You don’t need to go too far before you bump into the next remittance company. Practically every street corner of dear Africa is littered with them.
Every other startup is pivoting, slapping “cross-border payments” on their pitch decks, and making grand promises about disrupting how money moves into Africa. Doesn’t that remind you of the great fintechs of payments and crypto?
And honestly, I get it. The numbers are mouthwatering. Africa received over $100 billion in remittances in 2023, with Nigeria alone accounting for over $20 billion. For context, that is more than the annual budgets of most African countries. It is real money, moving in real volumes, and fintechs want in.
But here’s the uncomfortable truth: most of the fintechs will fail.
Remittances are a brutal business. If you think running a lending or payments startup is hard, try dealing with cross-border transfers, where margins are so razor-thin you could use them to shave every morning. And the customers? Don’t even get me started with them: they are obsessed with getting the lowest possible fees and extremely disloyal. Don’t mind that the cost of customer acquisition is ridiculous.
All the customers are hoes! Regulators treat you like a ticking time bomb, and compliance mistakes can sink you overnight. Established players like Western Union, MoneyGram, and banks have been doing this for decades and will not give up market share easily. And if that was not bad enough, crypto and stablecoins could eventually make most remittance companies obsolete.
Yet, every month, a new fintech pops up claiming to “fix” remittances. Most of them will burn through investor money like Xmas crackers before realizing they were never in the game to begin with.
If history has taught us anything, it’s that hype alone doesn’t keep the lights on. So, let’s talk about why this “boom” is not as promising as it seems and why only a handful of players will survive.
The market isn’t as big (or growing as fast) as you think
One of the biggest misconceptions driving the rush into remittances is the assumption that the market will keep growing indefinitely. People throw around the $100 billion remittance TAM (total addressable market) like it is an endless pot of money waiting to be scooped up.
But that is not how this works.
First, Western nations, AKA the primary sources of remittance inflows are tightening immigration policies. Canada is cutting its immigration targets, the UK keeps tightening its visa rules, and the US is ramping up on deportation. With fewer migrants entering these economies, the number of Africans sending money home won’t explode the way many fintechs hope. After all, fewer migrants mean fewer people sending money home, and fintechs banking on a forever-growing market will hit a wall sooner rather than later.
Second, the diaspora population is not infinitely expanding. Unlike domestic African markets that grow naturally with population increases, remittance markets are largely fixed. There are only so many Ethiopians, Kenyans, Nigerians, or Ghanaians living abroad, and that number does not dramatically change year over year. This means that fintechs are fighting for a largely static customer base.
And then there is the economic factor. Many Western economies are struggling, and immigrants are feeling the pinch. Inflation, job cuts, and rising living costs mean people simply have less money to send home. If people struggle to afford rent, they are definitely not increasing how much they send home.
Competition is a bloodbath eroding margins
Even if the market were growing, the competition is cutthroat. Every major financial institution already has a remittance product. Banks, telecom operators, global payment networks, and dedicated money transfer operators all want the same customers.
The US-Nigeria, UK-Ghana, and UAE-Kenya corridors are flooded with everyone from legacy giants like Western Union and MoneyGram to fintechs like Chipper Cash, Flutterwave, NALA, and Sendwave.
And let’s not pretend remittance customers are loyal. They chase the lowest fees, that’s it. Your fancy UI and sleek onboarding do not matter if another app offers a 50-cent discount. The moment a competitor offers a slightly better deal, they are gone. Retaining customers in this space is a nightmare, and the cost of acquiring new ones keeps climbing.
Price wars are already a race to the bottom, and most startups will realize too late that they cannot survive long-term with razor-thin margins.
Meanwhile, customer acquisition is a nightmare. Facebook and Google ads are not cheap, and the only way to keep costs down is through word-of-mouth. But that only happens if your product is truly cheaper, faster, and more reliable than the competition. Spoiler alert. Most are not. Even referrals, the so-called holy grail of organic growth, can be a money pit. Heard of how one fintech burned over $5 million handing out $50 per referral? The dungeons are deep, and most startups don’t have the war chest to survive the fall.
Compliance will break you before you scale
If you think regulators are tough on payments, wait until you try moving money across borders. Fintech bros love talking about disruption until regulators show up. Remittances are heavily regulated, and for good reason. Fraud, money laundering, and terrorism financing are huge risks, and governments are not playing around. Nigeria’s CBN recently went after fintechs for KYC lapses. Kenya and South Africa are tightening AML rules. Western regulators have no patience for companies that don’t take Anti-Money Laundering (AML) seriously.
Regulatory compliance is not optional, and it is not cheap. The second you start scaling, you will need licenses across multiple regions, partnerships with banks, iron-clad AML processes, and round-the-clock compliance teams. Screw this up, and you will get fined or, worse, shut down overnight.
And it is not just about following the rules, it is about affording to follow them. Compliance is expensive. Maintaining licenses, meeting reporting requirements, and implementing fraud prevention measures all cost money. Many fintechs underestimate just how much regulatory overhead will eat into their margins.
Lack of differentiation will lead to market saturation
Most remittance startups are offering the same thing: a mobile app, fast transfers, and low fees. But here is the problem; every competitor is promising the same thing.
Speed and price are no longer points of differentiation. Everyone is scrambling to provide instant transfers, and fees are already being cut to the absolute minimum. The only way to differentiate is by true innovation, and honestly, not many startups possess it.
If your only selling point is being cheaper or faster, you are already in trouble. Because when a bigger player, such as Stripe, Visa, or a deep-pocketed startup with VC backing, decides to undercut your rates, your entire business model crumbles.
The only way to build something sustainable is to go beyond remittances. The smart fintechs are bundling services like bill payments, lending, savings, and cross-border commerce. If your customer only opens your app when they need to send money, you are always one step away from losing them. Because at the end of the day, there are only so many bills to be paid. Sad, but true.
The real giants have not even started playing
Here is what should keep every remittance startup awake at night. The actual heavyweights have not fully entered the space yet.
Startups might get some initial traction, but in the long run, the big players will win. Global financial giants have the resources, regulatory expertise, and customer trust that startups simply cannot match.
Stripe’s acquisition of Bridge is a clear signal that serious competition is coming. Once a player like Stripe or PayPal decides to aggressively enter remittances, smaller fintechs will have little chance of competing. Apple and Google could flip the entire industry if they ever integrate remittances into Apple Pay or Google Pay.
And let’s not even get started on stablecoins and blockchain-based remittances. If USDC or another stablecoin achieves mainstream adoption in Africa, the fees everyone is fighting over today will disappear. Remittance startups that do not have a long-term plan beyond “send money cheaper” are playing a very dangerous game.
So, who will actually survive?
Most of today’s remittance startups will not be around in five years. But a few will figure it out. The ones that survive will be those who run an insanely efficient operation with no fluff, no excessive marketing burn, and just brutal cost discipline. Nail compliance from Day 1 because fixing KYC and AML issues after regulators show up is how you get shut down; Offer more than just remittances such as lending, savings, and business payments to deepen customer engagement; Find underserved corridors because while everyone is fighting over US-Nigeria, there are massive opportunities in intra-Africa remittances and less-explored regions.
Building a profitable remittance business is not impossible, but it is way harder than most fintechs think. If you are jumping in because you see a $100 billion market and assume there is easy money to be made, you are already behind.
The companies that survive will not be the loudest or the most hyped. They will be the ones with real discipline, regulatory muscle, and a strategy that extends beyond “let’s move money faster.”
Discover more from Adedeji Olowe
Subscribe to get the latest posts sent to your email.
