Remittances are an important source of income for Africa, representing a significant portion of GDP in some countries such as South Sudan (34%), Lesotho (21%) and Gambia (16%). According to a recently released World Bank forecast, sub-Saharan African countries will experience a 23.1% drop in remittances inflows to close 2020 at an estimated $37-billion in 2020. A key reason for the expected decline is the ongoing Covid-19 pandemic sweeping through Europe, the US, Middle East and China where African migrants reside and are often most vulnerable to loss of income when these economies contract. The cost of sending remittances to sub-Saharan African corridors remains the highest in the world at about 9%. Africans deserve better.

A contributor to the high cost of remittances in sub-Saharan African corridors is the use of cash by both senders and beneficiaries. The use of physical agents and the logistics costs associated with cash is expensive. If there is a silver lining of the ongoing coronavirus pandemic, it is the accelerated acceptance of the use of digital channels for financial transactions. 

With lockdowns and movement restrictions in both send and receive markets, customers need to embrace alternative means of cross-border funds transfers. Today, there are several remittances apps available for sending money to Africa and beneficiaries can easily open a digital bank account or mobile money wallet to receive these funds. Indeed, with the ubiquity of mobile devices in Africa, access to financial services for every citizen is possible.

A key factor driving the preference of foreign currency remittances in cash across the counter is the difference between the exchange rates offered by banks for local currency deposits into accounts and what may be obtained in parallel (black) markets. Efforts to harmonise rates would go a long way in digitising the remittances process from end to end. 

Regulators play a very important role in ensuring every adult citizen and all businesses are registered to simplify Know Your Customer (KYC) for swifter onboarding and access to digital financial services. Adequate investment to ensure connectivity such that every African has equal and affordable access to financial services is also critical.  Regulators should ensure internet service providers and telecom networks provide reliable and affordable services which in turn facilitate the growth of a cost-effective digital payments ecosystem. 

The frictionless adoption of electronic wallets and bank accounts that do not require physical interaction to onboard should be encouraged. For example, in regions in Africa, a consumer with a registered SIM can open a KYC-friendly digital bank account or mobile wallet instantly; however, some regulators still require the validation of identity cards to access basic digital financial services. 

Intra-Africa remittances present a significant opportunity for digitisation as some of the most expensive corridors in the world are between African countries with costs as high as 20%. Intra-regional migrants represent more than two-thirds of all international migration in sub-Saharan Africa and when sending funds home to loved ones, they contend with expensive fees, inconvenient travel to agent locations and delays for delivery of urgently needed funds. These high fees force many to use informal channels, which come with security risks, opaque fee structures and a lack of traceability, putting them at risk of losing their money. Moreover, without records, governments cannot accurately estimate their true FX position which can be destabilising for a currency.

It is time for key stakeholders including regulators, international money transfer organisations, banks, mobile network operators and others to unite in driving down the cost of remittances by leveraging technological advances and expanding financial inclusion. It is most critical that migrants and beneficiaries be protected from undue hardship during this global pandemic. The adoption of an end-to-end digital process for remittances would go a long way in reducing remittances costs. Change is inevitable and there is no better time than now to do so. BM