Term Paper
PayStack is a Nigerian startup that operates in the financial technology (FinTech) industry. It provides a payment processing platform that enables merchants to accept payments from customers using debit cards, credit cards, Unstructured Supplementary Service Data (USSD) and bank mobile applications. PayStack has been successful in expanding its operations to other African countries, including Ghana, South Africa, and Kenya.
However, PayStack faces a number of challenges, including:
- Competition from other FinTech companies, such as Flutterwave and Stripe
- Emerging cyber fraud
- The COVID-19 pandemic
In order to maintain its competitive advantage and achieve long-term success, PayStack needs to develop a strategic plan that addresses these challenges and capitalizes on new opportunities.
Assessment Questions
- Analyze the SWOT analysis of PayStack provided in the case study. What are the key strengths, weaknesses, opportunities, and threats facing the company?
- Develop a TOWS matrix for PayStack. What are some strategic recommendations that the company can implement to address its weaknesses and threats and capitalize on its strengths and opportunities?
- Evaluate the Blue Ocean Strategy as a potential strategic option for PayStack. How could the company use this strategy to create new value for its customers and partners?
- Develop a balanced scorecard for PayStack. What are some key performance indicators (KPIs) that the company should track to measure its progress towards its strategic goals?
- Recommend some specific actions that PayStack can take to implement the Blue Ocean Strategy and improve its balanced scorecard.
Introduction
PayStack Payments Limited is a Nigerian startup that operates in the financial technology (FinTech) industry. Globally, the Fintech industry was valued at $135.7 billion in 2019 and is projected to hit $305 billion in 2025 (Andjelic, 2020). The company was formed in 2014 by Shola Akinlade (the CEO) and Ezra Olub (the CTO) with the aim of creating a digital platform where businesses in Africa can accept payments either through their websites or social media pages. According to Brianna (2020), there are eight categories of FinTech which covers online payments, lending, banking, investments, cashflow management, insurance and auditing. PayStack provides services in the online payment section and targets small and large businesses. The company boasts of 60,000 merchants that process payments of over $30 million per month (Mark, 2020). While this monthly transaction might seem meager to businesses in developed economies, it remains a great feat for PayStack that operate in a country like Nigeria where there are 56 million unbanked adults out of 99.6 million adults (National Bureau of Statistics, 2019).
PayStack, however operate in a highly competitive industry where over 250 FinTechs (i.e Flutterwave, Opay, Interswitch, etc) that compete for a limited number of consumers. This challenge is further compounded with the adoption of digital currency (eNaira) by the Central Bank of Nigeria in October, 2021. In order to produce recommendations on growth strategy, this study explored the strengths, weaknesses, opportunities and threats (SWOT) of Paystack Payments Limited using hard and soft evidences that were sourced about the company within the past six years.
Table 1: SWOT Matrix of PayStack
| STRENGTH1. Value creation through strong API2. Young and vibrant team3. Large number of merchants | WEAKNESSES1. Low training of merchants on API |
| OPPORTUNITIES1. Diversification of product range2. Going public with an IPO3. International Partnerships | THREATS1. Strong competition from Flutterwave & Opay2. Cyber fraud & credit risk3. COVID-19 & transnational terrorism |
Strength
The internal core strenght of PayStack is the application programming interface (API) which enables customers to create customized secret keys to process their payments on the PayStack dashboard. Acar & Citak (2019) decribe API as the technical strenght of Fintechs as it enables a fintech program to communicate with the server of another financial instutition. Paystack API’s enables the merchants to collect payments directly from their cards, Unstructured Supplementary Service Data (USSD) and bank mobile applications. In addition, the API allow merchants to identify their customers through phone verification, Bank Verification Numbers (BVN) and bank accounts. These are services that draw large number of developers and merchants to PayStack (Mark, 2020).
