Mobile Money without borders; Remittance growing big in the ecosystem

Jeddy Genrwot June 15, 2016

2 minutes read

TO GO WITH Lifestyle-IT-India-business-village FEATURE by Ammu Kannampilly In a picture taken on November 18, 2010 a neigbhourhood shopkeeper writes down transaction details after transferring money for customers using text commands on a mobile phone in New Delhi. India's hunger for new technology is as sharp in its countless small villages as in its shiny office towers or shopping malls -- and businesses are waking up to an area of massive potential growth. Specific designs being aimed at Indian villagers include a mobile phone cash-transfer system, robust low-energy refrigerators and a clever twist on the humble kitchen stove. AFP PHOTO/Manpreet ROMANA (Photo credit should read MANPREET ROMANA/AFP/Getty Images)

The mobile money industry continues to grow globally, with more than 270 live mobile money services in 93 countries. In Uganda, the amount of money transacted through mobile money by December 2015 was UGx. 32.5 trillion according to the Bank of Uganda.

This growth however is not the same for mobile money use cases. According to GSMA Intelligence reports, mobile money usage continues to be dominated by two use cases: person-to-person (P2P) transfers and airtime top-ups. Mobile money providers are exploring new models and products – such as account-to-account (A2A) interoperability, international remittances, merchant payments, salary disbursements and government-to-person (G2P) transfers – but the volumes and values of these represent only a minority of overall transactions.

International Remittances and Mobile Money

International remittances are a major and stable source of income for people in many developing markets with mobile money as both the sending and the receiving channel.

In Uganda, WorldRemit recently partnered with MTN to enable users all over the world to send international remittances to MTN’s Mobile Money customers. Same in Rwanda. Remit Uganda (https://useremit.com/about_us) also aims to make it easy for users to make real time money transfers from debit or credit card to mobile-money from all over the world to registered mobile-money users in Uganda, Kenya and Rwanda.

According to the 2015 Mobile Money – International Remittances Report, one in seven Africans (approx. 120 million) receives remittances from friends and family abroad, representing USD 60 billion and as much as a third of total GDP2 in some African markets. Although ‘North-South’ remittance flows are the largest, one in three remittances are sent from within Africa.

On a low note however – Africans pay the highest transaction fees in the world: the cost of sending money to Africa reaches 12.4% of the face value of the transaction on average—much higher than the global average of 8.6%. The World Bank has also found that the 10 most expensive remittance corridors in the world are all intra-African, and estimates that if remittance fees across Africa were brought down to 5% (the average rate for G8 countries), USD 4 billion could be put back into the hands of Africans.

The Cost of Sending Remittances December 2015 Data. Credit: World Bank

This sector of the industry still has some major challenges and needs to be disrupted, however, according to industry experts;

“We already know that the region is receiving $3+ billion in remittances. What most people don’t know is that a respectable chunk of that is cross border, within the EAC itself! We hear that sending money to Africa from EU and America is one of the most expensive financial corridors in the world. What’s less discussed is the even more expenses crossborder remittance corridor in the region.” TMS Ruge, Remit Uganda.

“We can’t solve that by begging incubated players in the field – Western Union, MoneyGram – to reduce their fees. You have to force innovate. But that gets complicated with telecom’s walled gardens and geopolitical borders and national interest. We truly won’t see a sea change until we can achieve true interoperability across networks and across borders and markets. The key is to be ready when that happens.” He added.

The Cost of Using Different Channels to Send Money

The World Bank findings put the cost of sending money through a post office as the least expensive, while going through a commercial bank is still the most costly. Post offices’ remittance charges are at 5.88% as of 2015 while using banks to send money is the most expensive at 11.12%.

The benefits to the customer of using their mobile money account for international remittances:

Reduced cost of transacting: Mobile money transactions tend to be competitively priced compared to the alternatives.
Easy access to agent outlets: A large agent network, established for a domestic service, makes it much more convenient for senders to put cash into, or recipients to withdraw cash from, their mobile money accounts.
Fast, simple transactions: It is relatively fast and easy to send or receive money via mobile.
Secure transactions: mobile money services are safer than informal means of money transfer.
Reduced reliance on cash with its associated risks.

Credit: GSMA Intelligence Reports, World Bank Report