When Covid-19 hit in March 2020, many countries imposed non-pharmaceutical interventions to curb the spread of the pandemic. In some countries, pre-lockdown notices were as short as twenty-four hours. In others, they were even less. Most businesses launched rapid operational overhauls to adapt and survive the risk of extinction. But the financial industry suffered nonetheless. While local transactions were affected, cross-border remittances took a big beating as flows to Nigeria declined 28%.
The quest to increase financial inclusion in sub-Saharan Africa has long been challenging. Indeed, up to 66% of people there are unbanked. Much of the problem concerns cross-border remittance to the region. But the ongoing pandemic is an opportunity for the financial industry to leverage new technology, innovate, and address these issues.
Cross-border remittances often have exorbitant service fees. Fintechs are known to charge as high as 10% of the value of these transactions. Such prohibitive fees have led to patronage of informal channels in which remittance transactions remain undocumented, while discouraging the unbanked populace from opening formal bank accounts. This exacerbates financial exclusion in Africa.
Other hiccups include the long turnaround time for remittance. International wire transfers typically take between two days and one month – sometimes even longer thanks to due diligence checks. Such checks may be necessary for intercepting financial improprieties. But a balance is necessary to reduce the lag faced by non-fraudulent transactions that get flagged, which come at the expense of innocent beneficiaries.
A solution to cross-border remittances may be as simple as instant messaging. Currently being tested in Brazil, the social media giant Facebook has developed Facebook Pay. Through it, users can make payments with instant messaging apps like WhatsApp and Instagram. While the service is unfolding and its possibilities are still in the shadows, this service could be expanded to cross-border payments.
A couple of fin-techs have begun providing users with international bank numbers capable of holding multiple currencies. Spreading this across the board among international money transfer organizations (IMTOs) with the backing of regulators can greatly simplify cross-border remittances.
States can also employ policy to improve cross-border remittance. The central bank of Nigeria exemplifies this with its ongoing N5 per dollar incentive for diaspora remittance and cross-border payments received through IMTOs in Nigeria. Uganda implemented a similar policy in the 1990s encouraging residents to open domiciliary accounts – it led to a 70% cross-border remittance increase. Also, state policies fostering low barriers to entering the IMTO market will allow for more competition, which in turn will reduce the problem of exorbitant service charges for remittance and improve user satisfaction.
Another idea worth pursuing is packaging subscription products around remittances. Recipients generally earmark large chunks of remittances for food and healthcare. By packaging financial services as subscription products, fin-techs could reduce the hardships of direct remittance payments, even offering an option for periodic automatic renewals since most payments are recurrent. This could create more structure, save time and provide more value for less. Money is constantly being left on the table when the technology behind cross-border remittances remains dated. In addition to the above, improving such technology could ease the ingress of the unbanked population into formal financial markets, reducing the large percentage of financially underserved Nigerians. Another value lost that fintech can immediately improve is instant access to essential services for beneficiaries.
Ultimately, demand for remittance services is growing and is projected to increase by huge margins over the next decade. PricewaterhouseCoopers predicts remittance flow into Nigeria will reach $34.89bn by 2023. Market analysis on cross-border remittances reveals a massive untapped market, and the potential for significant, expansive development in Nigeria is vast. Innovation must catch up fast.
Orisanaiye is CEO/Founder at Lavatel (UK) and HollaTags (Nigeria).