Thursday, July 25, 2024
Money TalksDigitizing the remittance market

Digitizing the remittance market

Beyene, a marketing consultant whose last name is withheld upon request, never wanted to go to the parallel market to withdraw money sent from abroad. He prefers to receive money sent from abroad through formal channels, even though the parallel market pays a much higher premium than banks. It is not an easy decision to make, especially when the amount of money he receives from abroad increases.

Even though the offer is tempting, it was not attractive for Beyene whose prime choice was to get his money through wire transfers. But the 30-year old consultant started to reconsider his decision, frustrating from the long procedures required to withdraw his money sent from abroad through banks.

Beyene had to wait for half an hour. If there is a queue, it may even take an hour to withdraw the money he is sent from clients and partners from abroad.

“While I am losing too much money, because I prefer the official market; I had to sit for over half an hour to get my money via wire transfers. That is so frustrating and discouraging,” said Beyene, who was considering the idea of setting up a forex account abroad.

It appears the banking industry is witnessing changes that may encourage Beyene to use the formal channel, which he prefers from the beginning. Commercial banks, which have been criticized for failing to introduce innovative solutions for every day problems faced by their customers, are now in a rush to avail products that enable people like Beyene receive their money in a matter of seconds.

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The Bank of Abyssinia, one of the top five profitable financial institutions in Ethiopia, is the pioneer in partnering with local developers to introduce an innovative solution for challenges faced by people like Beyene.

Dubbed ‘Cash Go’, the application enables users to receive money sent from abroad directly into their account, without the need to go to banks and sign papers. Developed by Eaglelion Technology, a local technology solutions provider, the app has facilitated over 10,000 transactions since it was launched a year ago, while it was downloaded by over 50,000 people.

“Its simplicity to use and the low transaction fee that we charge, have helped us to win the hearts of customers in a very short period of time,” said Bersufikad Getachew, chief executive officer of Eaglelion, who believes the remittance market is untapped and there is still room for more players to benefit from the business opportunity.

Remittance is a major source of foreign currency for the Ethiopian government. It generates over USD five billion in foreign currency annually, much higher than the USD 3.6 billion record-high export proceed registered in the last fiscal year. Despite its higher contribution, however, much of the remittance inflows come through informal channels, often leading to a widening gap between the official and the parallel foreign currency market.

The popularity of the parallel market is chiefly due to the higher premium it pays, the higher transaction fee charged by wire transfer agents like Western Union and the long procedures required to receive the money through banks, which discourages many from using formal channels.

The fees charged by remittance service providers when people send money from other continents to African countries like Ethiopia, average around nine percent — the largest in the world and three times the target set to be achieved under the Sustainable Development Goal target for remittance costs. It is not different within Africa.

The cost of intra-regional remittances is even higher than the cost of remittances from the US or Europe, which many warned would lead to further decline in remittance inflow to the continent, especially when the world is in the midst of crisis caused by the coronavirus pandemic. 

In a study published during March 2021, Brookings, a think tank known for conducting researches on major global economic problems, suggested lowering the burden of sending remittances would help African countries maximize this important flow of financing for development. It appears this has been noted by the authorities in Ethiopia, as digital remittance service providers are joining the sector.

Taptap is among the new entrants that joined the sector with a platform that enable users to directly send money to their loved ones for a rate lower than what transfer companies charge.

Accessing the app is very simple. The Ethiopian diaspora can easily download the Taptap Send app from the Apple Store or Google Play, sign up, upload payment card details, type in an amount, and add a recipient in Ethiopia and their first transfer will be on its way. The recipient does not need a Taptap Send account, while the funds will be deposited directly into the accounts of the recipient instantly.

“We can send to CBE, Dashen Bank, Amole, Hellocash, and telebirr mobile wallets. We are growing very fast, seeing a month-on-month growth, and hope to cover more banks and mobile wallets throughout Ethiopia,” said Maharit A. Woldeghiorghis, Ethiopia Launcher Lead at Tap Tap Send.

Commercials banks are also in a rush to introduce new options for users, understanding the urgency to do so as many shift towards informal channels. “We are partnering with technology service providers. We will soon introduce new digital remittance solutions to the banking market and that will have a potential to encourage senders use formal channels,” said Dereje Zebene, president of Zemen Bank. His bank is not the only one following such a path.

Bank of Abyssinia has already partnered with Mamapay, an app developed by Belcash, creator of Hellocash, to enable users request payments and accept payments instantly. Though the app has some limitations, including a ceiling that prohibits receivers to request payment of more than USD 500, it is one step ahead in the attempts to digitize the remittance market.

The Commercial Bank of Ethiopia and Dashen Bank are also partnering with different developers to bring more innovative digital products to the market. Even though this may lead to a stiff competition and affect the share of market leaders like Cashgo, its developer is confident there is a room for more players to join the market.

“I believe competition would make us more efficient and gain more market share as it encourages us to come up with innovative solutions for every problem our customers may face,” said Bersufikad.

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