With the rate at which smartphones are being used for bank transfers, fintech companies are forcing traditional players to think of creative ways of surviving.
These traditional ways such as Western Union, MoneyGram and WorldRemit are evolving to keep up with the trend that is encouraging combined global market share of digital services which has put pressure on remittance costs.
A few years ago, if you were receiving a remittance from a friend or relative living overseas, you would either go to your local forex bureau to collect your money, or receive a transfer to your bank account. However, with just a click on your phone, you can easily make a cross-border money transfer.
For Gilbert Kimono, a Ugandan, it was a relief when he recently received money from abroad.
“It was such a huge relief knowing that I would get money sent internationally within the shortest time possible – with just a click on the mobile phone; without necessarily going to either the bank or any money transfer company,” Kimono says.
He adds that the mobile money agent helped him withdraw the money with ease. He notes that he did not have to move back and forth or follow bureaucracy.
He says these digital way of transferring money or transacting business is the way to go if the country is to develop. “We are in a digital era. Working smart and adopting to technological advancements ease work,” Kimono adds.
Mr Elly Kamoga, an agent banker, says since the early 2000s, a number of regulatory reforms in different regions have sought ways of enhancing competition in the market for remittance costs.
He notes that several initiatives have been introduced to enhance cross-border payments in the region.
Ms Irene Rwatooro, a mobile money agent in Ggaba, a Kampala suburb, says the money transfers deepen social networks among friends and family.
According to the World Bank, the Ugandan diaspora sent home over $1.2 billion in 2017, accounting for 5 per cent of the country’s Gross Domestic Product (GDP).
These remittances help thousands of Ugandan families pay for essential needs such as healthcare, bills and education.
Recent research by WorldRemit found that 15,000 Ugandan children were likely to be in school as a result of receiving international remittances.
Currently, using the WorldRemit app, customers living in over 50 countries can now send money directly from their smartphones to more than 25 new cash pickup locations in Uganda.
Question is: Are traditional money transfer services still making money with the advent of digital money transfers and mobile money?
According to Catherine Wines, non-executive director & Co-Founder, WorldRemit Ltd -a provider of international remittances to mobile money accounts, mobile to mobile transfers drive down the cost of remittances for customers, as neither sender nor recipient needs to visit an agent to send or receive money.
She explains that for mobile money transfers, a small fee is charged that is significantly lower than the average cost.
According to the World Bank, the global average cost of sending £300 from the United Kingdom to Uganda is nearly 6 per cent. WorldRemit Ltd fee for the same amount is £2.99 (1 per cent).
According to the World Bank, Uganda received $1.2 billion in remittances in 2018 – equivalent to 4.5 per cent of GDP. Uganda sent over $347 million remittances in 2017 with top destinations including Kenya and Rwanda.
Despite the huge benefits of international mobile phone transfers, the cost of sending money is high.
Wines says: “They are offering a purely digital service on the sending side maintain low costs vis-à-vis traditional brick-and-mortar agents and enable customers to save money on transport costs associated with visiting offline agents.”
She adds that customers are provided a variety of convenient ways to send money abroad, including bank transfers, cash collections and mobile money transfers.
In addition, senders are sent daily exchange rate notifications so they can decide the best time to make their transfers.
She adds that there is no “one-size-fits-all” model which makes it across Africa and the globe.
“To cater to the needs of a diverse clientele and the complex regulatory, business and technology landscape, we work with regulators and financial service operators to demonstrate the benefits of our digital service,” Wines says.
It is also alleged that the traditional process is complex vis a vis mobile money. But Wines explains that as a financially regulated company, they are required by law to verify all customers.
“The type of verification we shall need can be different depending on the amount you are sending, and which country you are sending from,” she notes adding that it is because each country you can send from will have different laws that WorldRemit must abide by.
It is usually required to check your name, address and date of birth. However, in some circumstances, it may require further information to comply with the regulatory obligations. This can include the purpose of your transfer or source of funds.
Adopting to trend
A number of telecommunication companies have joined the international money transfer business to ease the remittance of money across the globe.
Ms Sumin Namaganda, Airtel’s public relation manager, say it signals that competition in the international money transfer service is growing and should translate into lower costs and efficient services for customers.
She says the telecom joined international money transfer to bridge the international money transfer gap.
“There is a need to send money in a secure way. A number of Ugandans are living abroad for various reasons,” Namaganda says.
She adds that mobile phone international transfers are convenient, affordable, simple, secure and instant.
“There is no need to walk to banks, bus stations or agents to send and receive money. You just have to pull out your phone anywhere anytime,” she explains.
Airtel Money recently joined the trend to enable customers to send money directly to recipients in Tanzania, Malawi, Rwanda, South Africa, Somalia, UK, USA, UAE, Qatar, Oman and Saudi Arabia.
Charges would only apply at the point of withdrawal, reflecting the recent 79 per cent reduction in Airtel money cash withdrawal.
In addition, customers sending money are charged against a tiered tariff at competitive rates across the market ranging between Shs900 and Shs58,000. Forex exchange rates are determined by the prevailing market tariffs.