Business & Finance SME's

How to get part of the profitable POS cash cow business

Written by Ade

Point of Sale (POS) Service is a popular business in many Nigerian cities, but even though it is with some risks, it is still a profitable business venture

Felicia Coker

One striking thing someone is bound to notice on going down the about two hundred metres length of Church Street, in the LowCost Housing Estate, Gate Isolo a suburb of Lagos, is the many Point of  Sales (POS) operators located on the bubbling street. About 14 such operators are using different types of structures for their operations.

The situation on Church Street is similar to that of many streets in many towns across Nigeria. From being an added venture to another shop to being in kiosk or ‘containers; POS ventures are springing up at virtually every street corner in the country and their owners are all making brisk business and smiling to the bank.

The POS cash operations got to a booming point in Nigeria during last year lockdown occasioned by the then rampaging Covid-19 pandemic. Before the lockdown, POS like its name was more used and patronized by Nigerians during transactions in supermarkets and other similar commercial entities. They were only used for cash withdrawals and deposits by a smaller fraction of the population in urban areas while it was a bit popular in the less banked rural areas.

But the lockdown changed the game for the POS as the situation, with a larger percentage of the banks’ branches shut down forced many Nigerians to patronize the POS operators.

And the boom has continued even with the ease of lockdown and the gradual reopening of the bank branches.

John, a middle-aged man, who operates a POS at the Pansheke area of Abeokuta, Ogun State, said he has been making brisk business since he started the business last year.

“I started early last year in the second week of January. Initially, the lockdown affected me as I have to relocate to my house area, but after overcoming the initial logistics problem the business picked up. Now I am back to my shop,” he said.

Starting a Point of Sale (POS) Service is relatively simple and require a small capital outlay. The size of the capital is largely determined by the kind of structure to be used for the business and which financial institution is the principal for the venture.

A POS operator inside a kiosk

An investor has almost all the deposit money banks and some other financial institutions to choose from as his/her principal for the POS venture. The Agency agreement involves making some initial deposit into the venture’s account with the principal. The minimum initial deposit, depending on the principal and the location of the venture.  Then POS machine is acquired for the principal to be programmed into its operational system. After the acquisition of these basic needs, then the structure for the venture is implemented. With a simple machine needed to start, many operators who do not have a shop for other businesses, opt to use makeshift structures or kiosks.

Bolu, an operator in Yaba, Lagos, said it is advisable to use an enclosed structure for the business because of security.

“When I started I used a table and chair in front of my sister’s shop down the street. Then I had the advantage of her shop enclosure and my operations were smaller. But now I have my one enclosed kiosk,” he said.

As the business is attracting many young Nigerians with little capital, starting small with just an agency POS machine, a table, a chair and a big sun umbrella in hired spaces, is an option many are taking. 

Umar, a young man from Katsina is one of such. His machine, for his operations in Lagos, was one of the ones used by his brother in Katsina. And he is doing brisk business at Isolo, a suburb of Lagos.

There are many factors responsible for the present larger volume of the POS business and the profitability level of this type of venture.

One of the factors is the charges of the POS operators. In many areas across the country, the ‘standard’ charges of the POS operators are N100 for N5,000 transactions whether it is for withdrawals or deposits. In most cases, the principal of the POS operator charges as low as N12 for such transactions. And even gives the POS operator a percentage of this charge. So for the POS operator, it is double profit, charging the customer an excess fee and collecting a percentage of the official fee from his principal.

“The POS charges are standardized in the country. We just N100.00 for transactions with a value not more than N5, 000. Then it is scaled upwards for bigger value transactions. Like N200 for an amount between N5, 000 and N10, 000. These charges are applicable whether the customer is withdrawing or depositing,” Janet, a POS operator in Lekki, Lagos said.

However, in order to rake in bigger volume and increase profits, some smart operators, especially in highly competitive areas, charge relatively lower fees than the standardized ones. Investigations around the Alimosho Local Government Area of Lagos revealed that some operators charge around N50 for transactions with values below N5,000 while ‘discounts’ are given to the customers for transactions above N20,000.

