Abiola Ojukwu comes from a rural part of Aba in Nigeria but has left the nest in search of work overseas. Every month Abiola sends money home to his family. They rely on this income, which acts as a financial lifeline, sustaining their daily needs, medical well-being and education.
Abiola is a fictitious character but the situation is a very real one for the more than 30 million migrants in Africa. According to the World Bank, remittances sent home across sub-Saharan Africa were around US$33 billion last year, up from US$7.8 billion in 2000. These funds are particularly crucial to homes in Gambia, Liberia, Somalia and Nigeria.
GSMA Intelligence statistics reveal that one in seven Africans receives remittances from friends and family abroad. This represents as much as a third of the total GDP in some markets.
Sending money home seems well and great until you realise how much one transaction can cost. At an average charge of 12.4% per transaction, Africans are spending more than US$7 billion in fees alone, according to a GSMA Intelligence report.
Mobile technology, however, can lower the cost of transferring remittances because it removes the need for physical points of presence. In fact, since the early 2000s, mobile payment for the diaspora has not only become a major economic driver but revolutionised the way financial services operate in several countries. The concept of mobile money has also helped drive financial inclusion as well as provide consumers and small businesses with relatively easy, cheap and safe ways to transact or transfer funds.
Jan Hallberg, head of m-commerce marketing at Ericsson, says: ‘It is my belief that this massive flow of money needs to be supported in a much better and co-ordinated way. International remittances – also described as the “new international aid” – represent money earned through hard, often physically demanding work that is sent home to people in poor rural areas.’
In many cases, sub-Saharan Africa may lag behind with technological advances trending across the world but mobile money services isn’t one of them. Here the region leads the way in the take-up of the service, with already 130 mobile money services scattered around the continent – that’s more than 50% of all such services worldwide.
‘International remittances – also described as the “new international aid” – represent money earned through hard, often physically demanding work’
Meanwhile, more than half of all cellphone users regularly make mobile payments in Kenya and Uganda, with a quarter of users doing so in South Africa and Senegal.
One of the big mobile money services transforming the African landscape for domestic remittances is M-Pesa. Launched in 2007 in response to Kenyans having little access to bank branches and paying high transaction fees, operator Safaricom together with Vodafone, developed this now wildly popular service for emerging markets.
One in six Kenyans are already making use of the service that allows users to send money via text message, while more than 10% of the country’s GDP passes through it, says EY.
Its popularity picked up quickly, too. A year after its launch, the Red Cross used M-Pesa to pay its staff, and it is now so accepted that low-income consumers can spend a day in Nairobi without carrying any cash, making purchases simply using their cellphones.
After the success of M-Pesa, other networks took a crack at offering mobile money solutions too. In August, Millicom’s Tigo Pesa – its financial service dedicated to Tanzanians – collaborated with London-based WorldRemit to enable 250 000 migrants from the East African country to directly send money home to family and friends using their smartphones, tablets and computers. In Cameroon, this service has already decreased costs by 20%.
Meanwhile, more than 90% of Kenyans make use of the service, with 73% logging on to the system at least once a day, according to an Overseas Development Institute report.
In July this year, pan-African fintech firm MFS Africa connected Airtel Niger to its mobile money transfer hub. The connection allows mobile wallet customers across all networks (Vodacom, MTN, Safaricom and Orange) to make cheaper international money transfers to anyone with a cellphone.
‘The potential for savings and the impact of reducing this cost cannot be overstated. Every year, billions are sent in remittances to and among countries within MFS Africa’s footprint, over formal and informal channels,’ says the company.
‘Formal channels [banks and traditional money-transfer companies] can take days and charge exorbitant fees, while informal money traders and couriers carry high levels of risk and uncertainty. In contrast, money transfers through mobile money are instantaneous, secure, traceable and dramatically cheaper.’
In East Africa, the phenomenon is picking up a little faster with almost one mobile money account for every two mobile connections. Mobile money is bringing financial services to millions of previously unbanked and underbanked people around the continent. Today, there are more registered mobile money accounts than bank accounts in nearly 20 African countries, including Cameroon, Gabon, Kenya, Madagascar and Tanzania.
According to Kamilla Asp, strategic product manager at Swedish communications provider Ericsson, mobile wallet providers can simplify the financial woes of millions of people who are currently dependent on remittances for managing their daily needs.
Mobile wallet providers can simplify the financial woes of millions of people who are dependent on remittances for managing their daily needs
Therefore, the company provides a second-generation mobile financial service platform based on its experience managing high-volume transactions in real time for more than 2 billion customers around the world.
Ericsson is also partnering up with several international money transfer organisations to provide Africans with remittances and payments via its mobile wallet service.
Meanwhile, an ongoing deployment programme by MTN Group Africa and Millicom will see the launch of a second-generation platform for its mobile money services in an additional five African countries (the company already operates remittance services in five of the continent’s nations) within the next six months.
While mobile money transfer systems have become popular in some African countries, it has yet to take off in South Africa. According to Arthur Goldstuck, MD of World Wide Worx, technology providers need to access the unbanked market more efficiently before a significant rise in figures can be seen in the South African mobile money environment.
‘A big opportunity still lies dormant in mobile commerce. The popularity of money and airtime transfers via cellphone banking is one of the clues as to why stand-alone mobile money transfer services have not taken off in South Africa. There is simply no desperate need for them as there is in other African countries,’ says Goldstuck.
At least Zimbabweans residing in South Africa will get a chance to send money home to loved ones with Econet Wireless – the country’s telecoms group – which launched its EcoCash service in October.
The group first conducted a trial run with 200 customers using a SIM card called Call Home. The company then signed a cross-border mobile money remittance deal with South African company Flash Mobile Vending – a subsidiary of retailer Pepkor – for the EcoCash service.
Today, the mobile vending solution is used by more than 60 000 small business owners across South Africa, and the deal will expand EcoCash Zimbabwe’s footprint from Beitbridge to Cape Town – and all places in between.
