Video: Perspectives on Digital ID – What the future may look like (eKYC and AML)
Continuing our recent discussions exploring some of the challenges and opportunities being faced by the remittance sector in these uncertain times, RemitONE hosted a webinar on the 24th of June 2021 regarding the ever-shifting perspectives on digital ID in the remittance sector, particularly in light of the COVID-19 pandemic. The panel was made up of experts from both RemitONE and our friends and partners in other global companies. In case you missed the webinar, here is a summary of the key insights.
Webinar moderator:
Saiful Alom, Head of R&D at RemitONE
Panellists:
- Richard Spink, Sales Director of Channel and Partnerships, GBG
- Osama Al Rahma, Head of Business Development, Emirates Bank
- Reynell Badoe, Payments Manager, Stanbic Bank
Why is digital ID important?
Osama Al Rahma: Digital ID is of course incredibly important through its use of KYC (know your customer) and the ability to identify the customer. In fact, it’s largely through the use of digital ID that we have been able to protect the financial regime from crime on a wide scale. The shift towards digital already started pre-pandemic and has only increased in recent months. No longer are banks encouraging the use of traditional brick and mortar branches. Instead, they are relying heavily on their digital offerings, which by default means that the ability to identify the genuine user of such services is more effective. We’re also seeing a shift to digital with eKYC (electronic know your customer) on a much larger scale when it comes to remittances. This will allow us access to machine learning with Artificial Intelligence, which is incredibly powerful when integrated with real-time streaming. Using this technology, we’ll be able to conduct more diligent processes within transaction screening and monitor the behaviour of certain users in greater depth. For the sake of financial security on the compliance side, this is incredibly important.
Richard Spink: At the end of the day, digital ID reduces compliance costs so it’s always going to be important from a purely financial perspective. However, there is no widely regarded standard for digital ID so far, at least as far as MTOs are concerned. What MTOs have generally been using as the core tenants of their ID is proof of identity and proof of address, which are attributes that can be used by financial services around the world. Of course, a standard would be ideal, but as there are so many different regulations in different countries, this is unlikely to happen anytime soon. As an aside, it’s worth noting that while Revolut has a lot of customers, they’re not profiting very well and the reason they’re not making enough money is supposedly due to the cost of compliance. Digital ID will help businesses globally and save money on the process of knowing who their customers are and the cost of compliance as a result. And I think the technology to do this already exists.
Saiful Alom: It would be ideal if there was a way to digitally identify a person, ensuring that they have met all KYC and AML needs. However, due to the world we live in, there are a lot of complications to work around.
What is the adoption of digital ID like in your respective markets and has COVID accelerated your options?
Reynell Badoe: From a Ghanaian perspective, if you look at the stats, the number of people with access to the internet is proportional to the number of people with access to so-called big data. Having access to the internet means giving up your information and as a result, you also have access to financial services and remittances. It’s a worthwhile trade-off for most. However, there are 1.2 billion people in Africa, and only a handful have access to the internet. While COVID certainly things and meant there had to be a quick adoption of digital money transfer channels from traditional methods, we still have a lot of catching up to do digitally. With regards to how? The pandemic has meant more people have had to use data platforms and open mobile wallets, creating a digital shift of necessity, so the groundwork has already been laid.
Have there been any challenges in terms of Trust Private Security?
Osama Al Rahma: Trust, privacy and security are the three main pillars when it comes to finance and that will never change. The challenge is that by the time that technology evolves, different unforeseen issues tend to arise. For example, using AI for facial recognition might be incredibly convenient when it comes to opening your phone with a glance but the negative consequence is that it is another means for fraud to occur. When we speak up about this, we need validity.
Saiful Alom: In terms of Trust Privacy Security, this is a concern for all of us as consumers – particularly seeing as online services have been adopted at such a large consumer scale since lockdown began. Trust has increased in these online services and so consumers use them more regularly. However, there are many issues to consider and chief among them is privacy. Because your data is a lot more venerable now and consumers transferring money online may question how secure their transactions really are, and if it can be hacked or breached.
Is digital ID a potential solution or a problem to identity fraud?
Richard Spink: If you’re lending money, then I think that there is certainly high risk. It’s a different process to opening up a bank account or sending money on behalf of someone else. The key thing is to ensure you are actually sending that money to the correct person and thankfully, there are more reliable tools that are able to detect these issues now. It comes down to the organisation’s fraud screening processes. The question is how much information are you able to acquire and what does that fraud screening process look like? The standard answer is that there is no silver bullet – there isn’t one organisation that has everything available to run the process at zero risk. However, in the same way, there is always risk in a face-to-face transaction too. As we all know. “Good friction” is necessary for both scenarios. What has changed in the digital process is that it is now acceptable to present an identity, run that process with a mobile phone and check for duplicates. In the future, things will get even more secure with the use of biometric technology and face recognition, thumbprint recognition and the ability to check a chip on a passport. This last process is something we’ve started working with recently. In all, there is a lot more information that is available when trying to detect fraud these days, however, the same rule still applies: you need to decide what information you want to capture and make a decision on it.
The government has been known to over-regulate and stifle innovation. Do you think that we have the right balance when it comes to trust vs innovation?
Reynell Badoe: I think that the government has a lot of responsibility to provide the basic and necessary requirements and nothing more. On the issue of trust, we’ve seen leakages in the past – breaches of customer information from companies. So, on a consumer level, there is the issue of trust to contend with, as people are sceptical as to whether or not their information is safe. An example of this is free apps – technically they’re not “free” in the sense that you give up some aspects of your digital ID data in exchange for access to that app. I’d say the question is: can the information be used against me in the future? In terms of innovation, there’s a need for better services – we need a safer place to operate without having to worry about any of these concerns and challenges. There needs to be a fine balance between regulation and opening up certain aspects of digital ID.
Where does the government sit within this space in terms of digital ID?
Osama Al Rahma: When it comes to the government, it comes down to the level of leadership of that nation and their perspective on digital transformation. They then need to lay down the military frameworks, the standards and the security aspects in order to develop a secure environment. It’s been said that once you introduce digital financial services then it’s not a case of if you will encounter fraudsters but when. There is a lot of truth to this adage, as I have seen myself when we launched a remittance app and immediately fraud occurring on a massive scale. The reality is that if you are not well-enough equipped in different aspects, you will likely encounter problems. One of those aspects is having clear risk mitigation policies, and the second is to use advanced technology to identify such risks. A third aspect, meanwhile, is knowledge and awareness. Most issues I’ve seen actually involve the consumer allowing the phishing to happen due to his lack of knowledge on how scams can occur. It’s all about protecting your consumers.
What advice would you give to MTOs and banks who are thinking of adopting digital ID within their processes?
Richard Spink: My advice would be to keep things simple and understand the regulation before you talk to a business like us. Everyone will give you different advice on regulation. In my world, I need to understand the regulation of the market the jurisdiction is operating in. For example, if your business is registered in Germany, the German financial regulation is very specific on how want that ID verification process to run. In fact, they want it done via video. But this isn’t the case for the whole of the EU. So, although the EU is one trading block, in theory, in practice there are different processes required depending on where your business is regulated. I’d also recommend considering what you need to do to confirm that someone is who they say they are. In my experience, finding proof of address is the hardest process and yet it’s required by most regulators. My experience in the last ten years shows that the proof of address data is large in quantity however there is still nowhere near enough to satisfy the global coverage.
What are the critical questions you will ask an ID verification provider?
Osama Al Rahma: Before asking the questions, develop your own strategy and consider what you will want in the near future, including your offerings, products and other engagements with the consumers as this will dictate the type of provider you want to consider. On one hand, look at the flexibility of upscaling the technology, as you want someone to partner with as opposed to a short-term solution that will leave you stuck with a legacy system that will hinder your ability to enhance your offerings in the future. On the other, look at the ability of the service provider – have they got a system that is dynamic enough to cope with the constantly shifting regulatory requirements?
What do you think this space will look like in two to five years?
