Last year, Flutterwave launched a new payment service, Send which it hopes will disrupt the remittance market in Africa.
The potential of Send is in its ability to allow users to send or transfer funds to their loved ones or business associates within minutes from various countries around the world to Africa and at an affordable rate.
Many people outside the continent are discouraged from sending remittances into Nigeria and African countries as a whole, mostly due to the long transaction time and the high transaction cost.
The foreign exchange rate is also discouraging as it is characterised by high volatility, coupled with the fact that the purchasing power of the money sent is low, which means the money sent would be chasing fewer goods or services.
According to Remittance Prices Worldwide, the average total cost for sending money from the United States to Nigeria is $7.27 through various RSPs while Send charges 1 unit on every currency regardless of the amount and location.
Send has set out to resolve one of these numerous remittance issues, one of which is the issue of high transaction costs by charging lower transfer fees compared to other Remittance Service Providers (RSPs) such as Moneygram, Western Union, and the likes.
For example, if you are sending money from The United States of America to Nigeria, Send charges at their 1 dollar rate which is #592.11, if you are sending to Nigeria from Europe they charge 1 Euro which is #675, this applies to other currencies.
Read also: Nigeria needs more than taxes to fix its ‘insufficient funds’ problem
Tejumade Adeyinka, an expert in remittance services told BusinessDay that ease in transfer is one of the solutions RSPs like Send is promoting. This is in the sense that when a person in the United States sends money to someone in Nigeria, the recipient receives the money in his/her local currency immediately.
Thereby solving the problems associated with going to the bank, long transaction time, and having to still convert it to his/her local currency.
Similarly, Send enables the beneficiary to receive cash instantly when the sender makes use of the e-naira app from other countries to Africa, however, it takes one to two business days when the sender transfers using his bank account.
The remittances sent are to help poorer recipients in Nigeria meet basic needs, fund cash and non-cash investments, finance education, foster new businesses, service debt, and essentially, drive economic growth.
According to analysts, 70 percent of remittances are used for consumption purposes, while 30 percent of remittance funds go to investment purposes which fuel growth. Nigeria remains the largest recipient of remittances in Africa and 5th recipient globally, preceded only by India, China, the Philippines, and Mexico.
To reduce remittance costs, the International Monetary Fund (IMF) working paper explains competition as one of the ways, as most remittance markets are highly concentrated. The paper suggests that the policymakers should come up with favorable policies that would encourage new entrants like ‘Send’ into the remittance markets.
“Policymakers should foster competition not only by granting non-banks licenses to provide remittances services but also by ensuring that they face a level playing field through adequate and proportionate regulation. More specifically, they should allow non-banks to provide money transfer services independently of banks.”
“In addition, they should not impose an excessive burden on non-banks RSP by applying unnecessary stringent regulation tailored for banks. Otherwise, compliance costs could become prohibitive and might even discourage new entrants, acting as a barrier to entry,” the paper further explained.
The paper also suggests that there should be more transparency in the remittance market practices. “The higher price transparency, the likelier the sender is to make an informed decision and, therefore, pay less for remittances services. Price awareness increases price sensitivity, which increases competition.”
