Ripe for disruption: Sub-Saharan Africa’s outrageously expensive remittance corridors
Sending money to Africa can cost upwards of 10%. Telcoin will do it for a fraction of that.
By: Jeff Quigley
According to the World Bank’s latest report on global remittances, US$46 billion was sent to Sub-Saharan Africa in 2018. That money is a lifeline for millions of families across the continent, as more people seek education and career opportunities beyond their national borders. Despite year-on-year growth of roughly 10 percent in remittances to the region, international money transfers to Sub-Saharan Africa remain the most expensive in the world.
As of the fourth quarter of 2018, a US$200 remittance to Sub-Saharan Africa cost an average of nearly 9 percent — that’s US$18 lost to exorbitant fees and/or foreign exchange margins in a region where 85 percent of people live on less than US$5.50 a day. While the global average cost of sending a remittance has dropped to just under 7 percent, many African corridors are now above 10 percent, as evidenced below.
The following chart below shows the average cost of sending US$200 from Canada to select African countries (according to World Bank data from the fourth quarter of 2019):
Now, let’s examine those same corridors to break down the average cost of sending US$200 via Western Union (credit/debit card cash in, with the beneficiary receiving cash):
While no one should be subject to such astronomical fees, it’s unfortunate to see that some of the world’s most vulnerable are effectively losing roughly the equivalent of a week’s worth of living expenses every time they receive money from abroad.
To further highlight the importance of remittances on the African economy, let’s also look at the percentage of GDP inbound remittances account for in each of the above countries:
With high mobile money penetration and new money transfer players — both traditional and digital — entering the market, one would expect a more competitive landscape for sending money to Sub-Saharan Africa. Indeed, the average cost of sending has made progress from its average of 14 percent in 2008, but there has been little movement from the 9–10 percent range since 2015. The problem stems from a combination of overbearing regulation and an apparent lack of empathy from remittance companies intent on charging as much as they can for as long as they can.
Strict regulations in a number of African markets force remittances to terminate at select traditional banking institutions, leaving beneficiaries at the mercy of high foreign currency exchange rates. Some central banks have exclusive partnerships with a single remittance provider, or force beneficiaries to establish accounts through government-owned post offices.
“Remittances are on track to become the largest source of external financing in developing countries,” said Dilip Ratha, the author of the latest World Bank remittance report. “The high costs of money transfers reduce the benefits of migration. Renegotiating exclusive partnerships and letting new players operate through national post offices, banks, and telecommunications companies will increase competition and lower remittance prices.”
Among the United Nations’ Sustainable Development Goals set in 2015 is reducing the average global remittance cost to 3 percent by 2030. There’s a long road ahead to get to that figure, but deregulation is already taking place in the mobile money space. Nigeria issued its first mobile banking license to MTN in July of last year, and the Ethiopian central bank announced plans to open its mobile money ecosystem to new players just this month. Digital remittance services that can successfully integrate into new and existing digital wallets are best positioned to truly disrupt the market.
According to GSMA, there were 866 million registered mobile money accounts in 2018. Nearly half of those accounts — 396 million — belong to users in Sub-Saharan Africa, the global epicenter of mobile money. The region accounts for approximately two-thirds of global mobile money transactions, exceeding US$25 billion in December 2018 alone. However, international remittances accounted for just 2 percent of incoming transaction value that year.
GSMA notes that 90 percent of mobile money transactions in Sub-Saharan Africa are still processed using USSD, but anticipates smartphone adoption to climb from 39 percent in 2018 to 66 percent by 2025. Smartphone applications, like the Telcoin Wallet, will further drive financial inclusion across the continent. Telcoin is targeting a cost of around 2.5 percent to send a remittance to partner mobile money accounts in seconds.
Lowering the outrageous costs of sending money to Sub-Saharan Africa should be a priority for money transfer companies across the board, but it seems low on the list of priorities for the world’s major players. In their current form, remittances to Africa largely appear unethical at best, and borderline criminal at worst. Telcoin intends to make its mark on the Sub-Saharan remittance landscape by working alongside established mobile money platforms and meeting the United Nations’ goal of sub-3 percent transfers 10 years before its proposed deadline.
Telcoin. Send money (to Africa) smarter.