Business
High remittance costs: Fintechs record huge jump in patronage as Nigerians abroad shun banks
By AYOOLA OLAOLUWA
Financial technology firms (Fintechs) engaged in the remittance and money transfer business have continued to record impressive patronage, as more Nigerians locally and in the diaspora now engage their services in sending and receiving funds.
Business Hallmark findings revealed that patronage for these money transfer startups has been on the rise largely due to their provision of cutting edge technologies and offering low charges on transactions, compared to the cumbersome transfer processes and high transaction fees charged by legacy International Money Transfer Operators (IMTOs) and their agent banks.
It would be recalled that Western Union Money Transfer service was launched in Nigeria in 1995, closely followed by MoneyGram.
However, making a cross-border payment using the services of the two legacy IMTOs before the advent of Fintechs in the early 2000s was a tedious and bureaucratic affair.
For instance, while Nigerian consumers cannot send funds, but only able to receive funds from abroad via the IMTOs in their early days, they also faced other challenges such as long transfer periods, reliance on physical shops for sending or receiving funds, as well as double charges (fees were charged at both ends).
However, with the coming of fintech firms like Interswitch, PayPalRia, TransferWise, PagaTech, Flutterwave, VFD and WorldRemit to offer competition, the remittances and money transfer space began to open up.
However, the major challenge to the status quo and dominance of the big IMTOs began about ten years ago with the birth of technology savvy startups.
These international money transfer startups, checks revealed, have been able to plant a leg in the remittance business space by offering customers more time- and cost-efficient alternatives to conventional money transfer methods.
Although, there is no official or authoritative data on the market share of each of the IMTOs operating in the country, money market operators who spoke to our correspondent on the development said banks’ control of the nation’s international money transfer market which stood at 85% in 2014, has further crashed to about 45% to 50%.
“As at December 2000, banks controlled the international money transfer market hundred percent. The coming on board of fintech startups like Interswitch, WorldRemit and TransferWise cut their control to 85%.
“In the last six or seven years years, the number has further come down to about 50% as new fintech startups like Paga, Flutterwave, TalkRemit, Opay, HelpPay, Pay4Me and other new entrants were able to gain market shares by replacing the old, expensive ways of receiving and sending money overseas.
Some of the advantages startups have over legacy IMTOs include instant electronic transfers (both paper and digital currencies), peer-to-peer lending, as well as charging considerably lower fees.
The startups, checks revealed, were able to achieve these feats through the deployment of advanced SMAC (Social, Mobile, Analytics and Cloud) technologies
For instance, the new IMTOs, unlike their senior partners, allow users to register for their services through social media applications like Facebook, as well as being able to integrate their finances with their day-to-day digital lives.
The second leg of SMAC technologies, Mobile, has also been a major catalyst for innovation in Nigeria by allowing customers to transact businesses through their phones.
Since its adoption, Mobile wallet technology has seen a huge uptake in the country, with Nigerians making billions of dollars worth of transfers yearly.
The third component, analytics, helps fintech startups to move faster than established IMTOs by giving them insights into what their users really want.
The Cloud technology, on the other hand, helps the fintechs to find FX companies with better exchange rates than commercial banks for Nigerians who want to transfer naira to their loved ones at top speed.
In some instances, rates given by Fintechs is between 3-4% and better than rates given by banks.
With the deployment of the SMAC technologies by the new IMTOs, customers can now seamlessly send money overseas on their phones with just a few swipes and taps.
Also, there are no queues to wait in and piles of paperwork to fill out, compared to the old IMTOs like Western Union and MoneyGram where initial transfer can take up to five days pending KYC (Know Your Customer) validation. Though subsequent transactions to the same receiver bank account number through the old IMTOs are completed on the same day.
Some of the preferred IMTOs witnessing traffic from Nigerians both home and abroad, BH learnt, include HelpPay, which was founded 2016.
According to the firm, it helps customers make cross-border payments and transfers.
“The challenge in some markets is a challenged banking system that makes access to foreign currency difficult.
“An example of this is the Nigerian market that transacts $10 billion per year in overseas payments for education, health services and travel.
“However, the foreign exchange is bought at a higher rate than the official peg from a parallel market.
“The goal of Help Pay is to bypass the parallel market as the source of foreign currency and create a swap/exchange with Nigerians in the diaspora looking to remit money back to the country.
“Annually, $21billion is remitted to Nigeria from around the world. Our marketplace looks to match these outbound needs against inbound volume without currencies crossing borders”, the firm stated while responding to BH enquiries.
Another firm that is making wakes among Nigerians in the diaspora is Opay.
In September 2020, Opay entered into a partnership with WorldRemit to provide Nigerians with a fast, easy and more affordable way to receive money from over 50 countries including Canada, the United States and the United Kingdom directly into their mobile phones.
With the arrangement, WorldRemit now transfers directly into OPay mobile wallets in Nigeria.
Opay, it was learnt, is one of the remittances channels preferred by uneducated Nigerians who have friends and relatives abroad sending them money to them.
“When my daughter initially travelled abroad, she was having trouble getting funds across to me for several reasons.
“One, I am not literate and find it difficult to fill out the forms required by banks to receive money sent to me from abroad.
“To avoid this challenge, we had to arrange for a close family member to receive the money in his name, change it at the BDCs before remitting the money to me.
“However, I found out that the relative who is a younger cousin was reaping me off by under-declaring the actual amount he usually get from BDC operators.
“We were able to resolve the challenges about two years ago with the Opay/WorldRemit partnership.
“I now get my monthly allowance from my daughter based in the U.S in the comfort of my home since my registered phone number is the same as my Opay account and the money is paid directly into it.
Apart from this, have also been making extra money by saving excess funds in my OPay’s FlexiFixed account which pays about 12% returns per annum”, said an octogenarian, Mrs Alaba Ilelaboye.
With the Opay app, Nigerians abroad are also able to make money transfers to their family and friends in Nigeria the comfort of their homes at an affordable rate of about 2% of the transfered amount.
Speaking on the novel partnership, the Country Manager for Nigeria and Ghana at WorldRemit, Gbenga Okejimi, said they were proud to play their part in making sure their customers are able to support their family and friends at home.
“Together WorldRemit and OPay are disrupting traditional money transfer methods by delivering services that customers can access 24/7 via smartphones at their convenience.
“I am pleased to share that we’ve reduced prices in 48 corridors and passed the savings onto our customers”, he declared.
Other fintech based IMTOs challenging the dominance of the major players in the funds remittance market are TalkRemit, NairaGram, CashPot, Azimo, Pay4Me, Remitly, Skrill and Wise.
According to the World Bank, the average cost of sending $200 to Africa in 2022 was 8.5 per cent of the amount transferred, compared to less than 6 per cent globally.
While the World bank claimed that sending money to some African countries, such as Nigeria, Angola, Botswana and Namibia, can sometimes cost as high as 20 per cent of the amount transferred, BH gathered that in some cases, total fees charged could rise to about 45%.
On the other hand, fees charged by the new IMTOs range from 2.5% to 7.8% maximum.
The marked difference in charges, forex experts told our correspondent, has fuelled the mad rush by Nigerians abroad towards fintech based IMTOs.
