Revolutionizing Africa's Remittance Industry: How Digital Platforms and New Technologies are Changing the Game in 2023
Sending $200 to the region cost 7.8% on average in the second quarter of 2022, down from 8.7% a year ago
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Globally, nearly $1 trillion is sent between borders as a remittance—sending a paycheck home to friends or family.
Remittances to Africa have been steadily growing in recent years, and this trend is expected to continue in 2023. According to the World Bank, in 2022, remittances to Africa reached $64 billion, an increase of 4.3% from the previous year. This growth is driven by various factors; including the increasing use of digital platforms for money transfers and the continued economic development in African countries.
Remittances—money sent by migrants to families back home—provide a financial lifeline to millions of households. (Brookings)
In 2022, remittances to low- and middle-income countries (LMICs) withstood global headwinds 2022, growing an estimated 5% to $626 billion; according to a World Bank report.
Remittances to Sub-Saharan Africa are estimated to have increased by 5.2% compared with 16.4% last year. - World Bank Migration and Development Brief.
Some Remittance Trends for 2023
One of the biggest trends in African remittances is the increasing use of digital platforms for money transfers. Many African countries have a large population living abroad, and these individuals often rely on digital platforms to send money back to their home countries. This trend was accelerated by the COVID-19 pandemic, which led to a greater reliance on digital services for financial transactions.
Another trend in African remittances is the growing number of countries in the region that are implementing regulations to promote formal remittance channels. Regulations to reduce the use of informal channels. Informal channels could be more expensive and less secure. This has led to more competition among formal providers, driving down costs - fees and charges, for consumers.
The Brief reports the cost of sending $200 across international borders to LMICs, which remains high at 6% on average in the second quarter of 2022, according to the Remittances Prices Worldwide Database. This is well above the target of 3% of the Sustainable Development Goal.
In addition to these trends, we expect new developments in the African remittance market in 2023. One of these is the growing use of blockchain technology for money transfers. Utilizing blockchain technology has the potential to make remittances faster, cheaper, and more secure, and it is expected to be increasingly adopted in the African market.
Another development to look out for in 2023 is the increasing use of mobile money for remittances. Mobile money is a service that allows individuals to transfer money using their mobile phones, and it is becoming increasingly popular in Africa. This is expected to make remittances more accessible for people who do not have access to traditional banking services.
It is cheapest to send via mobile operators (3.5%), but digital channels account for less than 1% of the total transaction volume (World Bank). This could be due to the burden of compliance with Anti-Money Laundering/Combating the Financing of Terrorism regulations, which continue to restrict access of new service providers to correspondent banks. These regulations also affect migrants’ access to digital remittance services.
Overall, the future of remittances in Africa looks bright, with steady growth in the number of transactions and the amount of money being transferred. The increasing use of digital platforms and the adoption of new technologies are expected to make remittances faster, cheaper, and more secure for consumers.
Quick Stats.
Remittances to Sub-Saharan Africa are estimated to have increased by 5.2% compared with 16.4% last year.
Comparing Regional Remittance Trends. (Source: World Bank)
P.S.: Sending money to Sub-Saharan Africa is still the most expensive.
Remittances to the East Asia and Pacific region are estimated to have increased by 0.7% to $134 billion in 2022. In 2023, remittances are projected to decline by 1% due to weaker conditions in migrants’ destination countries. The cost of sending $200 to the region rose to 6.2% on average in the second quarter of 2022 from 5.8% a year earlier.
Remittance flows to Europe and Central Asia are estimated to have increased by 10.3% to $72 billion in 2022. In 2023, remittance receipts are projected to moderate further to 4.2% growth due to a softer outlook for major remittance-sending countries. The cost of sending $200 to the region rose slightly to 6.4% on average in the second quarter of 2022 (data excludes corridors originating in Russia).
Remittances to Latin America and the Caribbean are estimated to have grown 9.3% in 2022 to $142 billion. In 2023, remittances will likely moderate to 4.7% growth due to a weaker economic outlook for the United States, Italy, and Spain. Sending $200 to the region cost 6% on average in the second quarter of 2021, up from 5.6% a year ago.
Remittances to the developing countries of the Middle East and North Africa are estimated to have grown 2.5% in 2022 to $63 billion, compared to a 10.5% growth last year. Remittance inflows are projected to grow by 2% in 2023. Sending $200 to the region cost 6.3% on average in the second quarter of 2022.
Remittances to South Asia grew an estimated 3.5% to $163 billion in 2022. Sending $200 to the region cost 4.1% on average in the second quarter of 2022, down from 4.3% a year ago.
Remittances to Sub-Saharan Africa, the region most highly exposed to the effects of the global crisis, grew an estimated 5.2% to $53 billion in 2022, compared with 16.4% last year (due mainly to strong flows to Nigeria and Kenya). Sending $200 to the region cost 7.8% on average in the second quarter of 2022, down from 8.7% a year ago. Remitting from countries in the least expensive corridors is on average 3.4% compared to 25.2% for the costliest corridors.