PayStack boast of a young and vibrant team of 150 employees that work in strategic sections of the company. The company featured a brief bio-data and functions of the employees on its website. Many of the staff have the sense of responisiblity to achieving the vision and mission of the company For instance, Khadijah Abu who served as the Product Partnership Lead of PayStack in 2019 said that the secret to the successful growth of PayStack is its great team. The employees enjoy fringe benefits of health insurance, 20 days of paid annual leave and a free new Machbook Pro laptop on the first day of resumption. It is believed that these fringe benefits has helped employee retention at PayStact (Paystack, 2020a).
Weaknesses
PayStack has a robust API but is unable to transfer the knowledge to its large number of merchants who are not tech savvy. Although, efforts are made to create a developer community where merchants can ask questions about the process of API integration, this approach is not structured and therefore hinder onboarding of small marchants without the knowledge of software development. PayStack has limited internernational presence which hinders its geographic reach despite the ability of its API to accept payment from all countries. Unlike Flutterwave, its major competitor that has physical presence in countries, PayStack has not grown its merchants in just three countries (Nigeria, Ghana and South Africa.) which is a weakness on its product expansion.
Opportunities
PayStack has greater opportunities by expanding its current product range to cover digital banking solution for merchants and buyers, loan offerings, digital company registration for new merchants and offering physical cards for financial transactions. Moverover, PayStack has the chance to expand into other African countries such as Kenya, Egypt, Ethiopia and Rwanda not only because of the huge population in these countries but because of the adoption of digital technology in these countries (Chakravorti & Chaturvedi, 2019). While the company has not released any information on going public with an initial public offering (IPO), there are opportunities for the company to explore IPO as vehicle for investment.
There is no official word from the company Stripe on their IPO program. However, going public through an IPO is inevitable and offers a great expansion opportunity for Stripe. Going public will attract huge investment gateways as well as increase its goodwill manifold. The company has embarked on international partnerships with key financial players such as Stripe which reportedly acquired it for $200 million in October, 2020.
Threats
While PayStack boast of 60,000 merchants (Paystack, 2020b), Flutterwave has over 300,000 merchants (Finextra, 2021). This is despite the fact that PayStack launched earlier in Nigeria than Flutterwave. Moreover, innovation strategy of PayStack is not targeting end users but rather the merchants. This serves as hinderance to end-user gorwth as they cannot relate with the product offerings of PayStack. Meanwhile, its competitor are targetting both the merchant and the end user with the aim of creating a strong brand presence between the consumer and the merchant. The weak option for consumers to use PayStack for their financial services has limited its growth in the FinTech space in Nigeria.
Strategic Recommendations
TOWS Analysis of PayStack
Table 2: TOWS Analysis of PayStack
| PAYSTACK | Strengths (S)1) Efficient work environment2) Vibrant young team3) Automation of Payment4) Robust API | Weaknesses (W)1) Rising cost of internet usage2) Consistent complaints3) Lack of coordinated information |
| Opportunities (O)1) Increasing number of businesses going online2) International partnerships3) Diversification of product ranges | Strength/Opportunities (SO) (S1-O1)1) Develop a global brand in the line of financial technology2) Expand geographic reach3) Innovative strategy for inclusion of non-merchants | Weaknesses/Opportunities (WO) 1) Hire digital marketing manager to push for integrated marketing strategy2) Improve on quality assurance to minimize customer complaints |
| Threats (T)1) Strong competition from Flutterwave & Opay2) Cyber fraud4) Global economic problem due to Covid-19 | Strength/Threats (S/T)1) Create new values in new markets2) Mitigate against change cyber fraud through a know your customer verification process2) Improve security of users on the platforms | Weaknesses/Threats (WT)1) Reduce threats such as the impact of covid-19 on its revenue and customer growth2) Diversification of product range3) Going public with an IPO4) International Partnerships |
Exploiting its Core Competences: In an interview with the Oluwole (2020), PayStack’s Chief Technology Officer (CTO) Ezra Olubi (who doubles as the co-founder), shared the core competencies of the company to include robust API integration, fast payout to merchants, easy payment checkout, ability for merchants to collect payments without a website and a free online storefront for merchants. Put together, these core competencies are technology centered and driven towards the merchants. On its own, exploitation of technology competency is capable to disrupt the industry as it may lead to improvement in the experience of the merchants (Bird, 2019). However, technology competency it is not sufficient to drive customer growth, revenue and profitability for PayStack as is it a mono-approach to driving growth.
