The next phase of African remittances: How technology fuels growth
Africa's remittance landscape is undergoing a rapid transformation, driven by the rise of digital technologies and the growing importance of mobile payments. With more than 160 million people in sub-Saharan Africa relying on remittances to support their daily lives, the significance of money transfers cannot be overstated. Yet, despite the essential role they play, remittance flows to and from Africa remain some of the most expensive in the world. As technology continues to evolve, African Money Service Businesses (MSBs) are uniquely positioned to leverage innovation to improve the efficiency, speed, and cost of cross-border transfers.
The shifting remittance landscape in Africa
In recent years, Africa has experienced a notable rise in digital remittances. This shift has been accelerated by the increased penetration of mobile phones and the expansion of mobile money services. As of 2022, there were over 621 million mobile money accounts in sub-Saharan Africa - mobile payments have become a preferred method for remittances due to their accessibility, speed, and relatively low costs compared to traditional banking channels.
High cost of remittances
Despite these advancements, Africa remains the most expensive region in the world to send money. According to the World Bank, the global average cost of sending $200 was 6.5% in 2022, but in sub-Saharan Africa, the cost was significantly higher at 8.72%. These high fees are partly due to limited financial infrastructure, reliance on cash-based remittances, and complex regulatory environments. For many families who depend on remittances for essentials such as education, healthcare, and food, reducing these fees is not just a financial issue—it’s a lifeline.
Regulatory fragmentation
The remittance market in Africa is also fragmented by different regulatory frameworks, which vary from country to country. This inconsistency poses challenges for MSBs that are attempting to scale across the continent. Complying with diverse regulations requires resources and expertise, making it harder for smaller MSBs to compete with larger, global players. However, as governments begin to recognise the critical role remittances play in economic development, there are ongoing efforts to harmonise regulations and create more streamlined processes for cross-border payments.
Currency volatility and FX challenges
Currency volatility presents another challenge in the African remittance landscape. Many African currencies, including the Nigerian naira, Ghanaian cedi, and South African rand, have experienced significant fluctuations in recent years. This volatility can create unpredictable costs for both senders and receivers, making it more difficult to plan financial transfers. Furthermore, MSBs are often forced to pass on the risk of currency fluctuations to their customers, which adds to the overall cost of remittances.
The role of technology in maximising efficiency and reducing costs
Technology is rapidly changing the way remittances are handled across Africa, providing opportunities to reduce costs, increase transparency, and improve efficiency. As digital solutions become more sophisticated, MSBs have a growing range of tools to streamline operations and provide better services to customers.
Mobile money and digital wallets
One of the most significant trends in Africa is the rise of mobile money platforms. These platforms are bridging the gap between the unbanked and financial services, making it easier for individuals to send and receive money across borders. For instance, Kenya’s M-Pesa has become a global success story, with 17 million users in Kenya (more than two-thirds of the country's adult population) and 25% of the gross national product flowing through it. Similarly, in West Africa, mobile money services like MTN Mobile Money and Orange Money have gained significant traction, offering affordable and convenient alternatives to traditional banking.
Blockchain and cryptocurrencies
Blockchain technology also holds potential to transform remittance services by enabling faster and more transparent cross-border payments. Cryptocurrencies, for example, can bypass traditional banking systems and eliminate intermediaries, reducing transaction fees and speeding up settlement times. Several African countries, including Nigeria and Kenya, have seen a rise in cryptocurrency adoption, particularly for remittances. However, the volatile nature of cryptocurrencies and regulatory uncertainty in many countries continue to pose risks.
Artificial Intelligence (AI) and automation
AI and machine learning technologies are being increasingly integrated into payment platforms to improve fraud detection, optimise exchange rates, and automate compliance processes. By using AI-driven analytics, MSBs can better predict currency movements and offer more favourable rates to customers. Automated compliance tools can also help MSBs navigate the complex regulatory landscape by providing real-time insights into cross-border regulations, thereby reducing delays and costs associated with manual compliance checks.
The future: How technology can shape the remittance landscape
As technology continues to advance, we are likely to see further improvements in the efficiency and affordability of remittance services across Africa. Several key trends are poised to shape the future:
Real-time payments
One of the most anticipated developments is the shift towards real-time payments. This will allow MSBs to offer instant transfers, significantly improving the customer experience. Real-time payments will reduce settlement times, allowing recipients to access funds faster and ensuring that MSBs can offer more competitive services.
Increased transparency
The adoption of blockchain and other digital ledger technologies will improve the transparency of remittance flows. These technologies enable all parties involved to track payments in real time, providing greater visibility into transaction fees, exchange rates, and settlement times. Increased transparency is crucial for building trust in the remittance ecosystem, especially in regions where financial systems have traditionally been opaque.
Freemarket’s robust payments infrastructure for African remittances
Freemarket is at the forefront of leveraging technology to streamline remittance flows across Africa. By offering real-time pricing, multi-currency support, and a platform optimised for cross-border transactions, Freemarket helps MSBs reduce costs, increase transaction speed, and offer greater transparency to customers. Through these innovations, Freemarket enables African MSBs to provide more competitive remittance services, supporting economic development across the continent.
Learn how Freemarket is connecting the African continent through seamless money transfers.
