Written by Anne McIver
Can Mobile Money slash the cost of International Remittances to Sub-Saharan Africa?
21% of Sub-Saharan African adults have a Mobile Money account and the region accounts for over half of global Mobile Money services. No surprise, then, that Mobile Money International Remittances are growing. Kenyans can remit payments from the United Arab Emirates to an M-Pesa account. International transfers between West African countries have soared since the launch of Orange Money. And Mobile Money is the preferred method of sending funds to recipients in Uganda, Zimbabwe and Ghana.
Mobile Money is cheap. A US$200 Mobile Money International Remittance to the region costs, on average, just 1.7% - comparing very favourably with the Sustainable Development Goal (SDG)’s target of 3% by 2030. But, despite fast growth, Mobile Money transactions represent less than 1% of total International Remittances. Meanwhile, remittances to Sub Saharan Africa through formal channels (banks and Money Transfer Organisations) remain high: at 8.9% to send US$200 in Q3 2018, they are still almost three times more expensive than the 3% SDG target and remain 29% higher than the global LMIC average.
Remittances are a major source of foreign exchange earnings in Sub Saharan Africa and an important driver for economic growth. They are over three times greater in value than Official Development Assistance (ODA) and significantly more important than foreign direct investment (FDI). Remittances account for 6.1% of the GDP of Nigeria, the largest regional recipient. At US$25.1bn in 2018 (55% of the regional total of US$45bn), Nigerian remittances equal almost two thirds of the contribution to its GDP of its oil industry. They are even more important, relatively, to many poorer countries: remittances represent over 20% of The Gambia’s GDP, 19.3% for Comoros; and over 10% for Lesotho, Senegal, Liberia and Cabo Verde. Although average costs are high, they vary widely between corridors. Lowest, under 5%, include Senegal and Cote d’Ivoire to Mali. But many corridors cost well over 10%. And costs are over 15% in the five most expensive (four of which are from South Africa: to Swaziland, Zambia, Botswana and Angola).
Regulatory pressure to adhere to money laundering and other requirements frequently forces commercial banks to close money transfer service providers’ bank accounts – and is one of the factors behind the high costs in the region. Mobile Money, by introducing competition, can keep prices down. Remittance volumes depend partly on economic conditions and immigration policies in high-income countries where many migrants earn their income. Following growth of 9.7% in 2018, Remittances to Sub-Saharan Africa are forecast to rise to $47 billion by 2019. But these are just the official figures: the true volume, including informal channels, is considerably larger.
Mobile Money appears to be making rapid inroads into the informal market, which is good news as it provides greater transparency and security. Surveys by Orange Money indicate that most of its West African customers previously used informal channels. This is borne out by Orange’s statistics on remittances between Côte d’Ivoire and Burkina Faso, which in fact significantly exceed the World Bank’s estimates of formal international remittances in this corridor!
The savings from Mobile Money over formal channels are highest for low value remittances. This provides Mobile Money operators with an edge in rural markets. These were often historically dominated by exclusive partnerships – virtual monopolies – between national post office systems and a single money transfer operator. Already, 51% of WorldRemit rural recipients in Ghana, 91% in Tanzania and 92% in Kenya prefer Mobile Money. So how quickly can Mobile Money deliver on the promise to reduce the impact of high costs of remittances in Sub Saharan Africa?
Pricing strategy is key – GSMA research shows that transaction fees for international remittances must be set at the same, or similar, level as domestic remittances in order to drive transaction volumes. But the ability to offer low prices depends on volume. Mobile Money operators typically launch International Remittances services only after they have established their domestic platform and reach a critical scale.
Technology also remains a challenge. Like other digital payments services, Mobile Money is characterised by low administrative costs, with no need for physical agents. It’s a low margin business which depends upon technology to execute high-volumes of standardized and verifiable transactions. Interoperability between payment services also remains an obstacle – although cross-border operability is increasing, according to the GSMA, which is working on harmonized Application Programme Interfaces (APIs), to make it easier for traditional operators to incorporate Mobile Money.
Join us at the Global Money Transfer Summit, on 26-27 March in Capetown for further insights into the future role of Mobile Money for International Remittances in the region.