Generic strategies: Another option for PayStack is to redefine its generic strategic with focus on cost leadership and differentiation. In order to stimulate organisational growth, PayStack could follow the cost leadership model of Porter (cited in Tanuraharjo, 2021) where the transaction fees could be lowered. In table 1, local transactions for PayStack was 1.5% (+ 100 naira) of the total transaction with an addition of while the international transaction have a 3.9% fee (+ 100 naira). Despite the fact that PayStack has various pricing plans for each country, a comparison of the transaction fees of both Flutterwave and PayStack shows that cost leadership for PayStack is weak. For instance, Flutterwave charges is 1.4% for local transaction while PayStack charges 1.5% with other charges. In order to stay competitive, PayStack management must consistently reduce costs at every level, making implementation of the strategy a tough one.
Mergers and acquisitions: PayStack adopted this strategy in October 2020 when it was acquired for $200 million by Stripe. According to Shola Akinlade, the Chief Executive Officer of Paystack, the strategy had four major impact on the company. First, it accelerated the geographic spread of PayStack to other 46 countries where Stripe operates (Stripe, 2021). Second, it expanded the number of payment channels for the merchants to collect money from consumers. Third, it scaled up the technology integration of PayStack into Stripe’s Global Payments and Treasury Network (GPTN). Fourth, it scaled up the brand recognition for PayStack as a competitive startup. However, this strategy has not reflected in the areas of customer growth as the merchants on PayStack who are residing in Nigeria cannot access Stripe payment platform. Thus, there is not significant difference for the merchants from the period when PayStack operated all alone and when it was acquired by Stripe. In fact, PayStack acknowledged that nothing significant is expected to change in its operations, not even in the name, mission or operations strategy of the company despite its acquisition by Stripe (Paystack, 2020b).
Alliances: One of the ongoing strategic management decisions of PayStack is to form alliances with key players in the eCommerce ecosystem. In series of blog post by PayStack, the alliances formed between 2017 and 2021 includes WooCommerce (to allow PayStack merchants manage their large webstores), American Express Card (to enable PayStack merchants accept payment from over 100 million global customers), Apple Pay (to allow merchants from Nigeria accept payment from additional 60 countries), and many others (Abdulrahman, 2021; Ibukun et al., 2021). These alliances were formed to scale up the technology offerings of PayStack and provide extensive geographic coverage for the merchants to accept payments.
Outsourcing: This is a strategic management practice that could be explored by PayStack especially in the areas of marketing, merchant training and customer support so as to concentrate on improving the core strengths of the business. A thorough check on the company’s social media channels for marketing activities, merchant training and customer support shows that the company lags behind following the complaints of users that were left unattended to. This is reflected in Figure 1 where posts on Facebook account of PayStack had similar outbursts from users (identity hidden for ethical purposes).
Figure 1: Complaints of PayStack users on Facebook
Source: https://web.facebook.com/PaystackHQ/posts/2518186425083229/
Although, business process outsourcing may help resolve the current crises facing PayStack, the long term consequences far outweigh the short term benefits. Suresh & Ravichandrian (2021) observed that when a company outsource its business operation, there is potential danger that the company may lose its confidential data, drive up running cost or select the wrong partner. Hence, outsourcing is not a recommended long term strategy for PayStack.
CSR and Shared Value: PayStack has no publicly known policy on corporate social responsibility despite its presence in multiple countries. Even if it does CSR, the company does not provide any information on its CSR and has not engaged news media to popularize its CSR. Nevertheless, the company pursues its CSR on a limited scale especially through its dedicated information hub (www.decodefintech.com) which summarizes curated news on FinTech for the general public consumption every week. It is therefore recommended that PayStack should come up with strategic policy on creating shared value (CSV) by democratizing online financial services for 67.5 million unbanked adults in Nigeria (CBN, 2019) as well as other countries where it operates. In this way, the company is not only being responsible by creating value for the users and making profit as a smart organisation.
