Lower fees and technological innovation have resulted in 60% drop in average transaction value as African diaspora remits smaller amounts of money more often.
London, October 2012 – While the overall amount of money remitted to Africa is on the rise, the average value of remittance transactions between the UK and Africa is falling, according to online money transfer specialist WorldRemit, which has seen the average amount sent per transaction drop by over 60 per cent in the last year
WorldRemit, which is the largest dedicated online international money transfer service processing tens of thousands of remittance transactions to Africa each year, has witnessed the average transaction value fall from £270 to £96 over the past year.
According to company founder and former advisor to the UN development programme Dr Ismail Ahmed this demonstrates that, given the choice, immigrants remitting money opt to send smaller amounts of money more frequently. Previously, making small money transfers to Africa was not possible because of the high fees associated with this remittance corridor. However, new online companies such as WorldRemit, which have been able to charge lower minimum fees by embracing disruptive technologies like mobile wallets and airtime top-up, are driving a large-scale change in remittance behaviour.
“The notable uptake of services like airtime top-up, which allow migrants to transfer as little as £1 at a time home to their families without incurring hefty transfer fees, points to a widespread preference for lower value transactions amongst members of the African diaspora.
“Where previously, large minimum fees and the inconvenience of the traditional money transfer networks made it infeasible to make small transactions to Africa, the prospect of lower fees, facilitated in part by new disruptive technologies, are contributing to a distinct change in the way money is transferred to developing nations.”
The decrease in transaction size is particularly marked in countries such as Ghana and Kenya, where nearly half of all transactions through WorldRemit are small transfers to mobile phones.
Traditionally, the high fees characterising the remittance market in Africa have been at least three times those in Asia – a pricing structure that has its root in large money transfer companies’ near monopoly position in many key Africa corridors. .
Dr Ahmed comments: “Now, thanks to the outlawing of anti-competitive practices of companies like Western Union and the disruptive nature of mobile technology, the price of remitting money to Africa is coming down. For example, mobile money transfer services, which enable users to make a deposit into an account stored on their mobile phone that they can use to buy goods and services or withdraw funds at retail shops, are driving down the cost of remitting money because companies offering such services can charge smaller fees.”
Dr Ahmed believes that this changing landscape of remittance behaviour will have profound implications from a development perspective:
“International remittances provide a lifeline to most economies in Africa, where in some countries up to 40 per cent of households rely exclusively on remittances for their livelihoods. At WorldRemit we see African migrants sending airtime top-ups as low as £1. Often this is in response to an emergency, where a family member requires the small amount they need to make an important business call, or pay for transport to a doctor, for example. Only five years ago, this level of cross-border support was not possible, because of high minimum fees, and because transfers could take days to reach their destination.”
WorldRemit, regulated by the Financial Services Authority (FSA) for the provision of payment services, is an innovative online money transfer business enabling customers to send money to family and friends back home using various payment options including debit cards, credit cards and local payment methods.
WorldRemit has built a robust compliance system that eliminates common problems and risks associated with money laundering and card fraud in international money services. WorldRemit now offers online money transfer to over 38 countries.