Founder and CEO - TERRA
In Africa the international remittances market is in the midst of a transformation. The region’s predominantly informal remittances market is embracing digitization to create affordable products and to promote economic and financial advancement of 100M beneficiaries. MobileMoneyAfrica interviewed, Ambar Sur, Founder and CEO – Terra, on the impact of digitization on the remittance landscape and his company’s vision to build a “one network” for international payments. Read on…
MMA: ASSESSMENT OF THE AFRICAN REMITTANCE SPACE
I am reminded of a phrase from Bob Dylan’s song, “the times are changing.”
Remittances are integrally interlinked with global trade and human flows and need to be viewed against the backdrop of larger emergent migratory, economic and digital trends.
“Africa Rising” is a prominent theme at any discussion on global economic growth opportunities. Today, six of the ten fastest growing world economies are African. Growing domestic consumption is fuelling a large part of Africa’ economic growth. There is a growing realization that the African Union would benefit by easing trade restrictions and creating a single economic bloc. In June 2015 three of Africa's trading blocs -- the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) signed The Tripartite Free Trade Agreement (TFTA) in Cairo to ease trade restrictions. This includes 26 countries (almost half the continent's countries) with a combined population of 625 million and gross domestic product (GDP) of US$1 trillion, amounting to 58% of the continent's total GDP. Although restrictions governing free movement of people have not been lifted, greater regional integration, once implemented would expand the inter-regional labor market.
The second is Africa’s share of the global working age population is projected to increase from 458M in 2010 to 723M by 2030. The magnitude of the demographic upswing will result in Africa becoming a high labor export market to regions experiencing a demographic deficit and would have positive implications on overall remittance flows.
Africa is on the brink of a digital revolution. The transition to data and digital services in Africa is less advanced overall than in many other world regions. Data usage and revenues are however forecast to grow strongly enabled by new submarine cables, more widely available mobile broadband networks and increasingly affordable smart phones and other data devices. The rapid evolution in communication infrastructure would create a large base of 500M connected consumers by 2018, according to Informa, creating opportunities for a range of digital services and digital commerce and banking
Collectively these trends are fuelling the demand for an effective payment networks to facilitate fluid cross-border movement of monies. In Africa recorded interpersonal flows are today pegged at USD 64B but market mechanisms require further strengthening.
The convergence of mobile and remittances has created enabling conditions to create positive market interventions and grow the market.
In the past 24 months, several technology-driven models have emerged. Broadly these can be classified into three categories –
• One - alliance with third parties wherein mobile network operators (MNOS) function as service enablers for money transfer operators (MTOs)
• Two - intra-operator alliances -- MNOs with multi-country presence connect own branded mobile money schemes; and
• Three - inter-group alliances enabling mobile wallet customers of respective partners to initiate cross-network account to account transfers.
A rapid broadening and deepening of such initiatives would catalyze market expansion.
MMA: TERRA REMITTANCE INNOVATION
In Africa where mobile phones are often more common than bank accounts, mobile payment systems have given millions of people an alternative to a cash-based economy.
Mobility's impact on international remittances has, however, largely been a promise. Currently, few formal money transfer services have a mobile first strategy.
Terra, a global payments network, is founded with the vision to enable customer to “Send Money to Any Mobile.” Terra is building the rails for mobile powered international payments. We are architecting a new model and bringing mobile wallet systems mainstream, by interconnecting them to existing financial institutions, payment systems, and networks such as banks, switches, and association card rails to facilitate international transfers. Participants retain complete control over customers whilst Terra assumes complete responsibility for securing regulatory compliance as well as transaction processing, reporting and settlements.
Our model offers the following advantages
Quick Service Scaling:-
The “connect once, transact with many” model improves reach, facilitates quick scaling and reduces costs and complexities related to developing, implementing, and maintaining connections with multiple transaction partners.
Lowered Opex :-
Participants achieve significant savings in opex, with Terra assuming responsibility for licensing, reporting, reconciliation, and settlement .
