Can A Better Remittance Experience Unlock More Funds To Africa
Tulix Team
Last week we gave you some insights into a survey we carried out among Africans living abroad with respect to their experiences when sending money home. We learned a lot through that survey as well as the interactions that have followed since then.
These insights are collectively shaping the product we’re building as the Tulix App. Despite the great progress that has been made in the remittance process, as well as the gradual shift to digital remittance service providers (RSP’s) in “mobile-first” Africa, there still exist challenges and/or opportunities in this space. We are encouraged by the large number of digital RSPs that are catering to the needs of Africans living and working abroad but we believe more could still be done to unlock the potential of the over US$84 billion (FY 2019) sent home each year by them.
Below we outline some of the improvement areas that came up. These could point existing and new players across the value chain in a direction that offers more to the growing migrant population:
Transaction Fees/ Costs Are Still An Issue For Many
Transparency in pricing is still a challenge for people sending money across borders. And for Africa, this is increasingly the case as illiquid currencies still limit how low these fees can go. The UN SDG 10C commits, by 2030, to reduce to less than 3% the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5%.
Trust, Accountability & Feedback Loops are Key
Given that a majority of current remittance services terminate through channels that require cashing out, many remitters would like a clear means to track and obtain confirmation of their payments. One respondent stated their biggest challenge with business payments as, “Not knowing whether all the money I send is actually how much is due to the institution and whether or not the family member has been honest.”
Delays/ Time Lags In The Process
Few services offer instant confirmation for remittances into Africa. In most cases, the termination/ pay out channels are separate from the remittance service. Recipients need to communicate payment confirmation to the sender thus creating time lags. Where an individual needs to carry out an in-country payment on behalf of a sender, the disjointed nature of these transactions, leads to a less than perfect experience.
Direct Payments to Businesses Still A Challenge
Where possible, senders of funds increasingly wish to be able to make direct payments to businesses as they face challenges with the limitations of existing systems that require an individual to cash out their remittances before carrying out their instructions. “Businesses in Africa are primarily set up to process local payments and not international payments via remittances,” said one of our respondents.
Neo-banking Could Take Hold
Only about half our respondents held/ operated “diaspora bank accounts” with banks from their home countries. These services, though well intended, have come with an array of challenges including manual processes. The emergence of neo-banking services could earn wider adoption across the continent as a convenient means to carry out transactions that go beyond remittances.
This list is hardly exhaustive and only captures some of the common themes we saw raised by our respondents.
Conclusion
One number that we latched onto upon completing the survey was that 74% of our respondents indicated that they are willing to increase the amounts they send back home if they found more convenient channels that make remittances more effective.
The significant volume of funds that flow back to developing countries from their citizens abroad, and the heavy reliance that these countries have on such flows is enough to demonstrate the need to have the above challenges addressed. Continued and intentional inquiry into the remittance transaction process flow is an important exercise that could contribute to an increase in remittance amounts by migrants of these developing countries.
We are building Tulix App to address just some of these issues, but there remain a lot of opportunities to offer value and better involve the diaspora community in contributing more to the economic prosperity and wellbeing of their home countries. We look forward to playing a part in this positive change. You can join us by signing up here.