Like thousands and thousands of Lagosians, Samson endures the irritating each day battle of commuting in one of many metropolis’s 75,000 rickety yellow buses, often known as Danfos. However in contrast to different Lagosians, he determined to sort out one a part of the issue—digitising funds in Nigeria’s casual transport sector—after a dispute with a bus conductor over change.

Globally, eradicating money from public transport has led to vital advantages—notably, lowered dwell time and improved information assortment. In Lagos, the federal government’s choice to make the government-backed blue buses settle for cashless funds improved the commuting expertise for a lot of Lagosians.

A number of Lagosians advised me that they like BRTs not solely as a result of they’re extra comfy but additionally as a result of paying with the Cowry contactless card is a superior expertise to paying money with Danfos.

Capturing even a fraction of the Danfo transactions digitally may enhance how Lagosians commute, give the federal government extra visibility into transportation, which can result in higher planning, and speed up Nigeria’s transition to a cashless economic system.

Lagos sees an estimated 14 million motorised journeys each working day, in line with authorities estimates. About 69% of those journeys are in Danfo buses, which serve over 17 million residents and nonetheless rely virtually totally on money for fare funds.

Assuming a median fare of ₦300 and eight million each day danfo journeys, public transport in Lagos seemingly generates over ₦2.4 billion ($1.5 million) in each day income—roughly $375 million yearly. Whereas this represents the overall market measurement, a startup keen to digitise funds for Danfos can count on to seize a big share of the market in 5 years, on condition that it took Faucet and Go, a Rwanda-based startup that launched cashless fare assortment in Africa, three years to totally digitise public bus funds in Kigali.

However making this a actuality is way from easy, as disrupting a decades-old cash-based transport tradition at scale means convincing an ecosystem of auto house owners, unions, conductors, drivers, and passengers with completely different pursuits to undertake new know-how.

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How wouldn’t it work?

Contact and Pay (TAP), a YC-backed startup, has digitised funds for government-backed public technique of transport in Lagos however it may solely obtain this as a result of the BRTs are centrally owned or managed, permitting the startup to simply set up its {hardware} for contactless funds and straightforward administration. Its fee product processed over ₦20 billion in 2024.

Contactless good playing cards utilized by BRTs are perfect for passengers as they permit a number of individuals to pay for fares immediately earlier than the experience begins. Faucet and Go additionally makes use of this fee system.

Nevertheless, putting in a bodily system on buses is tougher with danfos, that are fragmented and individually owned. Some drivers additionally take shifts and should pay bus house owners a each day rental price. With many danfos operating a number of shifts per day underneath completely different drivers, there is likely to be no sense of possession and poor upkeep of the gadgets if they’re hooked up to the bus.

There may be additionally the danger of theft. Three drivers advised me passengers and thugs may steal the system from the bus when left unattended.

Two approaches may work for contactless funds to scale with Danfos. The primary can be to do what Samson did and use a system utilizing printed playing cards with barcode scanners. Every bus has a barcode sticker; passengers would scan the barcode, enter the fare quantity, and pay straight from their digital wallets. The motive force receives instantaneous SMS alerts confirming funds.

One other strategy that may work is introducing a hand-held system that every driver owns. This ensures drivers can entry their earnings anytime and simply change between buses or shifts whereas persevering with to earn. The system should immediately switch fares collected to the driving force, not the bus proprietor, as the driving force covers union tickets, gas and minor upkeep points. Drivers additionally obtain instantaneous alerts confirming funds.

The second strategy is costlier, however it additionally locks within the drivers. The system should be rugged, reasonably priced, and dependable in areas with poor community protection. Manufacturing customized gadgets would seemingly require outsourcing and vital upfront capital. The drivers can finance the system by a hire-purchase settlement. The startup may also have to accomplice with an insurance coverage firm to offer system protection and upkeep.

Each approaches should embrace a USSD-based answer, because the cashless system will lock out low-income earners who use primary function telephones. Even for passengers or bus drivers that use smartphones; the price of information is likely to be a barrier, however with USSD, funds develop into equitable. Deposits may be held on a digital pockets that may be accessed with USSD.

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How will the enterprise become profitable?

Probably the most dependable income stream is a small price per digital transaction, both a flat price or a proportion of the fare. TAP, as an example, prices a 5-10% fee relying on the town. An preliminary subsidised strategy is likely to be the easiest way to introduce cashless funds earlier than reverting to precise value when the startup scales up.

