Rise of digital remittances: What must be done

World Remit communications chief in Uganda, Mr Ivan Kanyali. PHOTO/COURTESY

What you need to know:

  • Although the inflow of remittance in Uganda declined in 2021, it is still a lifeline for many rural people, and continues to play a vital role in Uganda’s economic growth.

Many Ugandans abroad are now embracing use of mobile money to remit money back home- which has contributed to increase of hard currency being remitted in the country instead of usual system like banks Daily Monitor's Tom Brian Angurini February 13 spoke to World Remit communications chief in Uganda, Mr Ivan Kanyali.

What has driven the rise in remittances in Uganda?

Remittances have been steadily growing over the past five years as Uganda increases its workforce in the Middle East, which in the last three years has overtaken other regions as one of the country's largest sources of foreign exchange. The Middle East alone has more than 150,000 immigrant workers from Uganda.

An increased use of mobile money in Uganda has also seen an increase in remittance volumes. In fact, Uganda’s mobile money service is one of the most integrated globally, especially for cross-border or international mobile money services.

There is also greater financial literacy, innovations in service delivery and synergies among the development institutions.

Although the inflow of remittance in Uganda declined in 2021, it is still a lifeline for many rural people, and continues to play a vital role in Uganda’s economic growth.

What kind of innovations are improving the global money movement?

Firstly, smartphone technologies that allow the download of global money transfer apps for free for instance the World Remit mobile app that avails customers the convenience and simplicity of sending money home 24/7 with just a few taps on their smartphone.

In 2020, $12.7 billion in cross-border remittances were processed via mobile money according to the 2021 GSMA report, an increase of 65 percent. This means that, on average, the industry for the first time processed more than $1 billion in international remittances per month. This was partially attributed to the rise of e-commerce innovations where people can order items from different countries via Amazon, eBay, Alibaba, Jingdong, Wayfair, Otto and Rakuten, all of which boast integrated cross-border payment systems in their purchase platforms.

There are now more than one billion mobile money wallets around the world, reflecting a rapid growth of remittances in the last decade.

Why do remittance costs remain high despite the explosion of smartphone usage and growing internet coverage in Africa?

Currently, there is more penetration of smartphonesin Africa and higher internet affordability compared to five years ago.

However, not all 54 nations on the continent are able to take advantage of these developments. Countries like Benin and Eritrea are yet to catch up in the digital age as they still largely rely on traditional banking models to power their economies.  

Costs among legacy players have traditionally been high in the past. Digital payments companies like World Remit helped lower the cost of remittances and transaction fees over the past decade, while simultaneously improving digital accessibility in the country.

Even with all that has been accomplished by the likes of World Remit, the ability to offer customers faster and easier money transfers is an ongoing process.

Remitting firms must settle certain issues such as cross-border payment regulations, currency strength and capital market policies across different African countries which impacts on the cost.

However, interoperability is still a stumbling block in the continent and different African countries have varying taxation structures.  

What barriers still hold back remittances?

On the commercial and business level, challenges such as high cost of liquidity management, agent costs, lack of clean data and high cost of foreign exchange hold back remittances.

You may also find that on the infrastructure front, there are insufficient cash-in and cash-out points, and, of course, a lack of interoperability and low internet connectivity remain issues to be solved

 What percentage of transactions are Ugandans making on mobile?

According to the 2021 GSMA State of the Industry Report on Mobile Money, East Africa has been leading the continent in mobile money penetration, with Uganda playing a key role.

A report by the Uganda Communications Commission shows that at the end of Q1 2021, the total number of network connected gadgets had risen to 31.2 million.

The same report shows that there were 20.3 million active mobile money accounts at the end of March 2021. Agent access points have grown by 8% from 235,790 at the end of December 2020 to 254,930 at the end of March 2021.

 As the world appreciates the need of for digitalization and real-time movement of money, with as a few barriers as possible, how can we solve interoperability issues?

Whichever interoperability model is selected, it must be commercially sustainable for participants, both in terms of operating expenses and revenue opportunities. The liquidity requirements of different technical models are especially important for mobile money providers given the specificity of their business model.

Regardless of the technical model, the pre-funding requirement is likely to be the outcome of not just technical but also governance-related factors.

Better interoperability facilitates access to transaction accounts and payment instruments because it allows service providers to create better and customized products.

In addition to technical assistance and financing of financial infrastructures supporting interoperability, there is a need for a discussion between financial and telecommunication regulators, financial institutions and non-banks.

We also need a conducive regulatory playing field, where sending money from one platform to another is seamless. Here is where the concept of open banking comes to relevance.

We need to see interoperability as a means for people worldwide to make electronic payments in a convenient, affordable, fast and secure way through a transaction account.

What additional policy shifts are needed to promote the use of digital finance?

First, we require a legal framework for a range of providers to serve the under banked and unbanked, using a variety of delivery channels. These may include bank and non-bank providers, mobile money providers and agent networks.

Strong policies create the mechanism for dealing collectively with the risks that digital finance services pose to customers and the financial system.

As business models transform and the complexity of offerings increases, regulators must weigh social inclusion and commercial benefit against protecting citizen privacy, choice, and control.

Evidence based decision making is what the world should be looking at.

Public-Private dialogue should be enabled to support the engagement of the private sector with regulators to discuss key regulatory barriers.

Exposure to global trends is crucial to allow local regulators to understand their choices in the context of emerging best practices.

Access to high quality market information is a key driver of the digital finance ecosystem, however, data alone does not change minds. It must align with stakeholder incentives and be paired with reliable methods of analysis.