Global migration is growing at an unprecedented rate and consequently remittance flows (international money transfers) are increasing as diaspora support families back home.
One area where significant innovation – in remittance – has been seen is in Sub-Saharan Africa (SSA) where a changing dynamic is presenting a significant opportunity for cross-border bill payments. This is framed against the ever-increasing focus and concerns surrounding anti money laundering compliance. Facilitating payments to the unbanked means serving a substantial segment of the world’s population.
What’s needed in the diaspora finance market is improved convenience, greater control and lower costs, particularly in remittances where value in each of those three areas – and especially to Africa – is lacking.
While the cost of sending money back to SSA is starting to reduce with the advent of mobile wallets, the cost of transacting on those wallets is still high for those that can least afford it and reduces the value of the money that is sent back to friends and family in need.
The drivers are clear when you unpick what money transfers are used for. If you take the basic remittance product, our analysis shows that about 40% of the money flow that goes home is used to pay essential bills.
Secondly there’s the issue of trust. When you send money home, quite often you hear people saying that the recipient hasn’t used the money for the reason it was sent. It’s meant to pay your basic bills like electricity, gas, water, mobile, groceries, school fees and healthcare, but the money doesn’t always get to where it is intended.
The third dimension is the level of risk the banks will accept in terms of exposure to money laundering. Recently many banks have withdrawn from this market due to the regulatory burden.
For the unbanked that have yet to adapt to mobile money, there is still the arduous task of travelling distances to stand-in-line to collect cash from a remittance agent and then the indignity of queuing at locations simply to pay essential bills. These are time-consuming and unproductive actions that need to be addressed to develop financial inclusion.
In developing a solution where people just pay for their families’ bills directly, you solve many problems, both for senders and the recipients they are trying to help. For example, simply to pay an electricity bill in the age-old manner, they would have to transfer money home, or operate a local bank account. Their recipient (typically a relative) usually doesn’t have a bank account. So they’ve got to collect the money, go to the local shop, buy their prepaid tokens, and then go home and top-up their electricity meters. That’s a lot of friction for one simple – but vital – bill.
By integrating directly with the electricity provider and end-to-end, I can pay for my Granny’s electricity with just three taps on a mobile app. I put in her mobile number and pay for it from anywhere using my card. The minute it’s been accepted, the transaction runs through. A token is delivered by SMS to Granny somewhere in Africa. She just taps that into her pre-paid meter and her electricity is topped-up. No travel, no transfer cost, no hassle. In fact, Granny doesn’t even need to leave her front room. Extrapolating this beyond utilities to more complex areas such as healthcare bill payments, brings ever greater value and convenience.
Mobile is already mature in African markets and you can bolt value-added services on. The big challenge is, while it’s convenient, it’s still very expensive. So I think it’s a trade-off between domestic convenience as opposed to cost. That’s going to be the next evolution in Africa, how you make it cost effective and ubiquitous to pay bills and deal with payments within Africa itself. That’s a big prize.
New prosperity and rising aspirations in this region is changing the way people want to manage their savings and long-term prosperity, creating demand for financial services like insurance. For institutions that want to reach out to diaspora communities – across borders – this situation is as tantalising as it is problematic. They need ways to facilitate the cross-border payment of mortgages, insurance premiums and university fees. Purposeful bill collection allows them to offer their services to diaspora, currently relying on standard remittance and international bank transfers.
To provide better value and fairer access to financial services for diaspora globally requires innovative technology to solve real issues of hardship on the ground. Replacing cash with vouchers that can be redeemed locally will bring increased value and convenience and make the money flows again visible for authorities.
The market in Africa is huge with total remittances approaching USD 60 billion. The convergence of mobile money and bill services will drive financial inclusion at an affordable cost. Standardisation will provide a richer framework and transparency on the flow and use of funds across borders.
Which is where the banks come in. New fintech entrants must realise that the banking system is here to stay. Everything should operate within a regulated framework. Many new players try to be disruptive to the banking system, but it’s more about how you bring people into the existing system in an inclusive and affordable way. By collaborating with banks, fintechs can do the heavy lifting on financial inclusion for unbanked communities. And by leveraging their innovative technologies banks now include entire diaspora groups that before were both unbankable and unreachable.
About Dakshesh Patel
Dakshesh Patel is CEO and Founder of ZymPay. His successful career in commercial and investment banking includes former CFO of the Global Debt business of NatWest Markets, Executive Lead in the re-structure of a leading UK Bank into core and non-core bank and the successful de-leveraging of non-core activities.
Patel provides strategic advisory and execution to large institutions in the transformation of their transaction banking businesses, plus corporate advisory work in structured and project financing for Sub-Saharan Africa.
He is now leading the development of an innovative – and disruptive – fintech venture, ZymPay. The vision: to deliver a seamless, global, digital payments service working with strategic banking and institutional partners. This will provide diaspora payment services and serve the under-banked sector. Sub Saharan Africa is core to the solution’s delivery.
ZymPay is headquartered in London and facilitates the cross-border payment of bills end-to-end. Through standardisation, ZymPay delivers value for senders and financial inclusion for their recipients. ZymPay’s digital services allow institutional partners to reach diaspora and acts as a channel solution to banks and corporates for cross-border services. ZymPay applies consistent KYC/AML compliance across all markets.
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