In Lagos, Nigeria, the daily commute is a frustrating struggle for millions of people, with cash-based transactions being a major pain point. However, a YC-backed startup, Touch and Pay (TAP), is working to digitize payments in the city's informal transport sector, a market worth $375 million annually. The startup has already made significant progress, processing over ₦20 billion in 2024, but faces significant challenges in convincing drivers and passengers to adopt new technology.

The informal transport sector in Lagos is massive, with an estimated 14 million motorized trips every working day, and about 69% of these trips are in Danfo buses, which serve over 17 million residents. The sector still relies almost entirely on cash for fare payments, with daily revenue estimated to be over ₦2.4 billion ($1.5 million). Digitizing payments in this sector could not only improve the commuting experience for Lagosians but also provide valuable insights for city planning and accelerate Nigeria's transition to a cashless economy.

However, making this a reality is far from straightforward. Disrupting a decades-old cash-based transport culture at scale means convincing an ecosystem of vehicle owners, unions, conductors, drivers, and passengers with different interests to adopt new technology. The startup's approach is to use a system of printed cards with barcode scanners, which would allow passengers to pay for fares digitally, or introduce a handheld device that each driver owns, ensuring they can access their earnings anytime and easily switch between buses or shifts.

Both approaches must include a USSD-based solution to ensure that low-income earners who use basic feature phones are not left out. The startup also plans to offer micro-loans for vehicle repairs, which could significantly boost adoption. An additional revenue source could be the monetization of data, with governments, financial institutions, or concessions potentially paying for valuable insights on trip frequency, passenger demographics, and route popularity.

Despite the potential benefits, there are significant challenges to overcome. Trust is a major hurdle, as drivers are used to dealing with cash and may be hesitant to switch to digital wallets. Low digital literacy is also a concern, as most drivers and passengers use basic feature phones. Furthermore, the startup must navigate the complex web of unions and associations that govern the informal transport sector, including the National Union of Road Transport Workers (NURTW), which collects daily fees from drivers.

To ensure widespread adoption, the startup plans to launch the contactless payment system on a single route, resolve any issues, and then expand to other routes. It also plans to offer discounts and loyalty reward programs to encourage early adoption from drivers and passengers. Public awareness campaigns and investment in training for bus conductors and kiosk agents will also be crucial in making the process of tapping and reloading second nature for daily commuters.

Government backing is also essential, as seen in Kigali, where the government mandated that bus operators accept only Tap and Go, allowing the startup to quickly find scale and remove cash reliance. Touch and Pay has also credited its partnership with the Lagos state government for driving adoption of its cards on the city's BRT network.

In conclusion, digitizing payments in Nigeria's informal transport sector is a complex challenge that requires a deep understanding of the ecosystem and the needs of drivers, passengers, and unions. While there are significant hurdles to overcome, the potential benefits are substantial, and a successful implementation could have far-reaching implications for financial inclusion and city planning in Nigeria.