Africa presents a minefield of opportunity for fintech companies due to the lack of legacy infrastructure. Fintech companies operating in the money remittance space who have an appetite for Africa will find limited competition.
The formal market for money transfers in Africa is still relatively young and faces challenges typical of emerging markets including uncertainty regarding the volume of remittances, limited competition, higher transfer costs and a lack of technological innovations, with Kenya and South Africa being largely immune from these.
The flow of money in Africa
South Africa is the largest sender of remittance in Africa and also the most expensive of the G20 countries to send remittances from. Nigeria is the biggest remittances receiver in Africa – attracting diaspora remittance of over $21 billion per annum a dramatic increase from $2.3 billion in 2004 to $17.9 billion in 2007.
In Tanzania 38 million individuals have mobile money accounts and 8.9 million are active users, with an average transaction value of $19. Kenya has 26 million users and 14.2 million active users. In terms of total volume of remittance received, in 2015 – Morocco topped the chart at over $6 billion, followed by Algeria with $5.4 billion and Egypt with $3.6 billion.
According to a World Bank Report the following countries we also top recipients: Sudan ($3.2 billion), Kenya ($1.8 Billion), Senegal ($1.2 billion), South Africa ($1.0 billion) and Uganda ($0.8 billion). Sub Saharan Africa is the most expensive region to remit to and as a result the majority of remittances are still sent via informal channels such as busses and taxis.
A question of infrastructure and regulation
Remittance markets in Africa remain relatively underdeveloped in terms of their financial infrastructure and the regulatory environment. The African Migration Project’s (AMP) survey on Africa households revealed three patterns:
Firstly, south-south intra-regional and domestic remittances are sent overwhelmingly through informal channels, secondly, a large share of remittances from outside Africa are channeled through a few large international money transfer agencies which often work de facto or de jure in exclusive partnership with African banks and post offices, and the rapid adoption of innovative mobile money transfer and branchless banking technologies is transforming the landscape for remittance and broader financial services in Africa.
This trend has revealed a need for regulatory frameworks to be implemented to regulate this sector as it poses major regulatory threats to institutions and countries.
Rules that pertain to cross-border payments and financial access cover five distinct regulatory areas which are: the authorisation of paying institutions; the role of non-bank financial institutions; limits on and requirements of money transfer; ownership of foreign currency accounts and also anti-money laundering.
Money remittances – African industry players
Competition among formal global and regional remittance service providers is increasingly positive and noticeable among banks and mobile telecommunication operators (MTO), such as WorldRemit, Skrill, RIA Financial, UAE Exchange – each offering account, point of sale, mobile, online, card and/or a combination of channels.
Telecoms companies and banks are also investing in technical architecture to meet the domestic needs of today while enabling future regional, inter regional and international growth.
A robust and competitive market also speaks to financial inclusion because it forces market players to innovate and expand services to the underserved areas including rural based communities. Competition thus drives technological innovation and impacts the cost of sending money home.
Remittances have opened up a vast number of opportunities on the continent, the following are the companies that stand out from the competition:
- VISA – operates the world’s largest retail electronic payment network called Visanet – which links 2.5 billion Visa cardholders in over 200 countries to 13, 700 financial institutions and 40 million merchants.
- Paytoo – entered into agreement with Infenix in order to offer a remittance solution to more than 79 million subscribers in 29 African countries.
- Western Union and MoneyGram – two of the largest money transmitters have a combined 50% or more of the market in three quarters of SSA countries with over 90% market share in Zambia, Zimbabwe, Angola, Malawi and Liberia – accounting for two thirds of all transfers to the region.
- Dahabshiil (Dubai based) – is the largest Africa money remittance business in Somalia with agent locations and branches in 126 countries worldwide. With over 40 years’ experience, they have provided a valuable lifeblood to many in East Africa and the Horn of Africa.
- The Chaka Group Money Express – providing assistance in chanelling much needed money into Senegal and other West African countries. It enables its customers to make different types of domestic or international money transfers using foreign currency. Money Express is represented in all West African Monetary and Economic Union (WAMEU) countries; in Ghana and South Africa. It has partner networks in Europe, USA and Middle East through MoneyTrans, Money Exchange, ChequePoint, Omnex, TMT and RIA Financial Services.
- Safaricom MPESA – which has enjoyed a snowball success effect, whereas in other countries is has been harder for the obvious choice to emerge. As a result, in South Africa, Vodacom mobile operator has announced that its pulling the M-Pesa plug on the 30th June 2016.
- Zoona – Africa’s startup helping people send money when they need it most, so that communities can thrive. Zoona recently crossed a big milestone in the history of its business and for mobile money and financial inclusion in Africa. The latest milestone – across Zambia and Malawi, Zoona has processed over $1 billion in money transfers, bill payments and other financial services.
- Mama Money – a Cape Town based startup challenging dominant money transfer companies. The startup wants to convincingly cut the cost of sending money across borders starting with Zimbabwe – with ambitious plans to charge a flat rate fee of 5%. The company has partnered with Central African Building Society (CABS) in Zimbabwe, 100% Old Mutual owned subsidiary.
Other players in the market include – WorldRemit, Ria Financials, Orange Group’s Orange Money, MTN Mobile Money and Airtel Money collaboration, Equity Bank (Kenya), M-Shwari (Kenya), MSF Africa, Homesend, Transfer-to. On a more global level following are noticeable key players in the market are: ApplePAy, Amazon.com, Google Wallet of Alphabet all offering mobile money transfers and also digital wallets from AndroidPay, Samsung Pay and Alipay.
Africa is open to financial technology solutions and is willing to adopt user friendly technologies that work to solve their everyday inconveniences and immediate needs.
Solving Africa’s cash problem is an opportunity to help over a billion people and leapfrog the continent to the next growth wave.
About the author: Dipolelo Moime, is the founder and CEO of Legato Consultancy Pty Ltd, a dynamic Africa risk advisory, research and management consulting firm in Johannesburg, South Africa. In his capacity he assists multinational corporations with expansion and risk management strategies for Africa and is an expert analysts on various industry topics in Africa. Find him on LinkedIn: Dipolelo Moime.