Today’s technology can make it cheaper to send money to Africa tomorrow
Artificial intelligence, the rise of the robots, cryptocurrencies? There is lots of excitement about the way that new technologies are expected to revolutionise the banking industry. But when it comes to reducing the cost of sending money abroad, we already have the technology.
Governments around the world that signed up to the Global Goals have made a commitment to reduce the cost of sending money aboard. The UK is one of those governments and is targeting a reduction in the cost of sending money from the UK to Africa to just 3 percent of the send amount. That would make a huge difference because it currently costs, on average, more than three times as much as their target.
The good news is that it is totally doable. Across industry, automating processes – removing the human element – is the sure-fire way to scale services, reduce costs and increase the speed of delivery. And the money transfer market is no exception. Whilst there isn’t one technology that can be applied to the whole remittance sending process (because sending money overseas involves multiple players), there are a range of technologies that already exist that can create an end-to-end, person-to-person automated process.
For example, rather than visiting a local corner shop, laboriously filling out a paper form and handing over cash whilst the owner photocopies and verifies your ID, instead, from the comfort of home, you go online, create an account using a photo of your nationally recognised ID card and instruct a bank account transfer. In Ghana, your father doesn’t need to leave his home and travel to an agent in his local town, but instead he can be informed by SMS that the funds have been deposited into his mobile money wallet. In Ghana, one of the global leaders in the use of digital biometric identification, mobile money can be used to pay utility bills, do grocery shopping, to send to friends, in cafes, for taxis, you name it.
There are encouraging signs that where the process is being automated from the sender to the receiver, these efficiencies are being reflected in lower prices. The likes of WorldRemit and Azimo, who are operating at low volumes in comparison with the cash-to-cash providers, are still able to offer competitive pricing.
Sending money using an agent in the UK and paying out cash in Rwanda with one of the UK’s leading money transfer operators costs 19 percent of the send amount compared with only 7.5 percent using an online service provider, paying via card and receiving into a mobile money wallet. That is a huge difference.
And new technologies are working to automate the middle section too. Software solutions are helping to meet compliance and payment requirements and ‘big data analytics’ are being used by large firms, such as Western Union, to profile their customers and assist in identifying fraudulent patterns.
Recent developments in API (application programming interface) technology (the technology that allows two systems to “talk” to each other), along with ‘cloud computing’, means different service providers can be easily integrated and payments processed “straight-through”. This technology becomes especially useful in what the industry calls ‘remittance payment processing hubs’. These facilitate payments between different payment methods and service providers in cross-border transactions. So, for example, a money transfer operator connects into one hub, and suddenly it can pay out to multiple mobile wallets in Cote d’Ivoire and multiple banks in Tanzania. No need to build individual relationships with each company separately, its already there.
These are not the technologies of the future, they are ‘the here and now’. Mobile money, whilst not the newest or most exciting, is still the technology with the most promise to bring digital payments to the financially excluded and drive down remittance prices.
Once connected, mobile phones and wallets can then in turn potentially be used for biometrically identifying people and building out a digital payment ecosystem: to pay bills, save for school fees or repay loans. Adoption of this technology will bring access to a range of other advancements, including peer-to-peer remittance models, cryptocurrencies and distributed ledger technology.
But adoption of mobile money across Africa has been slow. According to GSMA, only half the population in Africa currently has a mobile phone, just over a quarter have a smart phone and only around one in tem have a mobile wallet.
For the benefits of this technology to be felt across Africa there is still a lot of work needed to develop the supporting infrastructure: the cables and power for supplying internet and electricity and a supportive regulatory environment, especially in terms of paying out international remittances.
But even mobile money requires “boots on the ground”. In the medium term, the roll-out of mobile money wallets needs to be supported by trustworthy, cash-liquid, agent networks that can cash money in and out. A society also needs to be both literate and financially literate enough to make the most of it. As people become comfortable and trust the technology the need for agents will diminish and the cost of remittances to the consumer will finally dramatically reduce.
Technologically, it is doable today. In reality, it’s not going to happen tomorrow.
Sarah Hugo, Senior Analyst at DMA.
A new report on remittances from the UK to Africa will be published on June 15th 2017 by Financial Sector Deepening Africa. For more details see: www.fsdafrica.org/uktoafricaremittances/.