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Financial technology companies aren’t all the same. They operate within a variety of niches and solve varying problems. To do this, they adopt different business models—structures that also enable them to turn in revenues. This is just as true for FinTechs in Nigeria as it is for players in this industry elsewhere in the world. It’s also not unusual for them to pivot between business models as they seek the most effective ways to solve their customer’s problems and make good returns while doing so.
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This article examines some of the more preferred ways that FinTechs make money. If you’re considering launching a startup in this space—or you’d like to try out other revenue channels –you may have a look at the options we discuss below.

Lending

There’s a huge demand for credit in Nigeria. Despite the presence of numerous formal lenders in the country (such as commercial banks), Nigerians numbering in the millions have continued to lament their inability to access loans. In the past few years, digital lenders have arisen to bridge this gap. Most of them provide short-term small and micro-loans to individuals and businesses. These loans are typically collateral-free and repayable within weeks or months from the time they are received. Digital lenders make money from the interest rates they charge on the loans they disburse. The rapid growth of this niche suggests that it’s profitable, a space that would-be FinTechs should consider venturing into.

Crowdfunding

A majority of Nigerians don’t have the sort of funds required to be sole investors in large, potentially profitable businesses and projects. So it’s not surprising that they are attracted to crowdfunded investment opportunities—something that a growing number of FinTech startups offer. Companies in this space operate their digital platforms as a plane through which they can pool funds from small-time investors. The funds are then invested in any number of vetted opportunities that yield returns for investors within a given period. Startups operating this business model make money by taking a share of the profits realized from investments, and by charging fund management fees
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Advertising

FinTechs may offer services at a low cost to their customers, and choose to derive a sizeable amount of their earnings from adverts placed on their apps by other businesses. A potential downside to this model is that revenues are only significant if the traffic coming into the FinTech’s digital platform is large and sustained. As such, many startups will prefer to make money by charging for the products they provide to their customers.

Subscription

FinTechs can run a subscription-based model. Here they’ll charge customers for using their services on a monthly, quarterly, or annual basis. This approach is favoured by many startups elsewhere in the world because it keeps customers on their platform for longer, and reduces the chance that they’ll move on to patronize a rival company. Another advantage of this model is that, unlike advertising, it generates its income directly from customers. This tends to be a safer way to make money as a FinTech, given the relative unpredictability of traffic coming into their platform. However, a potential problem for subscriptions could be the fact that many (perhaps most) Nigerians may prefer to use services on a one-off basis.

Payment Gateways

The growth of e-commerce in Nigeria over the past decade has necessitated the existence of payment channels that support online transactions. These channels—called payment gateways –enable people to pay for products and services online. The adoption of contactless payments has been accelerated by the COVID-19 pandemic. This trend towards more widespread use of online payments will almost certainly continue as an older generation of Nigerians is replaced by younger digital natives. FinTechs that provide payment gateways generate revenues by charging a fee for transactions that go through their channels.

Final Words

The revenue models we’ve covered here are just some of the more popular means by which FinTechs make money. But they are also among the most lucrative options available. If you’re aiming to build a FinTech startup that draws in significant revenues, you may go with any of the items we’ve discussed here. Featured image source: The Africa Report
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This article was first published on 4th February 2022

ikenna-nwachukwu

Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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