Imagine a world where all you need to do is, have your finger on a touch screen, and you can access any service you want? Banking, healthcare, education, transport, and so much more. What a vision, right? That is the potential of data.
Today data is increasingly becoming the lifeblood of businesses across the world. It is the foundation upon which all other operations are built. Today, with how well-interlinked technology is with our businesses, we cannot perform even the most basic functions without data. It gives our companies access and insight into our customers, helps us improve our services, and boosts our efficiency. However, data is only as valuable as the actions that come after it is collected.
The lack of data has stunted the growth of remittance companies within Africa. However, if the correct data becomes more increasingly available, it can encourage valuable players to be involved in the market and help deepen financial inclusion.
Why is data important in the remittance industry?
The World Bank recorded a 6.2% increase in remittance inflow to Sub-Saharan Africa in 2021, amounting to $45 billion. Yet, the cost of remittances to African countries remains unacceptably high. Sending $200 costs an average of 8.2%, compared to the global low of 4.6% in South Asia.
The report noted that "Costs tend to be higher when remittances are sent through banks than through digital channels or money transmitters offering cash-to-cash services."
Reducing the cost of remitting is one of the 2030 Sustainable Development Goals (SDG 10) targets. Research showed that a reduction of 1% decrease in the cost of remitting USD 200 leads to about a 1.6% increase in remittances.
Data will help remittance companies know where we can cut costs, improve our transfer networks and partnerships, increase our revenue and pass on cost savings to our loyal customers.
AML and CTF Compliance
Data could be employed by remittance companies to develop more effective risk detection systems by spotting irregular behavior around transactions.
Having access to an individual's alternative data sets, such as how an individual normally holds their phone (for mobile remittances) or the usual general location of a customer's physical location through IP addresses, could help companies detect suspicious activity with greater accuracy. With more tech-led products, this is increasingly becoming a possibility and will help prevent fraud, money laundering and terrorism financing while still allowing the smooth flow of transactions for all compliant customers and their transactions. Compliant customers whose transactions are held due to compliance checks are one of the biggest sources of customer complaints across the continent. We need to start thinking through alternative data sets we can use to detect anomalies in customers' financial behaviours and reduce the number of false positives that customers experience in compliance checks.
Customer Acquisition and Retention
Human-technology interactions and activities form a pattern that, if studied and understood, can be used to better predict customer preferences. For instance, when do they prefer to send money back home? What's their preferred mode of transfer? Who is their favourite beneficiary? Why are they sending money? etc.
This also helps us companies make informed decisions about the products and services to offer our customers. By understanding customers' patterns, companies can create products that will address a customer's needs and interests more effectively.
When it comes to acquisition, the customer acquisition costs over the years have been reduced, allowing businesses to acquire customers with less spending. We can now target our customers better than ever, thanks to online media. This, in turn, reduces the costs of running our businesses, allowing us to pass on the cost reduction to our customers.
Remittance is a fast-growing industry, attracting many new players. However, we can be sceptical when it comes to penetrating new markets due to a lack of data. This lack of understanding of the market and the opportunities it presents affects the number of experienced players willing to break ground on hazy business opportunities. This is one of the factors that has contributed to the slow uptake of Intra-African remittances. The public data available about remittance volumes and transaction sizes are inaccurate and, in most cases, highly under-represented.
With the correct data, new market entrants can make informed decisions on the available business opportunities, target customers, target corridors, potential partners, and more that will suit their business goals. This, in turn, will create a healthy competitive environment reducing monopolistic powers and bringing us closer to achieving our SDGs.
To sum it up, we need to re-think innovative ways to gather insights from data sets that were previously thought to be unrelated to improving the customer experience while reducing the costs of running our businesses. Remittances are plagued with high risks of money laundering and terrorism financing, so we must consider the risk factors with great care. However, we have a duty to improve the customer experience for most customers who are simply trying to send money back home to their loved ones. Data is part of the answer.