Blue Ocean Strategy: PayStack’s current strategy is targeted at gaining competitive advantage in the area using financial technology to better the experience of merchants. As such, it struggles to create value in an highly competitive industry where blockchain technology is being deployed by individuals and governments to create digital currencies for easy transaction. In Nigeria, the central Bank launched the eNaira digital currency with the aim of driving financial inclusion. The implication of this digital currency is that individuals might not see the need for PayStack services if buyers and sellers can pay themselves directly using their digital wallets. As a way of staying ahead of the competition or even making the competitors irrelevant, this report strongly recommends the adaptation of blue ocean strategy in creating value. A blue ocean, according to Kim & Mauborgne (2015), alludes to the vast, untapped potential of a market that a company can explore to create new demand for innovative products. A comprehensive analysis of blue ocean strategy as it applies to PayStack is given under the academic analysis of this report.
Balanced Score Card: As a privately held company, PayStack has not public data on its balanced score card. This does not mean that the company did not document the activities of all its business units to evaluate whether they are working towards the company’s goals or not. In fact, the balanced score card (BSC) of PayStack is one of the reasons cited by Stripe in understanding the innovation strategy and technology-based value strategy before its acquisition (Stripe, 2020). Nevertheless, an abridged version of PayStack Balanced Score Card should be designed for public consumption as it helps the partners to trust the brand and align with its global vision.
Capability Development and Agility: it is recommended that PayStack should scale up its capabilities especially in the areas of brand recognition, merchant storefronts and integrated marketing communications strategy. Currently, the company has a low agility in digital marketing despite the fact that 100% of its business is conducted online.
Culture Change: Considering the complexity of conducting business in a post covid-19 business environment, this report recommends a culture change in the strategic plan of PayStack by adapting lean operations management for overcoming inevitable disasters.
Academic Analysis
A number of recommendations have been identified as alternatives to improving the current strategic operations of PayStack. However, this report strongly recommends the blue ocean strategy for PayStack to enable it create new values, not only the merchants, but large number of unbanked traders in the countries of operations. More specifically, the justification for adopting the blue ocean strategy is based on the outcome of the SWOT analysis in section one where the challenges facing PayStack shows it needs a change in its strategic management. Although, the recommendations are largely based on the Blue Ocean Strategy, lessons from the TOWS formed the basis for developing the Blue Ocean Strategy. The TOWS analysis is different from SWOT in that it helps to select strategies based on cross-matching of strengths, weaknesses, opportunities and threats. PayStack must adopt a market needs viewpoint based on a contingency model to react to external threats, as shown in Table 2, since the external business environment is chaotic. Even though the TOWS is an effective tool for evaluating and constructing a framework for developing company strategies, it has been criticized for placing too much attention on the external business environment rather than addressing internal strategic management issues (Kapoor & Kaur, 2017). Nevertheless, the outcome of the TOWS was instrumental in developing the framework for recommendation in Diagram 1.
Diagram 1: Framework for Recommendation
Source: The Researcher
In diagram 1, the framework for implementing the recommendation was developed based on a blue ocean strategy. Unlike the conventional strategy of PayStack, where the company creates value basically for the merchants, the blue ocean strategy recommends that value should be scaled up to cover customers (basic users, buyers, small scale sellers, large scale merchants, corporate organisations and government agencies), employees, suppliers, partners and the host community. This section of the report is organized into two segments. The first part deals with the conceptualization and theoretical foundations of blue ocean strategy. Principles of the blue ocean strategy given by Kim & Mauborgne (2015) will be used to analyse the value innovation of PayStack for its customers, employees, suppliers, partners and the host community in the second part of this academic analysis.
Blue Ocean Strategy
References (Harvard Style)