Reynell Badoe: At this point, it’s all speculation, especially with the speed at which technology is advancing. For example, things that one would have expected to happen in a decade could happen as soon as next year. At this point, there’s already a lot of personal information online both knowingly or unknowingly. Now, people are less concerned about giving away their data and are more concerned about where it’s going. For example, if there’s a new online financial institution that people are gravitating towards then I, as a customer, would want to find out a bit more before parting with my information. This has led to the use of federated IDs where I can sign in to a website using my existing Google account because I would naturally be more comfortable leaving my limited information with Google as opposed to this relatively unknown third party. I personally expect to see a lot more use of federated IDs in the future.
How do you see the rate of digital adoption in sending and receiving markets, in terms of duration, post-pandemic and pre-pandemic?
Osama Al Rahma: During the pandemic, I think the main shift was that consumers released how digital engagement was beneficial to them. Why do you think China was able to so effectively control COVID-19? It’s because of their AI and biometrics. They were able to use this to track and trace the people who had been in touch with an infected person and find out which areas they were prominent in. The only positive, economic growth in 2020, in comparison to other developed countries, was China and one of the primary reasons was this biometric ability. This is already being applied elsewhere today – going through an airport completely contactless, for example. With regards to the future, the adoption of these new methods should be reviewed seriously by all financial companies. It might be a slow burn but always look at how they will impact your business model and how you will be able to use them to your advantage in the future.
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Mobile Money in Africa
Africa is something of an anomaly in the developing world. It’s a continent that many people forget is not a single country but 55 individual countries with dozens of currencies. It’s also a continent where around 66% of the adult population remain unbanked. However, while more than half of the continent has no access to a bank account, the mobile economy is booming. Indeed, Sub-Saharan Africa is the world’s fastest-growing mobile phone market. For the remittance sector, this poses a pretty enticing opportunity.
While the typical customer living out in rural Kenya might live several days away from the nearest bank, they are likely to have direct access to a mobile phone that can be used to send and receive digital payments. This is why the mobile money systems in the region have spread so fast. But how will MTOs cope with increasing digitisation and compliance issues as more customers go online and start using mobile apps to send their money?
To dive deeper into the current mobile money climate in Africa, RemitONE Associate Sales Director Oussama Kseibati recently hosted a webinar attended by esteemed panelists with expert knowledge of the regional remittance landscape. Muhammad M. Jagana, CEO of Kuringo, Sidharth Gautam, Head of Sales at AZA Finance, Leon Issacs, Managing Director of DMA Global, and Linus Adaba, Head of Group Remittance Distribution at Ecobank lent us their thoughts and feelings on compliance and mobile money in Africa in the wake of the COVID-19 pandemic.
Muhammad M. Jagana
In larger cities and towns, there really is no issue when it comes to mobile adoption. Where we’ll face significant challenges is in the last mile of the inclusion journey; the towns or villages that are maybe 200 miles away from a major city.
How do you onboard these clients so they can use mobile money in their local shops and businesses and how will a small local shopkeeper take that payment and convert it into cash to pay their supplier? It’s one of those situations where unless everybody goes digital at the same time, there’s always going to be those at the bottom of the ladder missing out.
For these people, some of whom might not even be aware of the benefits of mobile money, it’s going to be a case of not only education but ensuring that regulators can make it easier for them. For example, in the Gambia, we have two mobile money operators and those two operators are incompatible with one another because they are direct competitors.
Rather than trying to shoehorn everyone onto the same network, we need to ensure there are regulations in place that allow for integration between different networks. It’s up to the regulators to figure out the logistics, of course, but the banks and agents need to play their part too. Something akin to the PSD2 regulations would make the most sense but realistically that’s a rather large hill to climb.
Sidharth Gautam
I completely believe that digitisation and mobile adoption is the key going forward in Africa. At the moment, cash is still king but there is a sea change on the horizon. There are hordes of challenges standing in the way of this change, of course. There are liquidity issues even on the cash pickup front, particularly in Western Africa, as well as the KYC process to sort out, user interface and customer satisfaction. It all comes into play.
There are a lot of plates that need to keep spinning, so to speak. And the regulator has to be on top of it all; the engine leading the train. It’s not an easy task to bring the offline to online puzzle together but it’s not insurmountable either.
Linus Adaba
Personally, I’ve always enjoyed working things into silos and that’s partly how I see mobile money adoption in remittance filtering through into the African market. I see one silo of mobile money that is state-led and the other that’s more private or enterprise led and we are seeing so much more innovation on the private enterprise side because of the lack of regulation.
In order for the state-led operators to catch up, they need to start investing in better compliance tools and putting good compliance managers in place. This way they can ensure people who are using mobile money are at the level of KYC that regulators expect.
When we’re talking about the last mile of the inclusion journey, as Muhammad mentioned, telecommunications companies are selling SIM cards even in the most remote villages, so the infrastructure is definitely there. The problem is that they need to subject themselves to the central bank in each country and there is a lot of technology that’s allowing nimble KYC to be done.
For remittance businesses, meanwhile, there needs to be something of a threshold. Because if it’s just remittance across borders, the full KYC protocol is simply not necessary. In this case, there could perhaps be some sort of a ‘KYC light’ solution. I also see a strong headwind in countries where you have a national ID system in place and we’re currently looking at ways to link this ID with SIM cards to help with faster and better KYC.
Oussama Kseibati
To lead on from Linus mentioning SIM cards and national ID. I think it would be hugely beneficial for the African mobile money market if there was a database such as PSD2 in Europe. With this database in place, once you’ve reached a certain compliance standard with your systems and technologies and you’re ticking the right boxes, doors can open for you automatically.
If there was a centralised database working across countries all linked to SIM cards, you’d be able to use that to do KYC. But what would need to happen first is for a standard to be implemented that will make it easier and more open for people to trade with each other. And that probably isn’t going to happen anytime soon.
For now, instant payments with instant delivery is the way forward for the region I feel. M-Pesa is a positive sign of things to come. It was a major success for Africa throughout the pandemic and the adoption of mobile wallets is continuing to rise in general. Indeed, digitally ready players have seen business growth through the roof as people are migrating towards mobile payments to remain safe from the virus. However, there has to be action in terms of regulation and regulatory frameworks.
Reaching the Great Unbanked
Everything is moving towards the digital market and many unbanked customers are using mobile platforms. That large influx and the onboarding that needs to be done is going to require a lot of compliance and a lot of work but it’s almost certainly going to result in faster, better and more affordable remittance for Africa. Given the fact that remittance rates are so high in the continent right now thanks to a heavy reliance on cash payouts and physical infrastructure, that can only be a good thing.
To read more on what our panellists had to say regarding the more specific challenges facing mobile adoption in the region, click here for our companion piece or check out the full webinar here. If you are a money service business interested in expanding into the region, meanwhile, RemitONE is an award-winning provider of MSB technology.
If you need support with all your operational needs please contact us by emailing marketing@remitone.com to see how we can support you.
Video: Remittances in Africa – Market trends, regulation, challenges and opportunities
2020 was far from a banner year for many industries. But it is a year in which the remittance sector revealed itself to be defiantly resilient. The world bank projected a 20% fall in global remittance at the very start of the pandemic but by October they’d revised that figure to just a 7% drop, to be followed by another 7% drop this year (2021). This initially predicted fall was, by all accounts, supposed to have a particularly significant impact in Africa where migrant workers send around £11 billion per year.
RemitONE Associate Sales Director Oussama Kseibati feels that these are figures we always needed to take with a pinch of salt, not only because Africa is a region that is often underestimated on an economical level but because many countries there still lack the capability to capture data accurately. He adds: “Africa is also still a region where physical transfers are more common and it is harder to track physical transfers. That’s why these figures should be seen less as empirically accurate projections and more as rogue guidelines to give us a feel for how the market might be moving.”
To delve deeper into the current climate in Africa, Oussama recently hosted a webinar attended by four esteemed panellists with expert knowledge of the regional remittance landscape. Muhammad M. Jagana, CEO of Kuringo, Sidharth Gautam, Head of Sales at AZA Finance, Leon Issacs, CEO of DMA Global and Linus Adaba, Head of Group Remittance Distribution at Ecobank lent us their thoughts and feelings on the trends, regulations, challenges and opportunities facing Africa in the wake of the COVID-19 pandemic.
