Fintechs in Nigeria where the main source of revenue is transaction fees will fade within 3 years. We will move towards a perfect digital market where marginal cost is absolute zero. The new phase of opportunity will be monetizing data for lending, wealth management, etc and not “taxing” citizens with fees.
Paytech startups built on transaction fee-based revenue will struggle as new business models evolve where transactions can be efficiently processed at absolute zero transaction cost and distribution cost. My state of Nigerian fintech shows a shift in the equilibrium on the points where startups make money from users. This will simply become the new normal.
Consider the possibility that OPay has bank accounts in all banks in Nigeria. If a customer ( paying for DStv) pays through it, it will simply receive money from the customer to the specific corresponding bank account it maintains in the customer originating bank. At the same time, it will pay the merchant to the merchant’s bank account using its (OPay) funds in the same bank as the merchant’s. Because wallet-to-wallet transfer in Nigeria does not attract a fee, this two-sided intra-bank transaction (inflow and outflow) does not cost OPay and its customers any transaction fee.OPay, relying on bank APIs, automates this protocol. This is Option 1. There are other options on how to execute this including having a holding quasi-entity.
Do not be confused on this – we will leapfrog London and New York in this domain. The architecture of our banking system makes this possible. I do not expect it to be changed!
Comment: I remember an old post of yours where you spelt doom for payment outfits like flutterwave where you mentioned they couldn’t just thrive on payment charges. May I ask what you now see differently.
My Response: Share the link please. I would be interesting to actually use that to teach. My position has been this: any fintech that competes for checkout pay by sending code will fade.But those that help clients to improve their businesses will win checkout pages and thrive with the clients. But share the link. Flutterwave has subject matter experts in education, trading, agro, etc that help their clients before they work on those checkout pages. That is the Silicon Valley Bank model which I have advocated for them.
Plus – doing that is one way of dealing with decreasing percentage on transaction fees which have dropped from 6% (when BankAmericard was unveiled in U.S.) to now about 1.4% on average. It will get to near zero one day. We have 0.99% on fees in most platforms. So, if you do not help clients, fees would not do it!
Comment: Well you just answered the question already. Sharing the link won’t matter then. Thank you sir.