A Helsinki, Finland-based startup is hoping to knock down one of the barriers to credit-card acceptance in developing countries: a lack of reliable Internet access.

The startup, called IroFit, plans to roll out its phone-based solution in Nigeria this year in partnership with some of the country's largest banks, according to Omoniyi Olawale, the company's founder and CEO. The company's mobile card reader is designed to work on both Internet and non-Internet cellular connections; it uses the text message channel on phones that do not have a data plan, or in areas where the mobile Internet is unreliable.

"We've been testing the basic technology in Nigeria over the past seven months, and we've been getting a lot of positive feedback from the merchants and potential users," said Olawale, who is originally from Nigeria but now lives in Finland.

IroFit has also been in discussions with potential partners in Botswana, Honduras, Kenya, the Philippines, Singapore, South Africa and Thailand, he said. Interest also has come from Europe and North America.

He declined to name the company's bank partners, but said a major financial institution would be subsidizing the cost of IroFit's card readers for 100,000 Nigerian merchants, many of whom still favor cash. Other institutions will subsidize additional readers, he added, declining to reveal their cost.

Among merchants in Lagos that already have point of sale systems, about 75% prefer cash, according to a survey commissioned by the Nigerian Inter-Bank Settlement System. Payment delays, fraud concerns, a low success rate for transactions and problems with connectivity were among the main reasons merchants disliked accepting cards.

IroFit's solution is designed to overcome the latter two obstacles. When connected to IroFit's mobile phone app, the company's readers transmit encrypted card data via the same cellular channels used to send text messages, as well as other alternative channels. The readers are EMV-1 and 2 certified, and can accept magnetic stripe, chip-and-PIN and Near Field Communication transactions. Founded in 2014, IroFit has applied for a U.S. patent for this technology.

Tests have shown IroFit's solution performs more reliably in Nigeria than existing credit-card terminals, which depend on an Internet connection, Olawale said. The average connection rate for existing terminals in the country is between 45% and 48%, with a range of 25% to 75%. IroFit has connected around 95% of the time, Olawale said.

In its tests, IroFit also learned it needed to reduce its application's drain on phone batteries, a sticking point for merchants whose lack of reliable Internet access is matched by a lack of reliable electricity, Olawale said. After a redesign, the company's app now consumes between 50% and 75% less battery power, Olawale said.

In early 2015, IroFit plans to conduct a pilot among 5,000 retailers in Nigeria, Olawale said. Another 95,000 retailers, and possibly more, will have access to the company's technology by the end of the year. IroFit will collect a portion of the Nigerian interchange fee, which is 1.25% per transaction, with the amount depending on whether the card reader is delivered directly to the merchant or through a bank, Olawale said. 

IroFit chose Nigeria as a launching pad because it is one of Africa's largest economies, and because the country's financial institutions are hoping to move toward a cashless economy, Olawale said. "There is an alignment of motivations among all the major players to bring solutions like this," he said.

While IroFit is focused on card acceptance, its technology is designed to work with any kind of mobile payment solution, Olawale added. The company also expects to offer ancillary business-management services to help retailers operate more efficiently and attract financing.

"We want to deal with the retailers not just as a payment solution, but as a growth partner," Olawale said.

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