To see the Q&A answers from our panellists click here.
Was 2020 as bad as expected?
If we’ve learned anything in the last 12 months, it’s that there’s always a risk in sticking your neck out for figures and projections. Nobody wants to die on that hill. In Africa, however, remittance continued to grow and thrive regardless of the pandemic and the World Bank’s scaremongering. Indeed, remittance was actually up by as much as 75% in the Gambia and 50% in Zimbabwe and even in developed countries such as Kenya, Morocco and Egypt, there were gains of around 12%.
Leon explains: “We’ve been hearing hundreds of positive stories of volumes from remittances across the region and we can only assume that’s because the migrants sending money home have a greater need to do so right now when we’re in the midst of a global crisis.”
Another key factor is the impact of the crisis on the informal market. Travel is particularly difficult right now and that means that many of the informal operators that were relying on physically moving cash just closed down after the pandemic forced travel to a standstill. The physical barriers put up between South Africa and Zimbabwe, for example, mean people were forced into using formal, regulated channels.
Leon adds: “Of course, there is also the major impact of digital to take into account, which makes it easier for people to transfer money and Africa has been dipping its toes into that particularly reservoir for a while now.”
How did Intra Africa remittances grow in 2020?
Linus feels that the remittance industry is a resilient one that tends to thrive in moments of crisis, so he’s not surprised it defied the World Bank projection. He explains: “Africans don’t forget home and they are very family-focused. That’s why I feel the African market grew so substantially in 2020. COVID provided a situation where, more than ever, people were willing to send money home.”
Where a partner has had a relationship with any other partner within the continent that allows transactions to happen between bank accounts or mobile wallets, that’s helped business for MTOs. More importantly, the government’s of most African countries saw remittances as COVID palliative. So they were quite willing to help facilitate these Intra African payments and even, in some cases, dedicated certain hours where people could queue and collect physical remittances while keeping safe and socially distanced.
Linus adds: “Some other countries like Kenya, for example, also increased the potential amount of each transaction per person. This not only meant less physical contact but it also meant that people were able to move more money more quickly between countries.” When you also factor in the various economic rules in place in various regions within Africa that allow for freedom of movement, it’s easy to see why Intra African remittances have been allowed to flourish.
As far as what needs to be done to boost the market, Leon adds: “To put it into context, the World Bank once estimated that for every $3 circulating within Africa, $2 originated within the continent. Most people look at Africa as one country rather than 55 and as somewhere that’s dependant on remittances from the rest of the world, but that’s not really the case.” He does believe, however, that there needs to be a regulatory shift in many countries to allow for easier transfer of money and this means allowing for different types of entities to operate alongside more traditional or formal channels.
How is technology going to help?
Currently, the cost of sending remittance to Africa is the highest rate in the world at around 9%. That’s around 5 times more costly than almost anywhere else and according to Oussama, the reason for this is simply because of the heavier reliance on cash payouts. Sidharth agrees, explaining: “For cash, you need so much more logistical support in terms of manpower, not to mention the actual physical locations. So technology is hopefully, in the long term, going to mean these costs reduce quite substantially, perhaps more in line with Southeast Asia where the rate is only around 2%.”
Leon believes that Africa is a hotbed for technology right now but that governments need to get involved on a deeper level to facilitate a safe space for transfers to happen between channels. This is something Mohammed also touches on, explaining that one of the problems is: “How many different currencies there are in Africa, which leads to issues with exchange rates.” He feels that a “single African currency” would be the most logical move. He adds: “We have 35 currencies in Africa and that’s always going to complicate remittances. The end user should not have to worry about exchange rates.”
This leads us quite neatly into the question of cryptocurrency. Sidharth has seen it being adopted in a big way through AZA’s separate crypto product, exploding from around $6,000 to $56,000 in just the last 2 quarters. He adds: “As regulations loosen up and mobile tech continues to build it will be more widely accepted as a means of payment, certainly within the next five years.”
Mohammed, meanwhile, feels adoption might be a little slower, mentioning that Nigeria recently stopped all crypto payments for B2B transactions. Leon, however, feels that it could become a big part of the solution in years to come but right now “people in Africa don’t have a good understanding of cryptocurrency yet.” That’s not to say they won’t in the future though and Oussama is hopeful that with time, that understanding will come. He believes that “a lot of end users right now are not using cryptocurrency as remittance but as more of an asset that will increase in value.” Education will undoubtedly play a major role in that regard.
How have the central bank measures promoting remittance impacted operations in Africa?
The regulation that the Central Bank of Nigeria (CBN) issued in December last year was designed to boost US dollar supply into the economy and simplify remittances by ensuring the beneficiary always collects the money in dollars. Linus explains: “70% to 80% of remittances to Nigeria in the last two years have been to bank accounts because of the instant delivery the banks offer.” So, the central bank changing the currency from Nigerian Naira to Dollar makes a lot of sense but Linus stresses it’s not necessarily a Nigerian “dollarisation.” What the central bank is doing, he argues, is simply allowing the individual to negotiate rates themselves and trying to unify the exchange rate because they “can see how remittances can be used to help aid development.”
Sidharth agrees though he says that AZA is always going to be a firm that promotes local currencies. He feels the regulation is going to provide a major challenge for the Naira even though he thinks it will be good for remittance and things will improve in the long term. Leon, meanwhile, explains that DMA is currently “working with the British government to try and understand the impact on the UK to Nigeria remittance corridor and how it has impacted both the senders and receivers.”
Right now he says it’s been a bit of a mixed bag, with some saying the measures have led to an increase in remittance and others saying it’s led to a decline and some of that’s due to the fact there was no notice given to some of the operators.
Oussama adds that it’s all part of a broad approach by CBN to try and manage the different exchange rates and the parallel market that exists in Nigeria where the exchange rate could be as much as 20% different to the official rate because the Naira isn’t floating. Over time there will almost certainly be tweaks made to the policy that will fit into the much broader range of initiatives but in the short term, the CBN are at least now very much in a dialogue with the operators. If this continues then hopefully it won’t go the way of Zimbabwe a few years ago, where they had to essentially dollarise the whole economy because of rampant inflation and overvalued local currency.
Resilience of Remittance
Generally speaking, the future looks bright for the African remittance sector as long as local governments and banks are willing to invest in regulatory change and incentivise a shift towards digital payments. There are definitely a few significant challenges to overcome in terms of financial inclusion and KYC but advancement in technology is a perfect solution and Africa is by no means on the back foot as far as technology is concerned.
To read more on what our panellists have to say regarding the more specific challenges facing mobile adoption in the region, click here for our companion piece or check out the full webinar here. If you are a money service business interested in expanding into the region, meanwhile, RemitONE is an award-winning provider of MSB technology.
If you need support with all your operational needs please contact us by emailing marketing@remitone.com to see how we can support you.
Panel Q&A
Q1. Can you provide an overview of the licensing regime in Africa? What licences do PSPs and Telcoms need to be able to conduct intra-Africa and international payments?
Muhammad: I believe this is one area that African governments can use to unleash huge opportunities to elevate disruptions in this domain which can help propel ‘The last Mile of the Financial Inclusion Journey’. The challenge in most African countries is that most GSM/Telcos are so flushed with cash (capital) compared to new FinTech companies that sometimes the offerings from these big operators are difficult to match.
Also, because of legacy infrastructures (Anglophone, Francophone, different currencies, FX regulations) it makes it impossible to effectively promote intra-African remittances, and scale to the potentials that are there. For example, Kuringo was in discussions with a potential partner in Ghana to explore the GM/GH corridor. We faced several bottlenecks, such as both our currencies (Dalasi/Cedi) are not convertible and we opted to use USD. Then our partners required waivers from the Central Bank of Ghana because in order to settle us in the US they have to fulfil FX control restrictions. In the end we abandoned the project because of complicated regulatory issues.
Q2. How do the panellists evaluate intra-Africa transactions vis-a-vis AcFTA which was launched in January 2021?
Linus: It is a good initiative that is more than overdue. It will facilitate big ticket payments of goods and services. Major countries in Africa have executed the treaty which shows political will to make it a success.
