Nigeria’s fintech industry has taken off. From multi-million dollar funding deals to soaring revenues, the indicators of growth all appear to be positive. This is partly because the startups in this space meet widespread needs. The demand for their services is huge, and there’s generally an appetite for innovative (if disruptive) solutions.
But the top players in this space know they won’t get a decent market share just by offering sleek products. They are employing strategies that lure their targets to them. And, often, one approach to winning customers tends to stand out from the plethora in their arsenal: referrals.
FinTechs, like other businesses, are always on the hunt for more people who are willing and able to pay for their services. So they pour a lot of money into marketing and advertising campaigns and hope those efforts bring in customers.
But while sprucing up their brand’s public image may attract a fair few, this tactic isn’t guaranteed to boost bottom lines by much. Businesses that have been around for a while know that their existing customers bring in new ones if they’re pleased with what they’re getting. So these businesses ask people patronising them to refer their contacts.
Companies can (and sometimes will) do more than request referrals. They also promise rewards for them. For example, they may pay existing customers who . This example is what many FinTechs in Nigeria have followed.
A Few Well-Known Instances
is one of Nigeria’s leading digital banks. It has won over many users with its services, including low fees and relatively high returns on money deposited. But referrals are also a part of its winning combination of strategies. Kuda pays users ₦1,000 for each referral, provided that the person they refer signs up with the bank’s app and purchases airtime worth at least ₦500. The new user also gets ₦1,000 after taking these steps.
, a payments platform, runs a somewhat similar referral program. Users earn ₦500 for referring a friend, ₦1,000 for inviting three persons, and ₦2,000 for getting four people to sign up. That’s besides granting ₦100 airtime to anyone registering to use its platform. They can generate a referral link on the PalmPay app, share it with their contacts, and get paid when those people register using the link.
Risevest, which provides dollar-denominated investment opportunities, has a referral system that differs slightly from our previous examples. Customers can copy a referral code from their app, share it with their contacts, and get paid 3% of that contact’s investment with Rise if they sign up. However, referrers can only access their commissions after three months of their referees’ first investment.
As these instances show, FinTech companies tend to tailor their referral programs to suit their specific business and service, delivery models. Rewards are fixed amounts or a percentage of the funds invitees spend, deposit, or invest with the FinTech in question.
Why Referrals Are Popular
While data regarding the impact of these programs on FinTechs’ customer acquisition is hard to come by, anecdotal evidence suggests that they are popular with users. The constant inquiries about them from existing and even new customers appear to confirm this.
It’s not just the prospect of financial rewards that makes referrals work. The fact that it’s people getting invited by their friends or family members also plays a part. We are more likely to trust recommendations from people we know than advertising from businesses.
The figures concerning referrals as a marketing strategy bear this out. According to Nielsen, about 92% of people trust referrals from people they know, a global authority in audience insights. Nielsen also reports that people are four times more likely to buy a product (or use a service) when referred by a friend. A survey of Nigeria’s market for financial technology conducted by McKinsey in 2020 revealed that about 55% of users first heard about a FinTech product from a friend.
Available data shows that businesses—including FinTechs –record a significant revenue boost when they adopt a referral strategy. According to one estimate, profit margins could rise by as much as 25%.
Final Words: Getting On The Referral Train
Referrals are undoubtedly an effective way to gain customers and drive growth. But they only work when smart teams devise them to succeed in specific contexts. As long as financial rewards are attractive, referral programs will continue to enable Nigerian FinTechs to achieve significant wins.
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