Improved Affordability and Access:-
By aggregating existing mobile wallet payout infrastructure to build an international transfer network, Terra ensures affordable service access, especially in rural areas.
Terra has complete control over the sending and the receiving side, which lends the company the unique ability to perform know your customer ( KYC) verification of the payer and the payee whilst authorizing the transaction. This creates a foundation for building more reliability, transparency, and confidence in the system.
Incremental Revenues from New Services:-
The Terra network will eventually offer participants to layer on additional financial instruments -- including bill payments, e-payments, bulk aid disbursement and micro-insurance covers.
MMA: IMPACT OF NEW TECHNOLOGIES ON THE INDUSTRY
The pervasiveness of digital technologies is transforming multiple industries. A large part of our world consumes digital products - books and music from anywhere in the world. As the infrastructure that supports the Internet expands, barriers of distance and cost that once seemed insurmountable have begun to fall away.
Digitization goes beyond the application of technology to "digitize" brick-and-mortar processes and has the power to fundamentally reshape the industry, create better products and a new, efficient and bigger international payment marketplace by:
– Architecting a one global network — Digitization makes entirely new mass-oriented market models possible by harnessing the power of cloud-based technologies to rapidly and cost-efficiently interlink existent payment schemes and offer interoperability as a service and not as a platform.
– Designing and creating new business moments — The ability to uniquely identify and track customers using the mobile as an identifier unlocks new business moments. Real-time triggers for automatic call dial-out in response to migrants initiating a remittance transaction are new business moments created by digitization. Likewise the ability to notify migrants, who want to exercise control over utilization of funds, on transactions conducted by the beneficiary can deepen engagement. Another example could be customers having an ability to review or rate services or instantly chat with customer service agents. And it all happens quickly, efficiently and transparently, providing added value to consumers.
– Unlocking new innovation – A one network essentially creates a two-sided payment marketplace opening new innovation possibilities. For example, providing greater access to additional financial services, through a client-tailored financial inclusion package that is safe, secure, instant and accessible. A case in point is Cignifi in Brazil. The service uses mobile transactional data to determine the credit worthiness of individuals, enabling a large demographic segment to access credit by overcoming barriers that a lack of traditional credit-evaluation institutions have presented to date. A broad range of “micro” trends, including micro-lending, micro-donations have become possible only because of digitization and digital platforms’ capacity to connect individual and market participants across boundaries.
Digitization also reinforces the need for a transformational change and is not about tweaking or adjusting current operations. For service providers, it will require new behaviors which embrace a more, open ecosystem culture, adoption of new technologies for quick services roll-out to capture opportunities, implementation of new metrics which provide insights on customers from multiple sources. In the context of the African marketplace, we have just embarked on our digital journey but this would fundamentally reshape the business around customers rather than products and deliver value in new ways.
MMA: ARE AFRICANS ENJOYING THE BENEFITS OF LOW COST REMITTANCES YET?
Conventional remittance products are designed to be supported by higher cost infrastructure; resulting in high prices or impractical solutions for the poorest and most remote market segments. In 2014, Africans paid $7.5B, the equivalent of Rwanda’s GDP, to transfer $64B to Africa. According to the World Bank's Send Money Africa database, Sub-Saharan Africa is the most expensive region to send money, with customers paying USD 24 for an average transaction size of USD 200, almost double the global average.
Pan-Africa, a third of remittance inflows are regional in nature and flow from the poor to the poor. The impact of weak financial systems in several markets, high rates of intraregional migration, and frequent physical transport of remittance monies, suggest informal remittances constitute a much higher share than typically found elsewhere in the developing world. For instance 70% of flows between South Africa and Zimbabwe are unrecorded flows.
Early mobile-based initiatives have helped bring down the costs on certain corridors. To illustrate an example, MTN Mobile Money in Co?te d’Ivoire and Airtel Money in Burkina Faso agreed to interoperate their mobile money services and levy a 2.5% charge for each transaction, 50% lower than MTOs and informal channels.
Such initiatives need to be accelerated across all sending and receiving corridors. Interconnecting mobile money schemes can lower transmission costs, make cross-county micro-transfers viable and expand the overall market.
