Are African Remittances Finished?
What’s next for African remittances?
In the realm of African remittances, the narrative often sparks the question:
“Hasn’t this problem been solved?”
Well, has it?…
I decided to share a few thoughts below starting with Africa growth tailwinds and 5 trends I see beyond remittances.
Before we get started, how much money is actually being sent to Africa every year?
“Don’t the publicly listed companies like Wise or Remitly already own the remittance marketshare?”
Well, let’s see…let’s look at some Global Remittance players.
- Wise (LON: WISE) — Annual Send Volume: £105B | Annual Revenue: £846m | Global Marketshare 5% (Source: Page 9)
- Remitly (NASDAQ: RELY) — Annual Send Volume: $39.5B | Annual Revenue: $944m | Global Marketshare 2% (Source: Page 4 & 6)
Securing even a small portion of this market represents a significant opportunity for any competitor capable of capturing it.
Despite the intensified competition, the majority of the market is still dominated by non-digital remittance providers, however the fastest growth is coming from the digital players.
Everyone is leaving Africa?
There are two tail winds to keep in mind:
- Africa’s fast growing population.
- The number of folks leaving the African continent every year. (Japa)
Africa’s population growth:
Africa is increasingly at the heart of discussions around global economic growth, with widespread anticipation about the continent’s explosive growth potential in the coming decades.
By 2050, the African continent’s population is projected to nearly double to 2.5 billion, becoming the largest workforce globally, according to the New York Times. The continent’s population is also relatively young, in contrast to the aging workforce populations in China and Europe.
Africa’s growing migrant population:
Currently, one million people leave Africa annually for better opportunities abroad. Studies have shown this number is only going to increase as the African population keeps growing, therefore reflecting a growing population of African migrants seeking further opportunities abroad and as a result, sending more money back to Africa. Increasing the true remittance market size.
In 2020, the ‘official’ migrant population stated there are 15 million Africans in the US, UK and EU. Migrants with unrecorded data reflect estimates around 28 million Africans living between the US, UK and EU alone in 2024.
Migration out of Africa will continue to increase the diaspora population and our addressable market. There has been market growth with a CAGR of 12% (3 years to 2022 — Source: RemitScope Page 4).
Questions to really think about:
- Is this data massively understated if the volume moved by 28million people is $333B-$500B a year? How many African migrants are there actually?
- What will the Africa migrant population in the US, UK and EU look like by 2050 with increased population growth?
Digital Remittances: Are we really there yet?
“Isn’t everyone already sending money digitally to Africa?” — a VC once asked me when reviewing NALA.
Research from Visa suggests that only ~53% of the African diaspora living abroad use digital apps to send money home, but is likely to vastly underestimate the usage of hawala networks, or networks that rely on people to physically carry the money to the recipient country.
Hawala (comes from the Arabic word meaning “transfer” or “wire.”) networks are historically built on trust, where you give somoene your money at an agreed fee/rate and they deliver the money to your receipient.
Here’s an example of a P2P Whatsapp network group I’m in.
The hawala/p2p networks built on trust are undefeated. I’m in quite a few Whatsapp groups I got added to where I sometimes see up to 200 currency trades a day.
One interesting fact: 26% of our monthly active NALA consumer customer base came from Hawala Networks — ie their first digital remittance service used to send money to Africa was NALA.
The potential to advance technological infrastructure in consumer industries like remittance is still largely untapped.
Payment reliability and speed is a massive challenge across Africa, due to the fragmented nature of the payment ecosystem. Sending money to Africa remains the world’s most expensive continent for remittances, with costs averaging 7.84% (Source: The World Bank, Page 14).
5 trends beyond African Remittances?
Well first of all, this is the time for ambitious tech companies to build solutions in cooperation with regulators and governments across the continent to better position Africans for the opportunities that lie ahead. I’m excited for those building remittance solutions to these user groups. There is a lot of growth ahead which is needed.
How big is the Africa remittance market?
Who actually knows?
- The World Bank data reports African remittances in 2018 was $48B. However, the United Nations states, in 2021 the African remittances inflows reached $100B. How does it double in 4 years? Who is right?
- FT Partners research shared above claims $333-$500B is the market size estimation in 2022.
Most of that data is tied from tracked remittance channels. What about the untracked volume? 👀
Beyond remittances, there are quite a few ideas I would explore looking at building for customers in the future:
1. Send from Africa: Meeting the Biggest Customer Demand
Since we started doing cross border payments into Africa with NALA, the question we always get from customers goes along the lines of:
“Can you allow people to send from ‘x’ back here?” x- meaning one of our remittance receiver markets.
So why isn’t this resolved? I believe when this is resolved, there will be more money sent to Africa from diaspora abroad knowing they can get it back. An informal lending economy will be created.