Another factor for the rising profits is the alleged connivance of bankers in the ‘POS game’, which has helped the POS operators to increase their transaction volume. Many of the banks’ Automated Teller Machines (ATMs) are not adequately funded to cater for the cash needs of Nigerians and easily run out of cash many times, especially during weekends. Hence, Nigerians are left at the mercy of the POS ventures, many of which are ‘conveniently’ located near the empty banks’ ATMs.

In the last nine months, I have had to patronize POS operators for my cash withdrawals. It is just like the banks’ ATMs are fast running out of cash while the queues to get into the bank halls seems to be growing all the time. It is also annoying the shabby treatment you are subjected to by the bank’s staff, especially the security personnel,” Chukwuma, an Engineer said.

Location is also key for the POS venture. An operator located at a busy commercial location stands the chance to make more transaction volume than a shop that is located on a back street.

Umar says he makes about N2, 000 each day from charges he collects from his customers from his POS that is operated from his noodles snack kiosk located at a busy street. Janet, on her claims she makes as much as N5, 000 from charges from her operations located at a high street in Ikeja.

“This business Nah (sic) good business. Wetin dey there na where your shop dey. For me, I do dey get customers small small. And I dey make money,” Umar said.

“Location determines your success in this business. If you are in a busy location, your income is higher than if you are in a quiet area. This business is profitable depending on your location. If you are thinking of going into this business, your first consideration should be location,” Janet stated. A POS terminal being a point-of-sales device is a mercantile device that can be configured to do more than just can transactions of withdrawals, deposits and transfers. It can also be used for other transactions like paying utilities/energy bills, cable TV subscriptions and other such commercial transactions.

Dipo, who operates his POS inside his pharmacy in the Berger area of Lagos, says he earns good income from these other transactions from his POS terminal.

“I am a pharmacy, but the acquisition of the POS terminal has brought more income to my pharmacy. People have gotten to know that I do cash and other transactions apart from making the POS machine available for paying for products bought in my shop. I make lots of money from Cable TV subscriptions, IKDC recharges and other similar operations,} he said.

 However, despite the lucrative nature of the venture, there are some challenges facing the POS operations. A major one is that it is prone to fraud and theft. A POS operator needs to be vigilant at all times looking out for fraudulent customers that will be out to dupe. One of the major ways this is done is for the fraudster to make successful withdrawals from the POS terminal then use some software to access the paying bank’s system to obliterate the transaction. The customer then file a failed transaction claim. If he is successful, he is credited with the transaction’s value and the paying POS operator is automatically debited. Hence, he loses that amount.

Another fraudulent strategy by customers is to use fake alerts to give the POS operator the impression that an amount has been transferred into his account for the customer to be paid the corresponding withdrawal amount. With no money transferred, the POS operator loses, it pays the money.

A POS kiosk with a customer

With the high level of cash involved in the venture, a POS operator needs to be careful with the way he handles the cash. He can easily lose some cash if his ‘money bag’ is stolen or if he gets counterfeit notes from transactions from customers.

If the investor is not going to operate the POS terminal, he has to employ a trustworthy person to manage the operations.

Getting access to the paying bank’s network is another challenge facing the POS operations. Network problems can greatly reduce the transaction volume a POS operator does each day. With the erratic nature of telecommunication and VSAT connections in the country, most POS operators are losing money due to the inability to complete some transactions for customers.

Bolu explained that some days can be frustrating for him in the business as this problem persists most time of the day.

“Some days are worse with the network problem. Sometimes it affects just some banks or just one. But sometimes it can be for all. No network to transact any business. On such days, you are on your own. Like waiting for a miracle to lift the network problem for business to continue,” he said.

The POS terminal suddenly developing a technical fault can also be a headache for the operator. This will delay operations for the period as no transaction can be completed until the fault is repaired.

About the author

Ade

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