When young Africans leave home to chase better lives in developed countries, they don’t cut home ties. Instead, these migrants retain relationships some of which are with people who regularly send them money from home. Think students without scholarships who need school fees and upkeep money from parents, or those living abroad but working remotely for companies in Africa.
Given their global scale, one expects money transfer companies like Western Union, WorldRemit, Wise, and PayPal to attend to these remittance needs since inter-bank transfers between Africa and many countries are next to impossible. But they do not.
They are either too risk averse to deal with Africans, maybe because of viral accounts of fraud, or impelled by regulators. For example, Nigeria’s central bank says Western Union cannot be used to send money out of the country, and barred Wise from operating in either direction.
Nigeria is home to some of Africa’s most valuable fintech companies, like Flutterwave and Paystack. But while they enable people receive payments across borders, instant personal remittances is not their focus.
And so to receive money from the continent, Africa’s diaspora need to find each other on social media (especially WhatsApp – there is one group for Nigerians in Edmonton, Canada, for instance), exchange account numbers (at least one African and, say, Canadian one) and negotiate rates. This informal method has existed for years and works well enough to be a thriving business for some individuals – well enough to be the concept behind at least one Nigerian startup’s ambition to fill the gap left by PayPal and others.
How the Lemonade Finance app works
Founded in 2020, Lemonade Finance set off to enable people living in Africa send or receive money. But after a few months, the company realized its app was mostly used by Africans abroad. “So today only Nigerians, Ghanaians, and Kenyans in the UK, and Canada can use the product,” CEO and co-founder Ridwan Olalere tells Quartz.
While those users use the app to send money to Africa, the reverse is more interesting.
After a user signs up, they get a bank account number from a Nigerian naira or Ghanaian cedi or Kenyan shilling wallet to which a benefactor in Africa can send money. The user can then convert the money received from whatever African currency to Canadian dollars or British pounds within the Lemonade app, and move it to their Canadian or British bank. Or, the user could leave the money on the app in African currency if they want to make subsequent transfers.
In other words, Lemonade is a middleman doing the job of many WhatsApp groups for senders and receivers but on one app. This flexibility and freedom to hold multiple currencies (which PayPal doesn’t offer) might prove attractive for user acquisition in the long run.
What about compliance?
That said, users tend towards established remittance companies because they are regulated, unlike peer-to-peer type networks that work on referrals. Olalere says Lemonade is seeking formal approvals that will enable it to stand firmly wherever it operates.
In addition to being registered with Canada’s Financial Transactions and Report Analysis Centre, the company recently got a license from the Financial Conduct Authority, the UK’s chief financial markets regulator.
The license could enable Lemonade to issue cards and process card payments in the UK, Olalere says. To build out its compliance systems, the company has engaged True Layer, the UK’s leading open banking company (similar to Plaid in the US), and enlisted the services of Jumio, a California-based ID verification company.
All of this, including the need to hire staff who will give the company a physical presence in the UK and Canada, costs money. To that end, the company announced this week that it has raised $725,000 from Y Combinator, the famed startup accelerator, and a number of Nigeria-based VC firms including Microtraction, Ventures Platform, Acuity Venture Partners, and Zrosk.
Migration could grow Lemonade’s niche market
In the absence of hard data, anecdotal evidence suggests personal remittances flowing into Africa far outweigh what goes out. As such, it might be useful to ask whether a service like Lemonade will find a large enough market by serving Africa’s diaspora.
But they can point to the increasing pace of migration from the continent, driven by unemployment, inflation, and concern for their children’s future. In 2019. three times more Nigerians moved to Canada than in 2015. This exodus might be a bleak sign for Africa’s future human capital, but for startups like Lemonade, there’s an opportunity to give the diaspora a financial connection to family and business partners.
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