Muhammad: Huge potential if only there could be a single digital currency that could be used to settle intra-Africa trade, hence mitigating exchange losses. With over 35 currencies used across Africa, SME who are the backbones of most economies would be able to fully benefit from AcFTA.
Q3. With regards to AML/CFT and remittances, is Africa a significant corridor and has the pandemic accelerated this; what new typologies have emerged in this past year?
Linus: Regarding AML/CFT Africa is certainly a significant corridor. AML/CFT has always been a concern for regulators which each remittance scheme is expected to put in place before the advent of Covid-19.
Q4. Have you seen an increase in remittance/FinTech partnerships since 2020 and is Ecobank looking at new ways to partner international players to increase value added services into Africa?
Linus: Yes certainly.
Q5. Do you believe central banks are likely to open up in the ways others have regarding Cryptocurrency? E.g. CBDCs?
Leon: Over time they will, but it’s unlikely to be in the near future.
Sidharth: Medium to long term, Crypto will gain momentum in Africa due to the high cost of sending remittances and over-relying on cash in the continent. But this has its own challenges like central banks, regulations and onramp/offramp from local currencies.
Q6. Inoperability is a big issue with Telcos in Africa, to boost remittances even within the same country. Is it a regulatory, technology or lack of will issue?
Linus: Interoperability required a clearing house to succeed. Some aggregators can offer this service, but there is need for a clearing framework within the region or country by the regulator to make this effective. Telcos are beginning to find ways on how to cooperate in this respect, but candidly the services on an impartial arbiter are required.
Leon: Completely agree. Most Telcos don’t want to cooperate, similiar to how MTOs were 15 years ago. Regulators need to get involved to make it happen.
Sidharth: Except Nigeria, where there is some sort of interoperability/common rails due to Interswitch, this is still a distant task and much is needed to make this happen. CBs/regulators have to play a pivotal role in making this happen both for bringing down the cost and making remittances happen real-time across the continent.
Q7. What are your views on Telcos doing some banking functions, given that Telcos have huge subscribers etc? Are banks not concerned about this for the future, as they appear to be doing banking work and revenues may dwindle for banks?
Linus: Telcos are assisting to expand financial includion and deploring affordable technologies or infrastructures where the banks cannot venture becayse of a typical bank operating model. I see collaboration between Telcos and banks rather than competition. Each part has assets to offer in the financial inclusion narrative.
Leon: Exactly right. Telcos will be the distribution channel and banks the service provider – these will be white-label product providers.
Q8. Do you think the new regulations in Nigeria are against African money transfer companies who are sendig from Africa to Nigeria?
Linus: No
Leon: It is not against African MTOs, indeed, it should be helpful to them.
Q9. Regarding one of Leon’s explanations of regulatory frameworks being challenging for intra-African remittances, how does this work with Crypto where there is no regulatory framework in place?
Leon: Great question. Unfortunately, because there is no framework there is no approval to operate these services. The only way around this is to obtain a letter of consent or to use sandboxes. It will take time but is not high priority at the moment for most central banks.
Q10. Do you think that Cryptocurrencies can be a solution to solve settlement problems for intra-Africa cross-border remittances?
Leon: They can help will illiquid currencies or imperfect settlement processes. But they are not an answer for consumers right now unless there are ways for people to exchange Crypto for local currency.
Q11. Will the change to USD in Nigeria have much impact especially slowing the black market traders? And what is the impact of this Naira to USD change?
Linus: There will be impact. More awareness on the current changes in remittance payout in Nigeria may change this. The beneficiary of the remittance is involved in the Naira value for the Dollar received which is determined by market forces rather than policy fiat.
Q12. Why do African Money Transfer players not want to play outside of Africa and directly service the African diaspora?
Linus: RapidTransfer, for example, is in Europe serving African diaspora. The success of this new addition to the 33 countries where Ecobank is operating in Africa could spur future expansion to other countries where we have diaspora presence.
Q13. Nigeria was implementing two exchange rates concurrently. What are the benefits and challenges of this policy? How can Ethiopia learn from stringent rules and regulations like this?
Linus: Yes, before the switch to USD payout by policy of November 30th 2020, the second official exchange rate is a premium above the first for Naira payout for inbound remittances into Nigeria. It was to reward the Nigeria diaspora to channel their hard-earned money back into the country and to use approved schemes and instruments. Central banks do share experiences, I would advise that tour central bank gets in touch with the Nigerian central bank to compare notes.
Q14. When and where can we obtain Leon’s consumer research?
Leon: Not sure of the exact timing, but we expect this to be around the end of April or early May. We’ll be happy to circulate it.
Q15. Do you think that remittance in our region is at the point that you expected it would be 5 years ago?
Leon: I think it is progressing faster than I would have expected.
Muhammad: The evolution of affordable smart phones and mobiles in general, we have seen a huge growth in the remittances both in the formal an informal market. Today most informal operators (within countries) are using WhatsApp, text message and mobile phone calls to move money within border and across/intra-Africa.
Q16. Regarding the bound on Crypto in Nigeria and the fat that people have to collect USD in place of Naira, what is the advice for a startup?
Linus: Play to the rules and seek partners and banks that share your business vision.
Q17. What are your views on the introduction of individual CBDCs and its effect on intra-Africa remittances and global remittances; what harmonisation is needed to move past the current status quo in terms of exchange rates?
Leon: A good but complex question. They can only be effective if there is much more digitisation in everyday payments in Africa. Ideally an intraregional currency would bring more stability.
Q18. What can be done to help the end users use their money in digital ways, but also have access to cash with more ATM machines?
Muhammad: The Last Mile Solutions for Africa might not be ATMs, but rather small corner/community shops that are dotted all over villages, towns, cities across Africa. How can we onboard them to accept digital payments and give them access to smart POS that would work on mobiles that can be used as withdrawal points (ATM, Payment Centres).
Leon: There needs to be much more digitisation in general life in African countries. This has to happen way before we worry about international payments. Remittances are relevant for payouts but only ride on domestic rails for this.
If you need support with any operational needs, or have further questions, please contact us by emailing marketing@remitone.com to see how we can support you.
The Future of Remittance – The trends and strategies that will shape 2021
The World Bank predicted that global remittances would decline by 20% as a direct result of the COVID-19 pandemic in 2020. It remains to be seen if there is any truth to that shocking figure but one thing is for sure – the sector suffered in 2020 and continues to do so in 2021. The question is, are we already on the road to recovery? And if not, how do we get there?
We spoke to three of our clients and partners from three different regions to gather their thoughts and gain some global insight on what lies ahead for the money transfer industry in 2021 – Hugo Cuevas-Mohr, President & CEO of Mohr World Consulting, Walter D’Cruz, CEO of Moneo Solutions and Nadeem Qureshi, CTO at USI Money. Our very own associate sales director Oussama Kseibati quizzed these thought leaders on the key strategies, the technological innovations that might start to emerge and how traditional agent-based MTOs should be reacting to them.
A year of recovery
Oussama began the discussion by reminiscing on how 2020 was a year that necessitated a wider move to digital finance for the entire financial sector: “For remittance, this meant an increase in the use of digital solutions for cross-border payments.” This included a shift to a surprising number of traditionally cash-based agents using digital means to serve clients, with around 60% of domestic and international cash transfers taking place online.
So the stage has already been set. But according to Hugo, if 2020 was a year of forced change then 2021 is going to be a year of resilience and leaning into the challenges posed by anomalies such as COVID-19 and Brexit. From where he stands, the remittance sector has already proved itself to be a resilient force. Indeed for Hugo and Mohr specifically it has been a very challenging time. Their target market is Filipinos sending money home and many Filipinos working in the UK have seen their incomes reduce or disappear completely in the last 12 months as they tend to work in medical and home care sectors.
He explains: “The era of COVID-19 is an uncertain one and that uncertainty is one of the main issues for the global remittance industry, especially when trying to predict recovery. However, despite the issues, the money transfer industry has seen a lot of recovery and migrant communities are continuing to send money to their families, regardless of changes in their own employment situation.”
