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A growing crop of Nigeria-born startups are offering US-based bank accounts to freelance workers and businesses in a move to capitalize on Africa’s booming gig economy.
The startups are not banks in themselves, but partnerships with lenders licensed by central banks make them de facto digital banks — offering dollar, pound sterling, and euro accounts that enable international money transfers and come with debit cards for online commerce.
Raenest, a digital banking startup founded in 2022 by three Nigerians, raised $11 million this week in a funding round led by Virginia-based QED Investors. It offers accounts in the three currencies through a mobile app, and has processed $1 billion in transfers for over 600,000 individual users since 2022. And next month, another startup Grey will allow its nearly 2 million users to send money to more than 100 countries across the world through their dollar account, Grey’s Chief Executive Idorenyin Obong said in an interview.
Nigerian commercial banks have long offered foreign currency accounts called domiciliary accounts. But these upstarts are trying to lure users with paperless accounts, faster global transfers, larger spending limits on cards for online shopping, and the comfort of secure accounts beyond the jurisdiction of local regulators, their executives say.
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Digital gig work has exploded in Africa in the last decade, buoyed by increasing internet access and online payments on mobile devices. Startups like Andela — whose initial business of training African software developers drew investments from Mark Zuckerberg among others — have fueled a wave of skilled online remote workers across sub-Saharan Africa.
The East Asia and Pacific region accounts for a majority of the 435 million online gig workers in the world, according to the most recent World Bank estimate. But the 15 million workers in sub-Saharan Africa have helped foreign account apps in the region to test the case for global demand for their products.
For Grey and Raenest, the customer base is still largely made up of under-45 Nigerian adults living in cities, receiving salaries from gig work platforms like Fiverr and Upwork, or directly from American or European companies they work for, the startups’ executives said.
But Raenest said it is seeing more users in Ghana and Kenya as well as Egypt, while Grey has noted growing adoption of its platform in other emerging markets such as Brazil, Indonesia, and the Philippines. A big push into India is a key part of Grey’s expansion in March, Obong said.
Alexander’s view
The market and business model for these companies is compelling, as long as their anti-fraud systems are of the standard required by US and European regulators.
Their $10 fee for users receiving payments means there is potentially an annual multibillion-dollar market by going after gig workers everywhere. And that is without including revenue from forex conversions when their apps are used to withdraw money to local currency banks. Lexi Novitske, general partner at Norrsken22, said her firm joined Raenest’s latest funding round believing the startup can “unlock new opportunities” in Africa’s rapidly growing gig economy.
As a Nigeria-based worker for a US company, I need to receive international payments and pay bills on time. It currently takes days for an intermediary company in California to direct monthly transfers from my employer to my Nigerian domiciliary account, a not insignificant inconvenience. Obong and Raenest’s CEO Victor Alade suggested my transfers could be received in a day, enough for me to mull a switch to either platform.
Nigerian entrepreneurs are leading the charge in Africa for this product because of the country’s youth population that is among the world’s largest. Economic challenges have led millions of Africans to migrate in search of livelihoods abroad, but expanding digital infrastructure means there are many happy to work remotely on the continent while earning in foreign currencies.
These digital banking startups operate in the remittances space where tech companies drive global dollar inflows into emerging markets from workers in the diaspora. But Grey and Raenest are betting that offering foreign currency accounts will also open up global trade for businesses — “not only to foster international payments but inter-Africa transactions as well,” Alade told me.
Room for Disagreement
A challenge that often comes with providing dollar services in Africa is chargeback fraud — the practice where bad actors request a refund from vendors by falsely claiming that an order was unfulfilled or initiated by an impersonator.
Union54, a now defunct Silicon Valley-backed Zambian startup that about 100 African fintechs relied on to issue virtual dollar cards, suspended the service after fraud attempts worth $1.2 billion, its founder told Techcrunch in 2023. Mastercard, which issued the cards for Union54, reportedly said “never in their history has there been such frequent instances or cases of card fraud from” the Africa region.
The View From the central bank
Nigeria’s central bank last November allowed commercial banks to trade with dollars deposited in some domiciliary accounts, under a special scheme aimed at encouraging Nigerians with foreign currencies offshore to bring them into the country.
Banks must, however, make the funds available to customers when needed, the regulator said. It had earlier in the year quelled fears that foreign currency holdings in local banks could be forcibly converted into the naira during a dollar shortage.
Notable
- US company Deel acquired South African payroll provider PaySpace last year to deepen its ability to offer global employers payment solutions in Africa.