Lemfi’s bet on immigrant credit shows where remittance fintechs are headed

If you are an African startup, processing FX transactions is a no-brainer. It’s a straightforward way to earn in dollars, hedge against currency volatility, and offer a service with constant demand.

Back in February, I wrote about how many African startups have turned to the FX market for the revenue stability that FX transactions offer. If you had to grow revenue by 66% in an inflationary market to match 2023’s dollar revenue, then processing dollar transactions is impossible to ignore.

But even as it made business sense for startups to chase dollars, I argued back then that FX is not a moat. As more startups enter the remittance space, chasing the same corridors and competing on speed, reliability, and pricing, already-thin margins will shrink. Over the past six years, the margins on FX transactions have shrunk by 30%.

Without depth and complementary financial services, FX revenue is little more than a stopgap, especially if you lack scale. Now, Lemfi, one of the largest African remittance companies, is taking a deep dive into FX by being the first company to offer credit to immigrants in the UK.

While Lemfi is the first African fintech to offer credit to immigrants, it will not be the last. Moniepoint, Africa’s latest unicorn, is taking the same direction. Tosin Eniolorunda, Moniepoint’s CEO, said on the Upside podcast that while the company is currently focused on remittances through MonieWorld, developing a credit product for immigrants is part of its long-term product roadmap.

Why are some of the largest FX players going deep by building around credit for immigrants? By only offering FX transactions to customers, you are constantly locked in a battle with other well-funded remittance companies, such as Moniepoint, Wise, and Nala.

The problem is global: to build credit, you need someone to trust you with credit. But without data, no one will. It’s a classic chicken-and-egg situation, especially for migrants. Most immigrants are stuck in that loop for at least 12 months after arriving in places like the UK.

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The opportunity with credit is enormous. In the UK, 5 million people are credit-invisible (many of them immigrants), meaning they have little to no credit history, which hampers their ability to access mainstream financial services.

Lemfi’s recent acquisition of Pillar, a UK-based credit card company, will enable the African fintech to offer credit to immigrants abroad immediately upon their arrival in the UK, thereby helping them build a credit score. Pillar brings a license, card-issuing, and immigrant-focused risk scoring model to Lemfi.

Here’s how it works: Lemfi already has data, such as transaction history. It feeds that data into Pillar’s underwriting engine to assess creditworthiness in the absence of formal credit histories. Lemfi then offers immigrants a secured credit card. Immigrants load an amount into their Lemfi wallet. That deposit is instantly converted into a credit limit on the credit card. They can now begin using credit (not debit) and build a credit history in the UK’s major credit bureaus.

The acquisition marks the beginning of Lemfi’s journey to becoming the preferred neobank for the millions of immigrants it serves across its 20+ markets.

Solving this problem enables Lemfi to establish a sense of loyalty among its customers. HSBC, one of the UK’s biggest banks, is also partnering with Nova Credit, a fintech company specialising in cross-border credit data, to use Nova’s data to assess the creditworthiness of immigrants.

“Credit is just one of several offerings. Think of it like your GTBank app in Nigeria—you can access GTBank Quick Credit but also send money, pay bills, and manage utilities. It’s a suite of services. We’re building in that direction. Our vision is to give immigrants access to a full financial stack: not just credit, but all the tools they need to manage their financial lives globally.” – Ashutosh Bhatt, Pillar’s former CEO and Lemfi’s new head of credit, told me on a call.

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Credit opens up new revenue streams

Before the acquisition, Lemfi generated revenue through FX spreads and transaction fees, a high-volume, low-margin model that relies on scale. While effective with multiple send-and-receive markets and millions of users, it becomes challenging to sustain profitability without reaching that scale.

Post-acquisition, Lemfi will make money from interest on credit cards, which are among the highest-margin financial products, and interchange fees on every card transaction. The fintech can also generate revenue from service fees and subscriptions as it continues to expand its user base.

These new revenue streams allow Lemfi to stand out from its competitors in the remittance market. Even Revolut cannot offer credit cards in the UK. By offering a wallet, remittance services to the Global South, and now a credit card to spend and borrow in the UK, it can be a one-stop shop for immigrants’ finances.

This model, which starts with a focused service before expanding to capture more of the customer’s value, is not a new concept. Moniepoint, for instance, began by building an agency banking network through POS terminals for cash-in and cash-out services. Once it became a key infrastructure provider for agents and small businesses, it expanded into business banking, credit, and personal banking.

Credit is now; what’s next?

Quite simply, a multi-product, multi-market financial services platform. If Lemfi can successfully offer credit in the UK to immigrants, there’s no reason it can’t provide the same service to immigrants in Europe or America.

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In a world where this becomes a reality, a LemFi user moving from Nigeria to Canada could access a LemFi credit product there, leveraging both their Nigerian and UK history. The next stage of this credit product involves Lemfi creating its transnational credit ecosystem for its customers, an immigrant credit passport similar to Nova’s, but all within one platform.

Unlike Nova, which only serves as infrastructure to other financial companies, Lemfi can create credit scores for its existing diaspora user base of one million users and offer them loans anywhere.

This approach will soon become the norm.

Eventually, other startups will follow suit, or new ones will combine these features from the start. If you’re not going deep with FX, the market will swallow you.

Muktar Oladunmade

Associate Reporter

Thank you for reading this far. Feel free to email muktar[at]bigcabal.com, with your thoughts about this edition of NextWave. Or just click reply to share your thoughts and feedback.