Nadeem agrees and asserts that: “Despite the decline last year, the money transfer industry is a resilient one and is a sector which will certainly improve a lot faster than many others.” They also both agree that while they feel recovery is indeed already on the cards, we’ll need to wait until we see the data before we draw any solid conclusions.
Strategies for success
Of course, while the sector might be incredibly resilient, it is also far from bulletproof. This means there are going to need to be some solid strategies to help traditional agents-based actors adapt to the digital push of 2020. The primary trend from which all other trends seem to emerge is a mass migration into the digital realm. This will be particularly relevant for small-medium MTOs, as they will have the flexibility to push further into digital solutions as the industry continues its recovery.
For Nadeem, however, he feels it’s the medium-large institutions that will be leading the way. He explains: “Many of these larger MSBs will be down-streaming activities, hoping for increased access to expanding pay-out networks and other digital solutions, such as e-wallets. As the industry recovers and the needs of larger business begin to grow again, the MSBs will also be looking for new ways to grow too, and this will heavily centre on the digital push.”
Oussama then turns the focus onto blockchain and cryptocurrency, stating: “As a direct result of the pandemic some currencies are going to be more volatile and people could seek safe havens in cryptocurrency, which is something many banks are already doing.”
Walter agrees on this increase in blockchain adoption, which is being fuelled by the mainstream capital markets. He adds: “The popularity and interest surrounding blockchain has been growing for several years now but in 2020 we had begun to see it really explode. As well as the obvious focus on cryptocurrency such as bitcoin, blockchain is also being used by enterprise governments and financial institutions to assist with seamlessly managing the exchange of value.”
Hugo, meanwhile, believes that there will be increased pressure on MTOs for transparency when it comes to fees and FX rates and that blockchain will definitely help with this. And with major names such as JP Morgan already throwing their hats into the ring, blockchain could very well end up being the major player that catalyses recovery as we move deeper into 2021. He also feels that we’ll be seeing more companies working internally to lower costs and more partnerships and integrations by year’s end.
Derisking and the challenger bank solution
According to Hugo, 2020 was the year of the digital tsunami and 2021 is going to be the year of the blockchain and cryptocurrency tsunami and he feels this is going to have a major impact on derisking, which is worse in some countries than in others but is still a global problem. He does also believe, however, that challenger banks might be the solution as long as they are properly integrated with fintech.
He says: “The position of banks as integrators of other services might be making it easier for other banks. This industry has to rely on these partnerships between the new banks and the fintechs and allow them to create solutions together. COVID has certainly pushed that forward, which I guess you could say is something of a silver lining.”
Above all, however, he believes that it’s creativity that is pushing the industry forward and he is inspired by all of the new players doing the groundwork in that regard. Indeed, he feels that’s where the potential for blockchain comes in.
Oussama asks whether there are “solutions out there with companies acting as an aggregator to open up space as a quicker route to market for smaller MTOs and whether or not the big banks will change their attitude towards MTOs accordingly.” He adds: “With HSBC being fined £1.2 billion as a result of derisking recently, it’s unlikely the larger banks are going to shift their viewpoint but challenger banks are coming through to fill that space.”
According to Walter: “The reason they won’t support MTOs is that you’re not only essentially taking their business away by cutting into a piece of their pie but in their eyes, the risk involved is greater than the value that MTO might bring to the table and that’s all down to the fact there’s a lack of transparency between the bank’s compliance and the MTO.”
For Nadeem, meanwhile, he can see major bank attitudes towards derisking getting worse as the cost and the risk in terms of the fines is just too great compared to the benefits. However, he believes the challenger banks might offer a solution here. He explains: “The challenger banks entering the market are not necessarily going to solve the problem but the smaller MTOs looking for partners are going to have a much better chance at finding partnerships with these challengers than their larger counterparts.”
Then, of course, there is the impact of Brexit to unpack and digest. Generally speaking, our talking heads concluded that there is no need for MTOs to panic as long as they can learn to adapt. There are certainly going to be losses for any MTO based in the UK or Europe that deals with those markets, but London will remain a major financial centre and the centre must hold. For more on their thoughts, you can read our full piece on what Brexit means for the remittance sector – https://www.remitone.com/brexit-is-a-done-deal-but-what-does-that-mean-for-the-remittance-sector/
Will 2021 be the year of innovation or survival?
Walter feels 2021 is going to be more about simply “getting through it” than anything else, but that doesn’t mean he’s without hope. He explains: “I don’t necessarily think this year will initially be about the deployment of new technology. A lot of businesses are still recovering from the fallout of the pandemic so they don’t necessarily have the resources available to do a complete revamp.”
The improvements, he feels will be in an “explosion of partnerships,” because fintechs don’t have the resources to do everything alone, whether that’s compliance, risk or customer service. So they will need the help of both larger partners and the ‘little guys’, such as MTOs. He continues: “More connections and lower costs are going to be the case, broadly speaking for 2021 and it’s concepts like the RemitONE ecosystem that are going to help add value across the whole chain.”
Hugo agrees that 2021 is going to be a year of partnerships and collaboration and a shift in mentality across the board. He argues that MSBs should “forget about doing everything themselves. Everything will be almost modular because, particularly for the smaller companies, somebody else will be able to do one specific thing better and cheaper than you can.” Right now it would appear that we’re living in a world of APIs and developments that are great for small companies which can lower their costs and gain access to these solutions, whether that’s blockchain or something we haven’t even seen yet.
Nadeem, meanwhile, speaks of an e-digital compliance evolution: “When you have a sector with a large amount of competition it’s always going to be about who can provide the best user journey. Digital footprints are starting to grow and Fintechs are challenging regulators and pushing them to improve things, whether that’s through something as advanced as iris scanning technology or as simple as syncing their platform with social media to onboard customers more efficiently.”
As Oussama sums up: “It’s going to be a year of smaller MTOs challenging the way things are being executed from a more modular approach through blockchain or other methods and we will continue to see this evolution going into 2022 and beyond.”
A beacon of hope
Throughout the talk, our experts also touched on several other more specific topics regarding the regulatory uncertainties in the Nigerian market to the general emerging markets in the African continent and the cost of acquiring new customers. To see the whole discussion for yourself, you can do so right here.
But the session ended on a resolutely positive note. Our experts spoke of advice for start-up money remittance businesses with no prior experience of the business and suggested that it was still a sector ripe with potential as long as these aspirant start-ups were willing to learn, read, research and understand the market.
They also reiterated what appeared to be the crux of the discussion – that all the different strands of the financial sector need to start working together and forging deeper connections if they hope to succeed and thrive in 2021. That will lead to greater transparency, lower costs and more innovation and RemitONE’s deep ecosystem and malleable compliance network is the perfect middleman to help build and maintain those connections.
For more information or to speak to one of our experts please email marketing@remitone.com
Brexit is a done deal, but what does that mean for the remittance sector?
To say 2020 was a challenging year would be something of an understatement. If the pandemic wasn’t enough, we were then thrown headfirst into a Brexit deal that potentially threatens all UK businesses which trade with the continent. We’re on the other side of a very long, complicated and messy divorce but there are still so many things to unpack and digest, particularly as far as the financial sector is concerned.
Back in 2016, when the referendum result was first announced it was a shell shock to the money transfer and wider financial services industries. But that was almost five years ago now and while London certainly doesn’t look set to be dethroned as a world business capital any time soon, there has certainly been a minor exodus as the UK becomes more of an isolated island.
The immediate ramifications of Brexit
Before the ink could dry on the referendum result, money service businesses across the country began to prepare their backup plans. Of course, those that only served customers in the UK would remain unaffected, as would those operating as SPIs. But those operating under the category of APIs that had a large customer base or agent network in the continent had to apply for new MSB licenses from scratch.
Back in 2017, we posited that it would be the change in banking passporting that would have the most significant impact on money transfer and the wider financial services market. Passporting rights in the years before Brexit helped UK businesses to expand into EU states quickly and at minimal cost and post-Brexit, those privileges would be all but expunged.
