Nigerian fintech startups are exploring cross-border transactions, lured by the promise of dollar stability. But with competition heating up, who will come out on top? The growing appetite for foreign exchange (FX) transactions among Nigerian fintechs is reshaping the remittance space. More startups are building consumer-focused FX services, offering lower fees and faster transfers. While this benefits consumers, it’s also slashing profit margins, making it harder for smaller players to survive.
According to Anupam Majumdar, a partner at Flagship Partners, “The margins have come down 20-30% in the last six years.” Despite this, fintechs continue to flock to the sector, drawn by Nigeria’s booming remittance market. In July 2024 alone, remittance inflows hit $553 million—a staggering 130% increase from the previous year.
For fintechs, FX transactions offer predictable revenue, especially after repeated naira devaluations. But as competition intensifies, sustaining profitability becomes a challenge.
Can Smaller Startups Compete?
Regulatory shifts have also changed the game. In 2024, the Central Bank of Nigeria (CBN) introduced new policies mandating naira payouts, closing a loophole that once gave local startups an edge. Now, global players like Wise and TapTap are back, competing with well-funded firms such as Lemfi, Nala, and Flutterwave.
Large fintechs have the resources to endure price wars, spending up to $120 per customer to secure long-term loyalty. Kay Akinwunmi, CEO of CSL Pay, explains, “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.”
Smaller fintechs, however, face steep entry barriers. Expanding across multiple countries requires costly licensing and compliance staff. Securing liquidity for cross-border payments is another hurdle—without deep liquidity, startups struggle to offer competitive exchange rates.
The Path to Survival
For new entrants, the key to success lies in niche markets. Targeting specific remittance corridors, such as China-to-Francophone Africa, can help startups carve out profitable segments. Additionally, focusing on business-to-business (B2B) transactions, which offer higher margins, could provide an edge.
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