Financial technology companies originally built their reputations by accelerating payment processing and replacing physical banking operations with smartphone applications. Currently, these companies are transitioning into banks, or at least a specific category of banking institution.
This year, the largest financial technology companies in Nigeria accelerated their expansion into banking by acquiring microfinance bank licences. This strategic move allows them to grow beyond core payment operations and establish full-service financial institutions.
In January, the payments technology company Paystack acquired Ladder Microfinance Bank. In April, the payments startup Flutterwave secured a national microfinance bank licence by acquiring the open banking startup Mono. By May, the financial services group Sycamore announced plans to build a deposit base exceeding 40 billion Naira as it expands from digital lending into broader banking and payment services following its own microfinance bank acquisition.
A microfinance bank licence permits financial technology firms to accept deposits, issue loans and generate interest income from lending. This diversification reduces their vulnerability to fluctuations in transaction fees.
Beyond unlocking new product offerings, the licence fundamentally transforms the business model of these companies. Payment firms generate revenue when customers move money, whereas banks generate profit by holding deposits, lending capital and managing the associated financial risks.
However, a microfinance bank operates differently from a commercial bank. It functions as a specialised financial institution with a targeted mission to mobilise deposits and provide loans primarily to households and small businesses while operating under strict prudential guidelines established by the Central Bank of Nigeria.
How Deposits Adjust the Business Model
Payment companies rely on transaction volume to generate revenue, meaning they profit when customers move money. In contrast, banking institutions profit when customers leave their funds within the ecosystem.
Customer deposits provide a stable and permanent funding base. With a microfinance bank licence, financial technology firms can earn standard transfer fees on customer accounts, such as 10 Naira on transfers between 5,000 Naira and 50,000 Naira, or 50 Naira on transactions above 50,000 Naira, while simultaneously generating interest income through lending activities.
