Remittances – some recent innovations in Africa

Remittance flows to Africa slightly decreased in 2009 and are expected to stabilize in 2010. These remittances to Africa are characterised by high prices, mostly in the range of 10-15% and sometimes even 25% of the sum transferred. This is often explained by the lack of competition and because it is costly to reach remote areas. But some interesting innovations have appeared on the radar screen, that could put pressure on prices, provided it is accompanied by the access of new players.

Mobile payments are said to lead to lower priced remittance products, even though M-remittances are still in a nascent phase. However, it is observed that innovations in remittances (e.g. mobile banking, cardless withdrawals from ATMs ) are preceded by the deployment of these innovations in the domestic payments system. This web article presents some recent innovations and their potential in Africa.

Worldwide, formal remittances inflows doubled in the period 2003-2008 (to US$443 bn in 2008) but the growth slowed down to  US$ 420 bn in 2009. Africa experienced a slim decrease: Sub-Saharan Africa received an estimated US$ 20.5 billion in formal remittances and Middle-East and North Africa 32.2 billion in 2009 .

The traditional ‘cash-to-cash’ remittance product is still the most popular, estimated to cover about 80-90% of the remittance market . It is typically offered by the Money Transfer Organisations (MTOs)  often in combination with bank partners. The remittances to Africa, apart from flows within the African continent, originate mainly from the US and Europe. The African market is dominated by the MTOs Western Union and Moneygram (together 65% of the market) . They could meet with future competition from smaller MTOs using innovations such as Person-to-Person (P2P) mobile payments, (pre-paid) cards or cardless withdrawals from ATMs.

Most innovative pilots in Africa are linked to the mobile phone and to a lesser extent to cards. Due to low internet penetration not much is expected from pilots making use of the Internet. Some examples:

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