The startup may become profitable from promoting the gadgets to drivers with installment funds and promoting contactless smartcards to passengers. Nevertheless, the margin on this income supply must be lower than fare commissions, because the gadgets and playing cards need to be low-cost sufficient to draw drivers and passengers. Ideally, the fee ought to solely assist offset the price of manufacturing and distribution. The startup may supply micro-loans for car repairs, considerably boosting adoption.

An extra income supply may be the monetisation of information. Digital funds generate worthwhile insights—journey frequency, passenger demographics, monetary info and route recognition. Governments may pay for this information to help metropolis planning, or concessions may safe the startup’s collaboration with authorities. Monetary establishments may additionally purchase driver monetary information to supply tailor-made microloans, insurance coverage, or financial savings merchandise.

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Contained in the know-how stack

The know-how powering contactless funds needs to be easy for passengers and drivers to grasp but additionally subtle sufficient to energy thousands and thousands of each day transactions. The startup should create software program that may course of on-line and offline funds whereas seamlessly managing excessive transaction volumes.

The drivers would additionally have to entry an interface on the system that tracks their earnings, permits them to view each day settlements, and doubtlessly entry microloans or insurance coverage merchandise. The system should additionally have the ability to retailer transactions domestically if the bus is out of community vary and synchronise information when it reconnects to the web.

If the startup can efficiently safe partnerships with banks and monetary establishments, it should combine with the financial institution’s software program. Authorities companies would additionally want dashboards that present close to real-time information on passenger quantity and income.

How to make sure widespread adoption

Crucial a part of guaranteeing adoption is guaranteeing that unions, bus house owners, drivers, passengers, and the federal government are on board. Everybody concerned should see the tangible advantages of shifting to cashless transportation earlier than even contemplating adopting the know-how.

Launching the contactless fee system on a single route can be the best approach to introduce the know-how to Danfos. This may enable any points to be resolved earlier than increasing to different routes. The startup may also supply reductions and loyalty reward applications to make sure early adoption from drivers and passengers.

The startup would additionally require an agent community for passengers to high up playing cards and drivers to withdraw money. Fortuitously, Nigeria’s current community of over 1.5 million banking brokers gives a prepared basis. The problem right here lies in creating the best incentives to onboard these brokers.

After securing enrolment for bus drivers, public consciousness campaigns and funding in coaching for bus conductors, in addition to kiosk brokers to information riders, can be required till the method of tapping and reloading grew to become second nature for each day commuters.

However, the best path to adoption is securing authorities backing, given how pivotal transportation is to the economic system. In Kigali, the federal government mandated that bus operators settle for solely Faucet and Go, permitting the startup to shortly discover scale and take away money reliance. Contact and Pay has additionally credited its partnership with the Lagos state authorities for driving adoption of its playing cards on the town’s BRT community.

Challenges on the bottom

Belief is the most important hurdle—convincing bus drivers to maneuver from conventional each day money contributions to digital wallets will probably be troublesome. Drivers belief money as a result of it’s tangible. To construct belief, the startup can set up neighborhood centres at bus parks staffed by brokers who help with transactions and supply instantaneous entry to money withdrawals.

One other main problem will probably be low digital literacy, as most drivers and passengers use primary function telephones. Nevertheless, the USSD strategy can clear up this downside.

One other vital problem for any startup digitising funds can be the ‘agberos’ of the Nationwide Union of Highway Transport Employees (NURTW), an impartial union that oversees all danfo bus drivers, industrial bike drivers, and tricycle drivers that collects each day charges from drivers. The union closely advantages from money transactions, making digitisation a possible risk.

A danfo driver from Ojuelegba to Kilo (a 3.6-kilometre distance) pays ₦2,700 ($1.76) each day and one passenger’s fare for each journey to the union. To keep away from clashes with the union, the startup can select a bottom-up strategy, collaborating straight with native park chairmen quite than top-level union management. By creating partnerships on the park degree, potential conflicts are mitigated, however finally, success with unions relies upon closely on cultivating relationships with key stakeholders.

Digitising funds for transportation is extra than simply know-how—it impacts monetary inclusion as transportation is without doubt one of the largest cash-dependent sectors. The ripple impact can drive monetary inclusion throughout different sectors and create a digital fee ecosystem and a footprint for transactions.

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Muktar Oladunmade

Affiliate Reporter, TechCabal

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