,” the co-CEO noted when quizzed about Traction’s position in the merchant acquiring space. “We’re not building or getting into software; we already have that software and merchants are actively using it. So we’d like to think we’re multiple steps ahead regarding an actual product proposition for business owners.”

The metrics Traction has accumulated throughout its three-year journey demonstrate the product’s stickiness. “The volume of transactions that we made in October 2020 is kind of like what we do in our hour today,” Alli remarked. According to the fintech, it saw a 7x increase in revenue and an 8x increase in transactions last year while serving over 70,000 businesses across Nigeria. On the credit side, the founders noted that Traction has disbursed over N2 billion in loans “with one of the lowest NPL ratios in the industry,” according to Adejuyigbe, who also added that this is possible because when Traction lends to its merchants, a percentage of each transaction is deducted daily to pay off the loan until it is settled.

Now that it’s armed with enough capital, the startup, which has a payments solution services license that allows it to operate as a payment solution provider across various payment categories, will look to accelerate its growth in Nigeria, strengthen its team and drive expansion outside Nigeria, per a statement. “The way we play in other countries might be different. But essentially, it’s the same goals we want for retail SMEs,” Adejuyigbe commented.



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