To win the remittance game, we can explore the following:
There are several steps that Africa can take to win the remittance game and improve the flow of money into the continent:
Increase financial inclusion: Increasing access to financial services, such as banking and mobile money, can make it easier for people to send and receive money, thereby increasing the flow of remittances.
Promote formal remittance channels: Implementing regulations and policies that promote the use of formal remittance channels can help to reduce the use of informal channels, which can be more expensive and less secure.
Adopt new technologies: Adopting new technologies such as blockchain and digital wallets can make remittances faster, cheaper, and more secure, and can also increase competition among providers, which will drive down consumer costs.
Encourage partnerships and collaborations: Encouraging partnerships and collaborations between governments, private sector companies, and international organizations can help to create new remittance corridors and increase the flow of money into Africa.
Improve the regulatory framework: Reviewing and revising the regulatory framework to make it more favourable for remittance companies, will help to attract more companies to the market and increase competition, which will lead to lower costs and better service.
Develop a robust digital infrastructure: Investing in digital infrastructure, including high-speed internet and mobile networks, can help to increase the adoption of digital platforms for remittances and improve the overall efficiency of the remittance process.
Increase transparency and security: Increasing transparency and security in the remittance industry can help build consumer trust and reduce the risk of fraud and money laundering.
Increase education and awareness: Increasing education and understanding about the benefits of formal remittance channels and the risks of informal channels can help to change consumer behaviour and increase the use of formal channels.
Overall, a combination of all or some of these steps can help Africa to improve the flow of remittances into the continent, and ultimately help to improve the economic well-being of the people living there.
Some of the top remittance startups and companies in Africa. And how they compare.
Chipper Cash (chippercash.com): Founded in 2018, Chipper Cash is a mobile-based cross-border money transfer platform that operates in several African countries including Ghana, Kenya, Nigeria, South Africa, Tanzania, and Uganda. In 2021, it earned the unicorn badge with an investment of $150 million led by FTX which led to a US$2 billion valuation. Recently, Chipper Cash announced its expansion to Europe, starting with the UK and Spain. In 2022, the company acquired Zoona group; "Zoona was founded in 2008 and went on to develop the Tilt service, enabling payments and transfers to any bank or mobile money provider in Zambia."
WorldRemit (worldremit.com): Founded in 2010, WorldRemit is a digital remittance company that offers money transfer services to over 150 countries. The company is headquartered in London and has offices in several countries including South Africa, Kenya, and Nigeria. In 2019, WorldRemit raised $175 million in a funding round led by Technology Crossover Ventures, valuing the company at $500 million. In 2020, WorldRemit announced a partnership with MTN Group, a major mobile network operator in Africa, to expand its services across the continent.
Sendwave (sendwave.com): Founded in 2015, Sendwave is a mobile-based money transfer platform that allows users to send money to Africa and other emerging markets. The company has operations in several African countries including Ghana, Kenya, and Tanzania. In 2019, Sendwave raised $13.8 million in a Series A funding round which valued the company at $50 million.
BitPesa (BitPesa.co): Founded in 2013, BitPesa provides wholesale cryptocurrency liquidity for individuals and institutions across Africa. BitPesa is a digital foreign exchange and payment platform that allows users to send money to and from Africa. The company has operations in several countries including Kenya, Ghana, Tanzania, and Senegal. In 2018, BitPesa raised $5.8 million in a funding round led by Greycroft Partners and BitFury Capital.
Cellulant (cellulant.io): Founded in 2004, Cellulant is a mobile payment and digital commerce company that operates in several African countries including Ghana, Kenya, Nigeria, Tanzania, and Zambia. In 2019, Cellulant raised $47.5 million in a funding round led by TPG Growth and Rise Capital.
Apart from these companies, we have Grey, Eversend, Zazuu and many other newer ones.
All these companies are making their way to be leaders in the African remittance market, they have a similar business model of providing digital platforms for remittances, they also have different features and they are expanding to various countries in Africa. They all have other valuations, funding rounds, and partnerships.
P.S.: It's worth noting that the data might not be accurate since the valuations and funding rounds are based on the last reports and might have changed at the time you are reading this article.
If you have any questions or comments, please don't hesitate to reach out.
Source:
World Bank, Migration and Remittances data: https://data.worldbank.org/topic/migration-and-remittances
Migration and Development Brief 37: https://www.knomad.org/publication/migration-and-development-brief-37
Aite Group, The Future of Remittances in Africa: https://www.aitegroup.com/report/future-remittances-africa
GSMA, Mobile money: https://www.gsma.com/mobilefordevelopment/programme/mobile-money/