Money transfer firms thrive as COVID-19 spurs online remittances

Image: Innovation Village

AFRICA – COVID-19 pandemic has pushed many Africans living abroad towards digital transfer services thus fuelling a boom for Africa-focused money transfer companies, despite predictions from the World Bank of a historic 20% drop to US$445-billion in remittances to poorer countries this year due to a pandemic-induced global economic slump.

“We saw an increase of transfers as the diaspora wanted to help their family,” said Patrick Roussel, who heads mobile financial services for the Middle East and Africa at French telecommunications company Orange, a dominant player in French-speaking Africa.

The pandemic gave remittance companies an advantage over their main competition in Africa: the sprawling informal networks of traders, bus drivers and travellers used by many migrants to send money home.

“We’ve seen an influx of new customers, and we see them mainly coming to us from the informal market,” said Andy Jury, chief executive of Mukuru, a money transfer company in Zimbabwe.

Jury and other industry executives say that shift is likely to last as digital remittance services are typically cheaper, faster and safer than informal networks, which are difficult for governments to regulate.

“We have seen an influx of new customers, and we see them mainly coming to us from the informal market”

Andy Jury – CEO, Mukuru

Mukuru, which focuses mainly on African remittances and allows customers to send both cash and groceries, has seen a roughly 75% acceleration in growth compared to last year.

Remittances to sub-Saharan Africa officially totalled $48-billion last year, according to the World Bank.

Experts, however, say that figure tells only part of the story because much of the money Africans ship home via informal networks is absent from official data.

As those networks ground to a halt during lockdowns, formal money transfer businesses — particularly digital platforms — were suddenly the only game in town.

According to Kenyan central bank data, remittances to Kenya were up 6.5% through to August compared to the same period last year while remittance inflows to Zimbabwe were up 33% through to July.

Online remittance company WorldRemit reported last week that transfers to Zimbabwe via its service had doubled over the past six months.

Azimo, a UK-headquartered remittance company whose major African markets include Nigeria, Ghana, and Kenya, saw a nearly 200% increase over the expected number of new customers in April, May, and June.

“I’d swap it out for no pandemic any day of the week,” Azimo CEO Michael Kent said in an interview. “But given that’s what’s happening, I think you are seeing digital adoption in financial services all over the place.”

Remittance companies got an additional boost at the onset of the pandemic when African central banks reduced fees and loosened limits on digital transactions, to encourage the public to use digital services to facilitate social distancing.

“I would probably agree with the World Bank that the total amount (of remittances) will go down,” said Dare Okoudjou, founder of MFS Africa. “But anyone who’s in digital would actually gain market share and see their volume go up.”

The company, which runs networks across 36 African countries to channel remittances between mobile money accounts, has seen year-on-year transaction growth of over 90% in 2020.

The industry is now at an inflection point, analysts say. “If we can get the money flowing with less friction, it’s going to be better for everybody. That is the silver lining,” said Timothy Ogden, MD of the Financial Access Initiative at New York University.

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