Nigerian fintechs, drawn to the stability of dollar-based transactions, are increasingly building consumer-focused cross-border (FX) transaction products. While this collective push will benefit consumers through more options and a possible price war, it will erode already slim margins for FX-based transactions as startups compete in an over-saturated market.
“Given the explosion of the different types of competitors (in the remittance space), we have seen a bit of a margin erosion in the take rates,” said Anupam Majumdar, partner at Flagship Partners, a fintech consultancy firm. “The margins have come down 20-30% in the last six years.”
For fintechs, processing FX transactions provides stability in dollar terms, crucial for companies reporting revenue in dollars after multiple naira devaluations. To match 2023’s dollar-equivalent revenue, startups needed to grow their Naira earnings by over 66% in 2024.
FX transactions are also growing. In August 2024, the Central Bank of Nigeria (CBN) reported that remittance inflows hit $553 million in July, a 130% increase from 2023 and the highest monthly total on record. Processing a fraction of this amount with take rates ranging from 1 to 1.5% represents a healthy revenue line for any fintech.
While this predictable revenue line can allow startups to stay afloat and restrategise on their market approach after macroeconomic challenges, the eventual race to the bottom will leave few winners.
“In the short term—say, two to three years—it makes sense. But in the long term, building a sustainable, scalable business in FX is very challenging,” said Kay Akinwunmi, a former founder of Zazuu, a defunct fintech marketplace for remittances.
Regulatory uncertainty once presented Nigerian remittance startups with an opportunity as global companies left the country, but the CBN’s 2024 reforms—mandating naira payouts and adopting a willing seller, willing buyer model—have erased that wedge.
With the regulatory gap closed, global players like Wise and TapTap have reentered Nigeria, intensifying competition against well-funded growth-stage startups like Lemfi, Nala, and Flutterwave. These startups serve many remittance corridors which increases their revenue base and creates a stickier user base. Customers often remain loyal if they see a company as a one-stop solution for sending money to different countries.
For smaller startups, the capital requirements to set up operations in multiple countries are significant, especially in a sector prone to fraud. Multiple countries mean multiple licenses and highly experienced legal and compliance staff to handle reporting and compliance with regulators, which are costly. The need to partner with a foreign Paystack-like payment processor that can charge as high as $10,000 monthly to collect payments abroad also adds to a startup’s expenses.
An oversaturated market strains unit economics. Spoilt with options, customers are expensive to acquire, and they remain fickle, willing to switch to competition with lower pricing.
“In the long term, the big players are likely to win because they can sustain extended periods of offering discounted fees, which naturally attract customers,” Akinwunmi, now the CEO of CSL Pay, a Pan-African payment network, told TechCabal. “They can acquire customers for as much as $60–$120 per user and wait longer to recoup the customer’s lifetime value (LTV). For smaller fintechs, competing at that level is extremely difficult.”
Smaller fintechs also have to deal with securing liquidity. For remittance transactions to work, startups have to be connected to two different financial institutions that can debit the sender and credit the receiver.
“To successfully operate in cross-border remittances, a new startup must ensure it is connected to all major financial institutions—not just the top three or four in each market. Gaining access to as many as possible is critical for maximum reach on the recipient side,” Majumdar said.
Obtaining liquidity for foreign currency payouts is expensive, particularly for smaller fintechs. Liquidity costs directly impact exchange rates offered to customers. If a fintech secures liquidity at a high cost, its rates become uncompetitive, pushing customers toward cheaper alternatives. However, partnering with aggregators or third-party providers like Kora or Fincra can help fintechs access multiple accounts through a single integration, allowing them to reach multiple accounts through a single integration.
Stablecoins can solve this problem and larger startups like Stripe are betting on them to power payments but a reality where stablecoins can fully power transactions is still quite far off.
Startups entering the remittance market can thrive by operating in niche markets or adding a complementary fintech service to processing FX transactions. Targeting specific corridors—such as China-to-Francophone Africa—can be a strategic move, as low liquidity creates higher margins.
“For startups to stay competitive, they need to focus on niche corridors rather than trying to compete head-on with larger players,” Satoshi Shinada, a partner at Verod-Kepple, told TechCabal. “Even major players may not always have deep liquidity for certain niche currency routes, creating opportunities for smaller, more agile fintechs to gain an edge.”
Startups can also process business-focused transactions as these offer higher margins due to increased regulatory scrutiny for large cross-border transactions but also come with higher compliance costs. The cost of KYC checks for onboarding a business can reach $50, according to a fintech executive who asked not to be named to speak freely.
While Nigeria’s large consumer market might seem tempting for new entrants, a larger fintech like Moniepoint or OPay creating a remittance product can easily dominate the market due to their massive scale. Current market realities demand that smaller entrants focus on niche corridors or bundle FX offerings with other services to create stickiness and higher margins rather than build vanilla remittance products where scale wins and margins vanish.
