African remittance startup LemFi buys UK card issuer

Remittance flows to low- and middle-income countries rose nearly 6% last year to $685 billion, according to a World Bank estimate. The large volumes involved are spurring business opportunities for migrant innovators, especially from developing countries, with startup investors keen to get a share of the boom.

“We’re building our own credit decision engine that takes into account your history in your previous country,” Olalere said of his move to open up credit access to migrants who have not been in the UK long enough to have a credit score. The system is based on Pillar’s technology that already sources data for credit decision-making from 18 low- and middle-income countries.

HSBC, the British bank that is Europe’s largest by assets, announced in 2023 that it would begin allowing the use of credit history built in other countries to evaluate applications for credit cards for new migrants in the UK.

Remittances are a lifeline in many African economies and it’s why a proposed remittance tax by the Trump administration has triggered widespread alarm. But true financial inclusion for the African diaspora in developed countries will also require access to financial tools that migrants need to live well in those countries, not just for sending money to Africa.

Take credit cards. In Africa, less than 5% of people have access to one, compared to about two-thirds of the adult population in the UK where they are a part of daily life. Being without a credit card as a migrant can therefore be a huge disadvantage.

At the same time, good business requires efficiency. Startups setting out to offer credit cards to migrants will be smart to optimize their resources for efficiency, amid the slow recovery of global venture capital funding.

It appears to be the case with LemFi and Pillar, two startups that are each less than half a decade old and recognized that they could become potential competitors in a few years. Rather than spend years chasing a credit card issuance license from the UK’s Financial Conduct Authority, LemFi has used its large customer base to win over technology that may well take many years, talent, and hard-earned investor dollars to build.

“It’s basically combining all our marketing efforts into one umbrella and getting straight to the customer,” Bhatt said. “If we do not fuse together, we’ll end up competing and customers will get confused. It’s just messy.”

LemFi raised $53 million in January in a round led by London-based venture capital firm Highland Europe, while Pillar raised $16.9 million in 2022 in a round led by German investor Global Founders Capital, also an investor in LemFi. An introduction by the Berlin-based firm was a spark for the acquisition conversation two years ago, Bhatt said.

Olalere and Bhatt say their shared challenges as immigrants — particularly the difficulty of accessing loans and savings products — and in local financial services make them better equipped to offer digital financial tools to migrants, compared to British banks whose services to migrants are fraught with complex paperwork requirements. Bhatt moved to the UK from India and has spent two decades across Barclays and the neobank Revolut, while Olalere was an early employee at Nigerian fintech startups Flutterwave and Opay.

Financial service providers like the money transfer company WorldRemit insist that “credit scores do not cross borders” into the UK, meaning that creditworthiness often has to be determined from scratch by prospective borrowers’ activity in the country. And LemFi’s ability to collect prospective customers’ data from countries outside the UK — using Pillar’s technology — to make credit decisions may bump against data protection laws that typically prevent the sharing of credit scores between countries.