The remittance industry in Africa is one of the global fintech sectors heavily affected by COVID-19. Given that 65% of African countries are still developing, and that a large portion of Africans abroad reside in top remittance sending nations, diaspora remittance plays a big role in providing financial support for families and businesses in Africa. In 2019 alone, individual remittances to Africa outstripped total Foreign Direct Investments (FDI). Over $82.7 billion was remitted to Africa compared to $46 billion of FDI.
During the pandemic, top remittance sending countries – France, the United Arab Emirates, United Kingdom, Italy, Switzerland Saudi Arabia, and the United States – all took heavy economic hits.
Businesses in these countries had to cut back on expenses and reduced payrolls to stay afloat. The employment and wages of many African migrant workers disappeared overnight as a result. Travel restrictions took their toll on cash pick-up and delivery services. Also, lockdown measures on banks and money transfer operators made bank wires and physical cash pickups difficult – even for workers who could afford to send money home.
Domestic remittances within Africa were not spared either. Often, Europe, North America, and the Middle East are perceived as destinations of many African migrants, but more than 70% of Sub-Saharan migrants relocate to other African countries. These too were affected by COVID-19. Families whose expatriates worked within the continent also found it hard to get financial support.
However, despite all of these challenges, the pandemic also created key opportunities within the African remittance landscape that have been overlooked by many. Some of these ‘greenlights’ already existed before the pandemic and only magnified after that, while others are completely new. In this post, we take a look at these opportunities and how businesses can harness them.
Major opportunities lie in the digitalization of local and international money transfers now more than ever. Digital remittance exploded during the pandemic due to restrictions placed upon person-to-person business interactions among other key drivers. Experts predict that by 2026, global digital remittance would exceed $33.9 billion, rising at a market growth rate of 17% from its current value.
Although remittance has been moving towards full digitalization in the past years, the sharp drop in the need for physical cash pick-ups and deliveries at the height of the pandemic has led to a tremendous rise in the demand for electronic money transfers.
On the other hand, sending remittances by bank wires is quickly losing appeal. This is due to the delays in transfers, and the long queues at banks when people go to send money. While physical money transfer shops fill the gap left by banks in this regard, online remittance software and apps are fast becoming the norm.
Money transfer operators who position themselves to offer online remittance services would make substantial gains as people are coming to enjoy the speed and convenience made possible by digital remittance.
For Pan-African money businesses looking to dive into online remittance services, or money transfer operators seeking ways to start sending money to Africa, Songhai Exchange provides them with the solution they need.
As an African-centric payment switch, Songhai Exchange connects your business directly to a pan-African network of banks, financial service providers, pay-out providers, and billers. By removing middlemen and working with local banks to set cost-effective rates, Songhai Exchange reduces the cost of remittance and the time taken to process payments. You get to save a lot of money this way.
Songhai Exchange supports multiple local and international currencies. It can also be deployed by donor groups to transfer funds to charity organizations and NGOs within Africa. Now that middlemen are fast losing their influence on remittance post-COVID, financial service providers and banks who partner with Songhai Exchange would be strongly positioned to reap huge rewards in the restart of economic activities.
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At the height of COVID-19 in Africa, one of the things we witnessed was the limitation of cash as a major component in countries’ payments systems. A spike in cash withdrawal early in the crises driven by panic did not necessarily translate to overall growth in the usage of cash. Instead, there was a sharp decline in cash usage. This was a result of cash hoarding. We also witnessed a decrease in consumer spending, while businesses were advised to avoid cash for hygiene reasons.
The demand for Fintech payments solutions equally fell during the pandemic, it is only just getting back on track to exponential growth. As concurred by a recent study published on Accenture, cash usage will continue to decline while other payment methods such as cashless payment, online transfers, and cryptocurrencies would gain more users.
Since the lockdown measures kept most people around Africa at home, electronic payment has been adopted as the new normal for payment for goods and services. This comes with its benefits such as convenience, and an instant payment that saved time on waiting in queues. Reports on transactions done were also instant.
While security remains an issue when it comes to electronic payments, several payment applications with cutting-edge security technology have emerged over the years.
Since bill payment is part of money transfer, remittance service providers can take advantage of this opportunity by integrating bill payments as part of the services they offer. More people in Africa paid bills digitally during the pandemic than ever before and that trend would only continue. With solutions like Songhai Exchange, businesses can easily step into Africa’s bill payments and mobile top-up market.
The direct impact that COVID-19 had on remittance in Africa would linger for years to come. Moving forward, it is now evident that merchants, billers, service providers, banks, money transmitter companies, bureau de change businesses, and other financial institutions operating on the continent would need to take advantage of the opportunities created by technologies in order to fully restore African economies and shape them into a global financial powerhouse.