Making sense of the Brexit fallout
The immediate fallout of the 31st of December was, as was predicted, that MTOs lost passporting rights. This had a major knock-on effect, with all the MTOs that had accounts within Europe and were safeguarding their funds. A month or so later, we’re now seeing those accounts either being closed or laboured with exorbitantly hiked-up SEPA payment fees.
The UK is also going to find itself fighting for itself as far as regulations are concerned. The European payment regulator that oversees the SEPA payment network will have no interest in fighting for a country that essentially tossed it to one side, after all.
The vast majority of UK-based MTOs will undoubtedly have lost European clients over the last 12 months and most European MTOs will have lost many UK-based clients too. Indeed, all MTOs that rely primarily on inter-European banking will probably lose many more in the ensuing months.
The impact has been compounded by the COVID-19 pandemic and subsequent global lockdowns. One thing this has done, however, is catalyse a deeper digital penetration in the money transfer sector, with estimates that the digital hold on the sector grew from 20% to 30% from 2019 to 2020. That means remittance software and fintechs are going to play a larger role going forward. But that’s not necessarily a bad thing and it might not be the only silver lining.
Is there a plus side for remittance?
While it might have moved on from the EU from a regulatory perspective, the UK is still an important part of the payments network and London will remain well-positioned for money transfers. Indeed, for MTOs with a higher volume of foreign exchange transfers, London is still arguably the best place to do the business thanks to its abundance of high net-worth individuals and the number of major international businesses that call it their home.
We’ve also seen many companies abandon the UK for greener pastures and some European countries (such as Spain and The Netherlands) have greeted these companies with open arms. Other companies, particularly smaller ones, have turned to mergers or partnerships with larger competitors to be able to access their European clients.
Thankfully, as the UK was wise enough to adopt the PSD2 open banking regulations back in 2018, the businesses that could afford to expand into other EU states could do so without being tangled up in miles of expensive bureaucratic red tape. But it’s still an expense that many smaller MTOs could have done without.
Then there are those who have proselytised the idea of pivoting away from Europe entirely. Michael Kent, the Cofounder of Azimo, for example, believes we should be looking towards Africa, where remittance is proving to be a crucial lifeline in the absence of governmental pandemic support.
According to RemitONE CEO Anwar H Saleem, however, there is no need for MTOs to panic as long as they can learn to adapt and lean into the changes. He explains: “London has always been a major financial hub for Europe and this is not going to change any time soon now that we’re no longer a member of the EU. It will, however, push those businesses that remain in London to innovate and lead the way. RemitONE are already committed to charting this new course with confidence.”
Can UK money transfer businesses survive Brexit?
While it didn’t end up being the highly prophesied ‘no-deal Brexit’ for most, for the financial services and remittance sector, it might as well have been. With no agreement on the regulatory equivalence between the EU and the UK, there is still a lot of work to be done.
For those operating in both the UK and the EU, there are certainly some tough choices to be made. But ultimately, it’s going to be up to the UK and the MTOs that have chosen to stay behind to ensure it remains relevant and doesn’t lose its standing on the global remittance stage. Whatever the next few years have in store for us, the best thing any MTO can do is arm themselves with the facts and prepare for every and any eventuality.
If you’re uncertain about the future and are looking for support regarding licensing issues post-Brexit, RemitONE is ready to take your call. Using our industry-leading bespoke and secure money transfer software, we can help any established firm or new entity looking to establish in the UK or Europe to navigate the increasingly complicated logistical and regulatory waters spun up by Brexit.
For more information or to speak to one of our experts please email marketing@remitone.com
Remittances: Getting digital-ready for post-pandemic recovery
The world bank has predicted that remittances are set to decline by 20% as a direct result of the pandemic, marking the sharpest decline in recent history. This is understandable on a surface level, of course, as remittance payments are most commonly sent between families and friends, and in the current climate, for migrant workers particularly, the pandemic has caused a dramatic fall in wages and employment.
However, the remittance sector is nothing if not resilient and for some, the pandemic has proven to be something of a catalyst for a sea of change that’s been simmering just under the surface for years now. Could COVID-19 be the final push the sector needs to jump off the digital cliff edge once and for all? With ‘Neobanks’ like Monzo, Starling and Revolut paving the way, the waters are not quite as untested as you might think.
Of course, our industry has various supply chain members, all of which will have a different opinion and angle on the story. As a leading technology vendor, we reached out to an aggregator (Sidharth Gautam from AZA Finance), a payment processor (David Lambert from Transact 365), an ID verification provider (Richard Spink from GBG) and a Money Transfer Operator, (Nadeem Quershi from USI Money), to ask them how they were preparing for a digital post-pandemic recovery and where they see the biggest innovations happening moving forward.
How do you see the future of the payments industry evolving?
Nadeem
The COVID crisis has had a profound impact on the escalation of digitisation in the payment industry. Our previous primary method of processing payments was rather manual, but in the wake of social distancing, we’ve been forced into ensuring our processes are more digitised. I think that’s going to have a major short and long term impact with digitisation continuing to escalate at a rapid pace.
Richard
It’s always going to be down to what the individual MTO wants to achieve when they run a compliance process. There’s a difference between just running a process and being compliant and our experience is that some businesses will want to take that seriously and others will want to just pay lip service to it. There are two reasons for that – one is that there’s a cost to being compliant and the other is that there’s a proliferation of vendors out there now. When I started in the UK 10 years ago there were perhaps 10 vendors. Now there are around 50 money transfer operators in the UK alone and hundreds globally.
How do you see the digital channel fees changing for MTOs as the channels shift from agents to a heavier reliance on digital channels?
David
The fees themselves always come down as volume goes up. When you’re talking about lower risk payment processing the margins are always going to be razor-thin. Already today I’m seeing fees online that are almost rock bottom and it’s only going to get slower. Then there’s the prospect of open banking which is going to blow everything open and remove the baseline costs even further. Ultimately it’s a competitive and a healthy environment and the fees are going to be falling but we are in this to help each other and make money. So while the fees might be coming down, we should always keep our shared end goals in mind.
Sidharth
70% of the remittance market today is cash-based but the tide is shifting and as it does the fees are going to go down. We’re already seeing it move southwards and as the 30% increases and the 70% reduces it’s going to exacerbate that reduction exponentially.
Richard
Prices will go down, of course. But they’re not going to suddenly plummet. There is a point at which we won’t go below (that rock-bottom David referred to) then there’s the cost of going digital that smaller MTOs have to consider. The price point will come down over time but then the technology you choose to invoke will change over time too.
The other thing that’s happening at the same time is that businesses are talking about digital ID. So the technologies to digitise identities is already there but the confidence to accept it probably isn’t just yet. In the next 12 months if you’re looking at how to make your process complaint online you have plenty of choices and the decision needs to be whether you’re looking for a quick fix or a process that’s scalable in the long term?
How does risk play into digitising money transfer?
Nadeem
The real question is do MTOs assume more risk online than in the traditional model? I believe that they don’t. We’re living in an age where digital risks have been largely mitigated by the complexity of new digital IDs. So I honestly don’t see it as any riskier than the traditional model of somebody visiting a brick and mortar location and presenting a physical ID. We have automated lists with regards to sanctions and screening so can build watertight systems to manage risks that are arguably just as proficient as the traditional model.
David
I partially agree with Nadeem. However, I’d argue that the moment you remove the cardholder from the equation in a physical capacity, the risk naturally increases. We can never be 100% sure on the surface if the cardholder who is making the transaction is the actual cardholder. Not if we can’t physically see them.
Where Nadeem is correct is in the responsibility of technology in ensuring those risks are reduced. If the tech is implemented correctly and the right controls are in place then there is going to be less risk. But fraudsters are very smart and they’re always getting smarter. I’ve worked in money transfer for a decade now and have seen so many different ways that fraudsters can behave – loopholes and tricks that technology can struggle to keep up with. The risks are manageable if you do it correctly but if you get it wrong then the risks can be ten times higher.
Sidharth
My response would be somewhere in between Nadeem and David’s. Our business is focused primarily on Africa and in that region, we’re seeing a lot of digital MTOs joining our platform, more and more every day. AI will definitely play a part in mitigating the risk but the risk is always going to be there. The question is how fast the technology can improve.
