Remittance business undergoes silent revolution
Before Western Union started offering money transfer services to Africa in 1995, the first company to do so, it used to take weeks if not months to find somebody travelling home to take the envelope along. And the brave ones among us who hid money in mails were often unlucky after post office workers in Africa discovered that letters from abroad could contain cash.
Transfers by banks were also rare as most European banks did not accept transfers to Africa and banks charge rather high service fees for international transfers. Moreover, most prospective recipients in Africa didn’t have bank accounts anyway. Therefore, rendering financial assistance to their families and friends at home was a major problem for Africans living and working abroad.
Today, there are many Money Transfer Operators (MTOs) offering remittance services in the cities and towns across Europe and the network of pay-out agents extends to the remotest villages in African countries. And the market is getting increasingly competitive with the entry of new companies and products, giving consumers a choice and driving down the costs of money transfer.
The vibrancy of the money transfer business has led to the phenomenal increase in remittances to African countries. According to a study, 98 per cent of the Africans in Western Europe regularly send money to their family and friends in their homelands.
Remittances have therefore been rightly described as a lifeline to millions of families in Africa. Money sent by Africans abroad help pay for the upkeep, education and healthcare of their relatives at home, in addition to providing capital for business investment or for the construction of a house.
Remittances play a very important role in African economies too. In fact, money sent home by African migrants surpasses direct foreign investment and official development aid, coming behind only trade income, for most countries.
While only Western Union offered the possibility of transferring money to Africa from Germany twenty-one years ago, today the remittance market has many operators. Leading global money transfer providers to Africa operating in the country also include MoneyGram, RIA and those offering remittance solutions solely based on wireless and cashless transfers.
Sending money via one of the MTOs is fairly quick and easy. Usually, you just have to find their nearest agent, complete a form, pay the amount you want to remit, show your ID and write down the code you receive. With this unique code, the recipient of your money transferred from Germany can withdraw the sum at any MTO’s pay-out agent in the receiving country.
However, you have to pay some transfer fees to make a remittance. The charges for transfers to Africa are still generally higher than in other markets. For busy corridors like US-Mexico, the World Bank estimates that the cost of transfer is now only around 2 per cent.
Malick Seck, General Manager for Africa at Ria Money Transfer, blame lack of competition in African countries for the relatively high transfer fees. “In most African countries only banks are authorised to do money transfer business, hence MTOs rely on banking networks to send and receive money,” he explained. Due to exclusivity agreements between MTOs and African banks, there was no competition, giving the banks the opportunity to charge high fees.
However, the situation is improving with fees dropping to as low as 5 per cent to many countries, following the revocation of such exclusivity contracts. Nigeria, one of the latest countries to act on the issue, banned exclusive contracts between MTOs and banks last year. “Today most banks have two or three MTO partners to send and receive money, competition is more and hence prices from and to Africa have dropped substantially,” the Ria manager, who heads the company’s processing centre in Dakar, Senegal, confirmed.
On the issue of exchange rates, major MTOs now offer dollar pay-outs in African countries, where the authorities allow remitted money to be paid to recipients in foreign currency.
Increasingly, you do not need to go to an outlet of an MTO to send money to Africa today, a long way from the beginning when you have to physically visit an agent to carry out a remittance transaction.
Complementary to the well-established traditional retail business, MTOs now offer consumers the flexibility to send money from the convenience of their home or office or from just about anywhere they may be, using a bank account and credit/debit card. Products such as direct-to-account transfer, online transfer and debit-card based transfer have become well established in both sender and receiving countries.
For example, customers can now remit money directly into the bank accounts of the recipients either through online transfer or by visiting the agents of MTOs such as Ria Money Transfer and Western Union.
With the rise of the Internet, several online payment services have also emerged.
“Demand for online money transfer is growing and we are proud to offer a secure, user-friendly platform to our customers,” said Juan Bianchi, President and Chief Executive Officer of RIA Money Transfer, in September 2013 while launching the company’s digital transfer service. Western Union had pioneered the online remittance services in 2010, thereby offering the possibility of transferring money from your bank account or credit card to the recipient on your computer.
To get a share of the profitable remittance business, African banks offer citizens abroad the possibility of opening the so-called Non-Resident National accounts, denominated in the foreign currency of the holder’s choice. Money can be sent into the account from the countries of residence and withdrawn locally in foreign currency.
The most recent entrant to the market is mobile money transfer (MMT). Several MTOs are currently developing, in collaboration with mobile phone providers, MMT services that will enable consumers to remit and receive money with their cell phones. The technology is being used widely in Kenya. The M-Pesa mobile money transfer system, which allows clients to send and receive cash with their phones, has been popular in East Africa, and is now spreading to other parts of the continent.
Western Union already offers mobile money transfer services to Kenya, Madagascar, Tanzania and Uganda, whereby you can send money directly to the mobile phone number of the recipient, who must have an activated mobile wallet.
Experts say MMT will in the near future become dominant in the market due to the ease of transaction and because it is potentially less expensive than other systems of money transfer, ultimately driving down remittance charges. If one is to believe the experts, people queuing at money transfer agents to fill in remittance forms could soon be a thing of the past.