This is difficult to resolve today because of multiple challenges: government regulation, licenses to acquire, tax reviews on income/source of funds, dollar shortage in Africa (huge topic for another day) and compliantly onboarding customers in a seamless way to deliver the money back to the global north with less friction. I don’t think it’s about the first to the market to build this out, but rather, the first to do it efficiently and effectively. We’ve seen many African fintech companies try to do this historically without licences get in big trouble.
2. Pay Bills Directly: Empowering Better Money Control
This morning, I received this message from someone on LinkedIn.
In the quest for greater financial control and transparency, senders are proactively looking for ways to ensure their hard-earned money is used responsibly. The ability to pay bills directly using remittance funds is becoming a larger request. This trend is driven by a desire to address specific needs, such as education, healthcare, and housing, ensuring that funds are utilized for their intended purposes.
We tested this out in Kenya, being one of the first companies enabling direct PayBills on Mpesa.
We’ve seen growing uptake of this and Kenyan senders in the US, UK and EU are constantly surprised to see we offer this feature.
The major challenge of doing this well is payment reliability locally 😞 — For example, one might pay for electricity for their mom, but the token isn’t received, so what happens then? Your customer support center turns into an operational nightmare tracing one electricity transaction.
I do predict this growing over time as payments across Africa get better, but, not anytime soon. (at least doing this reliably).
3. Card for Receiver: Putting Control in the Sender’s Hands
One idea I think would be interesting to explore would be issuing a card for your loved one in Bank Led markets — ie Nigeria, South Africa, Egypt, or Morocco.
This approach empowers senders with greater control over how the funds are spent at the receiving end. By providing recipients with prepaid cards linked to their remittance accounts, senders can influence and monitor expenditure patterns. This not only enhances financial responsibility but also adds an extra layer of security to the transaction process.
I once ran a survey where 6/10 of the respondents mentioned they don’t believe 100% of the money sent is actually used for what it was fully sent for.
4. Send Now, Pay Later? The Dynamics of Timed Remittances
From the data we see at NALA, a majority of our customers in the UK and EU send money on the 25th of the month, every month, without dropping.
Our NALA user month on month retention data reflects the same behavior highlight customer loyalty but also the frequency of how often they will send to support their loved ones in Africa.
Now in general, I’m not a huge fan of lending companies. But, I do see how the opportunity in offering a “pay later” option provides users with flexibility, allowing them to send money when needed without being constrained by their own financial calendar. This not only improves user retention but also aligns with the diverse financial habits of senders.
The risk, of course, is when they default… but the data we have so far shows most customers we tend to be quite disciplined with the frequency of send.
If i was a consumer lending company, I would definitely exploring piloting something like this with a remittance company.
5. Health Insurance for Loved Ones: A New Dimension in Diaspora Care
The World Bank estimates over 60% of remittances are sent for healthcare purposes. So why not enable diaspora to purchase health insurance for their loved ones back home?
I once tweeted:
The primary behavioural difference I’ve noticed is that a lot of diaspora in the US, UK or EU value health insurance as health care costs in these markets are very high. They have experienced the importance of health insurance and how it can save them a lot of money.
By recognising the importance of comprehensive healthcare coverage, individuals living abroad have the opportunity to invest in insurance plans for their families, ensuring that their loved ones have access to quality medical care in times of need.
The major challenge i found with doing this effectively would be making sure you don’t turn into a customer support nightmare for claims as a fintech company. For example, one buys health insurance via NALA, then their relative goes to a hospital for treatment, but the hospital they went to didn’t include a certain service level on that insurance plan, you end up turning your fintech customer support service into a claims support center as customers will potentially blame NALA and not the insurance provider.
To the builders:
These five trends illustrate the dynamic evolution of African remittances, driven by the desire for increased control, convenience, and financial empowerment. As fintech continues to redefine the financial landscape, these trends are set to shape the future of remittances, bringing about positive changes for both senders and recipients across the continent. I’m exciting about everyone building in this time period.
At NALA, we are NOT a remittance company. We are a payments business. The NALA app is our consumer fintech flagship product but essentially, we are building payment rails for the world to trade with Africa. We believe in addition to offering better (more reliable) and cheaper options to consumers who send money home to their loved one, truly scaling our impact requires innovation at a widespread infrastructural level.
Payments in Africa are 1% built. By building payment rails for international companies to expand into Africa and strengthening connectivity between African countries, we are helping lay the foundation for the continent’s immense opportunities.
💡 If you have any feedback or suggestions for us on what we are building click here to make a suggestion.
My 2024 goal is to write 1 article a month. If you have suggestions or would like to hear my thoughts on certain topics to do with payments, feel free to recommend a suggestion.
Stay in touch: Twitter @benji_fernandes. LinkedIn: Benjamin Fernandes.