Richard
As soon as you’re online you’re introducing more risks, but the technology is there to mitigate the risk. As a rule of thumb, If it looks dodgy then it probably is. As long as you run a verifiable process online to mitigate those risks then it’s worth any cost. All online businesses must accept that fraud is part and parcel of the deal. As long as you accept that, go into it with your eyes open and put the right amount of resources behind it then it’s always going to be worth the risk.
Does the digital model present more opportunity for MTOs or are we operating in a saturated market?
Nadeem
The amount of MTOs that have gone digital in the last 9 months is probably more than in the last 9 years and COVID has played a major role in that. A lot of these conversions are not new entrants into the market but are existing MTOs that has been operating more traditionally and have been forced into the digital model.
David
There’s always an opportunity to be found in chaos. Throughout history, hundreds of companies have been forged in times of crisis. Disney was formed out of the 1929 depression, Microsoft came out of a major recession in the 70s and in 2008 it’s the banking crisis that kicked off Bitcoin and Fintech. The way that compliance has moved forward so fast in recent months has really spawned a rise in applications for electronic money licenses.
The implications of that are massive and have led to an environment where everybody wants to be a digital bank. It’s like when the Beatles came along and everybody wanted to be in a rock band. Now, thanks to the Monzos and Revoluts of the world, everybody wants to be involved in Fintech. This is perhaps why, now that we’re all in crisis mode, that so many MTOs are looking to upgrade their money licenses so they can perform different functions and expand into something more.
Sidharth
Asia and Africa are frontier emerging economies. Whilst the vaccine will be a reality in the western world it’s going to take a lot longer to filter into the emerging markets. Given that they are the primary markets for our industry it’s even more apparent that digital is the way to go. Because whilst the western world might be able to return to some semblance of normality sooner rather than later, the emerging markets that rely on remittance are still going to need to rely solely on digital.
Richard
In theory, as long as a financial service business has a steady platform, they can drive the business in any way they want. I think the difference is whether your focus is on driving transactions or taking the bolder step of becoming a fully regulated business. Revolut is a good example of a business that has spent all of its time and effort acquiring customers and are now embarking on the hard bit of actually becoming a proper bank.
I think that everyone would like to see an organisation do that successfully – pivot from a business that has a large number of customers into one that actually makes money from lending money. There’s an opportunity there to scale a business from an MTO into something that provides other financial services too.
Are we seeing MTOs evolve into these Neobanks or are we saying that the pie is quite big and each will have its own role within that pie?
Nadeem
We are seeing the more established MTOs move from conventional standard payments into things like e-money wallets and they are using this type of functionality as part of their wider growth plans. But generally, I think we will be seeing some form of consolidation amongst the larger MTOs. In the larger sense, the more established players have access to more resources so they will be the ones that will be moving forward.
David
Sometimes I feel like an outsider and sometimes it’s good to have that perspective where I’m not immersed deeply inside the money transfer sector. But I advise, consult and work with several different money transfer companies. One of the things that’s interesting that I see from my perspective is that everybody has their strengths and their positions within the market. If you look at companies like Small World, for example, they work with so many smaller MTOs to provide payouts and if you look at Azimo they rely on a number of different partners to help them get into certain parts of the world.
No one can do everything by themselves as one complete unit. So consolidation and licensing are interesting for me because every single MTO out there is trying to do something relatively unique. One company might be stronger in one area than another and by working together they can offer something more holistic and of greater quality overall. So I think consolidation should 100% be on the roadmap for everyone. My only fear about consolidation is that it actually shrinks the competitive element of any industry but I think that’s a little further down the line.
Sidharth
It’s already happening. Around two and a half months back WorldRemit acquired Sendwave for $500 million. This was a growth acquisition and it’s one of many floating around right now. There is also word on the grapevine that Western Union may buy Moneygram, which is one of the top three MTOs in the world.
David
Sidharth said something interesting about acquisition for growth rather than acquisition for revenue and I have seen that a lot in the payments industry. There is a huge amount of consolidation of payment service providers buying other payment service providers simply to grow because growth is so essential for a lot of MTOs, especially when we’re operating on such thin margins.
With all this technology at our disposal, why are we still having an issue with de-risking?
Richard
Since I started talking to MTOs in 2012, I’ll be honest, it’s not got any easier. The first question I ask people as a qualifying question is ‘have you got a bank account’. If they haven’t got a bank account then they’re wasting my time because I know they won’t be using our software until they get that bank account.
The big banks just won’t take the risk. It’s too much hassle and that’s a business banking problem anyway. They could easily take the risk if they choose to, it’s whether they have the resources to be able to deliver that and that’s where you’ve got the disruption coming. Can smaller banks take on that risk? Because in another sense they have less risk in it potentially going wrong.
Nadeem
De-risking has been going on for a number of years but at the end of the day, from a bank’s perspective, it comes down to purely to risk versus reward. For this reason, I don’t think you’re going to see a change in banks attitudes or habits when it comes to de-risking. David also correctly mentioned the rise of the Neobanks and some of these smaller challenger banks but they come with their own set of limitations.
What about regulators? Should the onus be on them to make sure that this continues to be a vibrant and healthy 600 billion dollar industry?
Nadeem
Regulators are there to create a framework, structure, processes and regulations. When it comes to safeguarding good practices, regulators are increasing some of these rules and regulations but can they force banks to actually support clients? I don’t think that’s their objective or their remit.
David
I don’t think it’s in the regulators best interests to push the banks, I think when a company becomes FCA regulated it has to be independent of the banks in some respect. Because, if the FCA and banks were in cahoots with each other it would be it much easier to operate but you’d also leave yourself much more open to fraud. If the two remain independent and they are independently scrutinised you have a sort of double lock system.
Sidharth
Regulators are becoming more and more progressive enablers to our industry. At least in my experience. In the UK and Europe, we have the example of open banking which is fuelling innovation and is also making the industry more compliant. All the stakeholders are becoming more and more transparent and it is helping to increase the credibility of the segments.
Africa and Asia are still very very fragmented. 54 countries with 54 different regulations. So they have a lot of catching up to do but then you can clearly see in Kenya, Uganda and Nigeria that things are moving at a very fast pace and regulators are moving likewise.
Finally, where do you think the biggest innovations will be moving forward?
David
A lot of innovation is happening right at our doorstep in the Fintech space. Payments is an ever-evolving industry. Every single day there’s a new payment method, a new way of doing things or a new market that can be exploited. Once blockchain technology has crossed over into the mainstream and people realise they can effectively move money as fast as they can send an email, that’s going to be the big breakthrough, that’s the innovation.
Nadeem
There is excitement around blockchain, digitisation of tokens and the ability to make payments instantaneously, of course. But there’s also innovation around digitised prints in terms of digital KYC and simplifying processes for consumers. I think simplification is going to be a key in terms of ensuring not only that funds are instantaneous but that the customer relationship does not simply finish at the point of collection or deposit.
Our thanks to David, Richard, Nadeem and Sidharth for their words and their time.
For more information or to speak to one of our experts please email marketing@remitone.com
R1 Webinar: The Future of Remittances
Video: Remittances from the Gulf – The Impact of Covid-19 and Trends for 2021
During IMTC World 2020, RemitONE’s CMO, Aamer Abedi, moderated an engaging panel discussion on Remittances from the Gulf – The Impact of COVID and trends for 2021. During the panel he asked industry experts from the UAE, Saudi Arabia and Pakistan; how the market has been impacted; has COVID accelerated a digital transformation; and what’s the landscape for competition in your region.
Watch the full discussion here or read the highlights below:
How has your region been affected?
Osama Al Rahma, Advisor at Al Fardan Exchange and Vice Chairman of the Foreign Exchange & Remittance Group in UAE, commented that in the UAE there has been an unprecedented lockdown and control of the mobility of people has been restricted. He adds that it is unique that the workforce in the UAE is 90% ex-pats from over 200 nationalities and all are under the wage protection system. In terms of remittances, the service continued during the lockdown, the government recognised receiving countries are in severe need for the service and it’s thanks to authorities that permission could continue.
