Fintech Trends in Africa
Africa has one of the world’s most mobile populations, and African nations account for a large and growing slice of the global remittance market. In 2018, the World Bank reported that remittances to sub-Saharan Africa grew by almost 10% to $46 billion. African migration has been rising steeply in recent years, fuelling the growth of cross-border flows.
There is substantial media coverage around large numbers of people fleeing economic hardship and political instability to build new lives outside the continent. But, this exodus is misleading: the majority of migrants in fact move within Africa and not overseas.
Analysing UN data, Pew research showed that 25 million sub-Saharan migrants were living outside their home countries in 2017. However, the available data on migration and remittance flows does not tell the full story, as undocumented migration and informal remittance channels mean there is certainly a much larger movement of people and money than official figures suggest. The bigger demographic and economic picture presents a significant opportunity for the domestic remittance market.
Given the current remittance scenario in Africa, there are challenges as well as opportunities – and one of the most pressing is the need to lower the cost of remittances. Reports suggest, Africa has the highest costs in the world, averaging around 9% for a $200 transaction, compared to the global average of around 7%. Clearly, there is a long way to go, if Africa is to achieve the UN’s Sustainable Development Goal of 3% by 2030. Success will depend on building the right infrastructure and introducing policies to support an increasingly mobile population.
When it comes to infrastructure, Africa has an important advantage that can propel remittances across the continent and promote financial inclusion – namely, mobile money. Africa was an early adopter of mobile technology and digital wallets, with M-Pesa blazing the trail in Kenya and beyond. It has been followed by other mobile initiatives and there is now a firm foundation to support the African diaspora.
While digital transformation is helping the flow of money and connecting more people in more African corridors, cross-border transactions face many security measures and restrictions to prevent money laundering and terrorist financing. This is an entirely good thing, but we need to find the right balance between frictionless flow and security. And in this respect, the growing practice of de-risking (removing a service rather than addressing security issues) is an unwelcome development for the remittance industry.
More positively, we are seeing growing collaboration and partnerships between money transfer operators, mobile operators, banks and fintechs to improve the remittance infrastructure and maximise the potential of digital technology. It is important that this is done in the spirit of free trade and open market access, as Africa has been characterised by often-exclusive partnerships and other barriers to competition – which of course is one reason why remittance costs remain high.
Governments and policy makers should encourage competition and fully exploit the potential of the domestic remittance market. Examples of this include the African Development Bank working with African governments to introduce policies and measures that will attract remittance flows, and the launch in January 2019 of PRIME (Platform for Remittances, Investments and Migrants’ Entrepreneurship in Africa). The aim of PRIME is to reduce the cost of remittances and increase their impact across Africa.
At the same time, there is a growing move to encourage migration within Africa and dismantle obstacles to trade and economic opportunity. This is reflected in the African Union’s plan for an integrated continent with a mobile labour force, a goal enshrined in the recently adopted Protocol on Free Movement. This emphasises the right of Africans to more freely enter and exit the 55 member states of the African Union. With this liberalisation of movement comes the requirement for robust and interoperable financial systems, of which remittance structures are a key part.
Whether migration is prompted by civil unrest, the quest for better prospects, or any number of other demographic and economic factors, the forecast is for increased movement between African populations. A more fluid labour market underlines the need for digitally enabled and competitive remittances. African governments, trade bodies, international money transfer operators and the fintech community must work together to make that happen.