Capturing the Mobile Money Cross-border Remittance Opportunity in Sub-Saharan Africa
Katarina Vitkova - Director CF
Kudakwashe Kuzviwanza - Team Leader
Gergely Lantai-Csont - Consultant
Mobile money’s higher adoption in sub-Saharan Africa relative to more developed markets has been driven by low financial inclusion in the region (see Figure 1) and is exacerbated by high banking fees and a limited footprint of banking services in remote rural and semi-urban areas. To put this into perspective, sub-Saharan Africa has a mobile money agent coverage of 120 agents per 100,000 adults versus 10 branches per 100,000 adults for retail bank.
Even though domestic P2P mobile money transfers are becoming more affordable and widespread across the continent, customers in Africa still pay the highest transaction fees globally to send money across borders (see Figure 2). This leaves the African cross-border payments market ripe for price disruption and Mobile Network Operators (MNOs) in prime position to take advantage.
The opportunity lies in regions with high domestic mobile money penetration, significant regional economic activity and a high rate of regional migration. West Africa, for example, dominates the top 10 inflow and outflow of remittances between countries in Africa (see Figure 3).
In such regions, there is a compelling need for low-cost cross border mobile money payment services for trade and remittances. In practice, cross border payments were already made through informal and unregulated channels like sending physical cash through the border with transport companies, travellers and migrant workers.
MNOs with mobile money licences are therefore well positioned to benefit from remittance corridors due to:
- Access to customers in multiple countries;
- Owning operating and/or mobile money licenses; and
- Having sufficient infrastructure (e.g., billing systems, accounting systems and customer data analytics).
Considering this, MNOs can tap into the cross-border remittances opportunity with the following two approaches shown in Figure 4.
The first approach was used by Orange in west Africa to leverage its multi-country presence in the region to connect mobile money users within the operator group. This served as a competitive advantage allowing Orange’s customers in the region to use the mobile money platform for their cross-border remittances in Ivory Coast, Mali and Senegal. Orange’s success was supported by the fact that:
- Orange had a solid and mature presence and usage of its domestic mobile money services in these countries;
- There was strong demand for cross-border remittances among these countries due to close economic ties;
- Currency risk was limited due to the common CFA currency; and
- The regulatory environment was similar due to the common central bank, the Central Bank of West African States.
Another example is the partnership approach used by MTN Ivory coast and Airtel in Burkina Faso in 2014 to interconnect their mobile money services to enable an international remittances service.
The second approach for MNOs is to plug into an international mobile money hub (e.g., MFS Africa, Homesend or TransferTo), which gives customers more payment destinations and solves the interoperability challenge that mobile money players face. Given the technical effort and diverse mobile money regulatory environment (see Figure 5), connecting to a mobile money transfer hub is a faster and more cost-effective way to gain scale for MNOs.
Alternatively, MNOs could use digital payment platform open source software such as Mojaloop, which was created by The Bill & Melinda Gates Foundation. It seeks to effectively address the interoperability challenges that restrict both domestic and cross-border remittances by connecting bank accounts, mobile money wallets and merchants in an open loop. Given that cross-border remittance services are a volume game, Mojaloop will help lower operational costs and allow MNOs to pass this on to customers through reduced fees and, in turn, increase transaction volumes.
However, given that such an initiative is not for commercial benefit, there is the risk of increased competition from new players who may put further pressure on the fees that MNOs and remittance players charge.
With the value of cross border remittances in sub-Saharan Africa expected to pass $67 billion in 2021, MNOs can participate in an opportunity worth up to $7 billion in transfer fees (assuming a global average transfer fee of 7% to 10%), allowing them to diversify and grow revenues while strengthening their domestic mobile money proposition. International mobile money hubs are therefore a cost-effective way to achieve this with a short time to market and the benefit of reducing the complexity of managing different regulatory environments and multiple relationships with parties in the remittance ecosystem. This approach can ensure MNOs continue to play a pivotal role in the P2P and P2M space both domestically and more importantly, beyond borders.
© 2019 Delta Partners.