Khalid Al Zain, Head of Business Development at Bank Albilad in Saudi Arabia, commented that the Saudi Arabian Government has been investing in the private sector to keep their staff employed. He adds, there have been measures from the regulators including social distancing. Khalid notices that there is an impact but it’s not too much. Due to the support from the government and measures taken, such as social distancing, hygiene and increased security. He adds that despite COVID the number of employees is increasing and the workforce is in a good shape in Saudi Arabia.
How has the market been impacted?
Faisal Rashid is Head of Financial Institutions, International Banking & Home Remittance Business at Bank Alfalah in Pakistan, he explains that as Pakistan is predominantly a receiving country you would expect the country to be impacted significantly by COVID. However, he has found that from the GCC, where Pakistan receives its bulk of transactions, remittances have grown by 25%. He adds this is driven primarily by a 66% increase from Saudi Arabia and a 17% increase from the UAE. He believes this increase is due to the strength of partners in those regions moving from agent to digital channels. He also mentions that the receiving side in Pakistan has struggled to convert to digital pay-out due to the lack of infrastructure and the digital ecosystem.
Osama explains that in the UAE there have been declines in remittances, Egypt by 8%, India by 17% and the Philippines by 24%. However, they have seen growth in Pakistan by 11.5%. He believes this increase is due to transactions going through unofficial channels now moving to official channels. It could be argued that this is one of the positives coming out of the pandemic.
Khalid adds in Saudi Arabia they saw a decline in remittances during the initial phase of the pandemic, however, this has since changed and overall, they have witnessed growth in remittance by 8%. He also explains that customers are moving to digital channels rather than using traditional methods.
Has COVID accelerated a digital transformation?
Faisal comments that Pakistan is a young population who understands modern digital communication tools, however, only one-third of the total population is using smartphones causing a barrier to moving online. He adds that basic smartphones are now becoming available which is what Pakistan needs to create an ecosystem to make it easier to move money around. The graduation of moving to digital channels has started, all banks are working on their digital offering and we will see a large shift in the coming years with COVID hastening the transformation.
Osama agrees that COVID has accelerated the digital transformation of remittances in the UAE, but mentions that the Government of the UAE created a strategic initiative for digital transformation before COVID, which included strategy around infrastructure, policies, regulation and cybersecurity. This initiative includes the ‘UAE Pass’ which provides UAE citizens with full digital identity. These initiatives coupled with 80% of the population using smartphones, have provided the UAE with a seamless transition to moving online. Osama notices that the technology, infrastructure, and cybersecurity are all available in the country, which enhances the customers’ experience on the digital level.
Khalid has found that the migration of customers to digital is going excellently in Saudi Arabia and he notices a spike in migration of customers to digital. He explains that all citizens in Saudi Arabia are required to provide a fingerprint for their ID card and data has been stored in the mainframe. The private and government sectors can liberate from this data which has allowed Khalid and his team to introduce E-KYC seamlessly. Khalid notices that lots of customers are moving from traditional methods to digital.
What’s the landscape for competition in your region?
Khaled comments that Saudi Arabia wants to be a cashless society by 2030. He adds there are lots of strategies and initiatives in place, organised by the Saudi Arabian regulators, to open the market and invite many players to come. He believes that by increasing competition in the market, services will improve and it’s not just about one bank, there are lots of players in the market.
Similarly, Osama explains, in the UAE we have regulatory bodies such as Abu Dhabi Global Markets (ADGM) they have their regulations and initiatives for start-ups to support, facilitate and encourage fintech companies. The UAE also have Hub 71, which is a body to support start-ups, that have a payment lab to support innovation and testing. He adds, In Dubai, we have the Fintech Hive and the Dubai Economic Develop Department, where Pay Engage is the latest initiative. He explains that initiatives are being set up to allow for more innovation and similarly to Saudi Arabia, to move towards a cashless society. He concludes, there are strategies and clear milestones in place, with all stakeholders involved including federal and local government. There is a shift and it’s happening very quickly which is encouraging many companies to move their businesses to the UAE because they can benefit from the infrastructure.
Conclusion – COVID-19: An agent of change
The pervasive atmosphere in the sector appears to be one of defiant optimism in the face of some pretty sobering stats. The vast majority of the challenges posed by the pandemic, however, are either short-term by nature or have, in some of the cases outlined above, already been overcome.
Remittance will always represent a lifeline for developing countries and as technology adoption continues to penetrate every part of the globe, digital transformation is something that can’t be ignored any longer. Nobody is going to remember coronavirus as a ‘good thing’ but it could at least be recognised as an agent of change and change is often necessary, even if it feels a little intimidating at the time.
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Has COVID catalysed the digital transformation of the remittance industry?
COVID-19 has fundamentally changed a lot this year. In the case of the money transfer industry, the immediate impact has not been a positive one. The World Bank has predicted that global remittances are set to decline by 20% as a direct result of the pandemic. Something needs to be done and it’s the young and nimble money transfer operators (MTOs) that are best equipped to create a new digital path in a world where physical contact is restricted.
The evidence of digital transformation
Digital transformation has been slowly changing the remittance sector for decades now and COVID has hastened that transformation. The fact is, where digital was once an option it’s now a necessity and that has completely changed the game for all banking sectors.
According to recent RemitONE transaction data trends, there has been a major acceleration of digital channel use during the pandemic. The use of physical agents, meanwhile, is down, which might seem insignificant but points to a drastic overall shift in consumer habit.
Throughout history, it’s the sectors that have been able to adapt to the times that have weathered the storms and retained their relevance. With the recession caused by COVID-19 taking a toll on the ability to send money home and remittance flows projected to decline even further by 14% in 2021, an easier, cheaper remittance solution has never been more vital.
Digital money transfer
Studies have proven that remittance not only helps to alleviate poverty in developing countries but can also lead to an increase in domestic spending. If there’s one thing we need right now it’s for people to be spending more. Digital-first MTOs are the ones ready to offer the most robust and accessible easy-to-use remittance services with fair and reliable exchange rates.
Of course, this is not a change that can happen overnight. Historically speaking, migrant communities would rely on physical money transfer services and these services have, as a result, become pillars of the community. Indeed, it’s estimated that the recipients of many international remittances are unbanked, which might go some way towards explaining why 90% of remittances currently begin and end with cash.
Does this mean it’s up to remittance operators to prove their worth and make themselves more accessible? Because digital operators that use the latest remittance software are not faster and only more affordable due to the obvious lack of overheads but have been proven to be better at evaluating customer experience and security.
Digital acceleration beyond the pandemic
It’s no exaggeration to suggest that COVID-19 changed the world overnight, but the impact on the migrant community has been under-reported. For months now, foreign travel has been almost impossible, which means migrant families have been unable to visit their families. What’s more, the pandemic has amplified the pressures migrants face in striking a balance between supporting themselves and supporting their families back home. For these families, digitally native money transfer operators will play a crucial role in redefining remittance and money transfer for a post-COVID world.
There are several benefits of digital transformation for the remittance sector for both legacy and upstart operators. Through the use of money transfer software on desktop computers and via smartphone apps, it’s never been easier and faster for customers to keep a reliable track of their remittance journey. The pandemic might have offered an opportunity for operators to use this software to foster trust and build new customer bases that keep communities connected and able to hold each other up.
This is proven by the growth of M-Pesa as the predominant payment method in Kenya. This is a digital solution that manifested because a traditional banking ecosystem was simply not accessible for a majority of Kenyans. That digital alternative quickly became the preferred option when users realised how powerful, easy, and convenient it was. Ultimately, it’s a safer, faster, and easier service that should help shoulder some of the stress that migrant families currently find themselves under.
Conclusion
Consumer preference has been shifting away from cash for years now and with many cash-based remittance solutions forced to close due to COVID-19, the future is definitely in digital. What money transfer operators and other fintech organisations need to understand is that this represents an incredible opportunity for them to prove their worth.
Borders might be closed but migrant workers still depend on remittance and if they’re going to make that switch from their old inflexible and outdated conventional means to more accessible solutions, they might need a bit of a gentle push.
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