MMA: AREAS OF IMPROVEMENT TO FOSTER INNOVATION
Cross-border migration is a strategic financial management tool among poor households. Globally, in 2014, the collective returns from migration in the form of intra-household transfers crossed the US$ 64B milestone, with 40% flows being channeled to rural areas. The higher liquidity offered by remittance financing enables origin households to alleviate consumption constraints, offering a significant economic lifeline for economically vulnerable households.
To maximize the developmental impact and foster greater innovation, there is a need to address institutional factors that contribute to the use of informal rather than formal channels for remittances. Studies conducted by International Monetary Fund indicate a positive correlation between remittances and poverty. A 10% rise in the remittances-to-GDP ratio is associated with a fall of 1% in the number of people living on less than $2 a day.
Regulations, market maturity, financial systems, and consumer challenges weigh on the successful delivery of remittance services. A framework which strikes the right balance between market innovation, risk management, consumer protection and stability can boost remittance inflows and have a multiplier impact on the economy through increased spending.
In my view the critical issues are:
Strengthening Domestic Payment Supply:-
Weak financial systems limit the development of the remittances markets. Whilst 40+ African countries have embraced digital financial services, the number of active customers is low. There is a strong need to strengthen banks and the digital payment systems market, which would lay the groundwork for eventual cross-border links of these domestic payment systems.
Creating an Enabling Policy Framework:-
Regulators in Africa have helped pioneer the mobile money revolution. Africa today is widely known as the “Silicon Valley of Mobile Financial Services”. With growth in mobile money transactions, the use of informal channels for domestic transfers has reduced dramatically. Regulators need to take advantage of a fast-maturing mobile money marketplace to create a similar enabling policy framework for cross-country transfers. To date, few central banks have permitted outbound and inbound remittances using mobile money, and the authorization processes for operators is not well harmonized across markets.
In the last 12 months, Zimbabwe, Tanzania, Kenya, and other countries in the WAEMU region -- Ivory Coast and Burkina Faso -- have approved bilateral remittance contracts as witnessed in the recent spate of announcements. Currently, regulators are yet to define guidelines for an international remittances hub which interlinks multiple service providers. This is a significant gap. Inherently the model prevents quick scaling. Mobile wallet providers need to seek fresh approvals for each new corridor from the regulator which is inefficient and time-consuming. Likewise, licensed MTOs, who have signed an agreement with a mobile wallet service provider, need to approach the regulator for partnering with another operator in the same country.
Identification flexibility for small transactions is another crucial policy component. Regulators need to implement risk-based AML/CFT policy regime proportionate with the ML/FT risks, and that they are relevant to the size and complexity of the institution, products offered, and customer types. Mobile wallets pose lower risk as service providers can define daily weekly and monthly transaction thresholds at a per customer and global level, and all transactions are recorded and traceable.
Other regulatory issues relate to the taxation regime in each country. Taxes can be as high as 10% of the total service fee in several receiving markets, escalating remittal cost for consumers.
Accelerated competition is cost-beneficial for consumers. Regulators need to lower entry barriers for newer players and liberalize licensing regimes, granting licenses to non-bank players.
Rather than a licensing regime, regulators in Africa need to evaluate a registration or a tiered licensing for money transfer businesses (MTB). The system could accommodate a range of money transfer business under different tiers, allowing smaller and informal players to join the regulated remittance sector as legitimate market players, with entry and operating requirements much lower than those for regular, well-established MTBs. Canada, United States, the United Kingdom, and Mexico have adopted registration regimes, and the number of principal MTBs is much higher than the number of principal MTBs in the countries with licensing regimes. The applicability of these models needs to be studied in the wider African context.
Regulators also need to curb anti-competitive restrictions such as exclusivity agreements as they limit the market for smaller players. Russia, for instance the world’s cheapest country to send remittances made substantive progress in rationalizing the average price of transfers by ending exclusivity contracts between MTOs and Banks
Improving Information Infrastructure:-
Greater information on authorized players and pricing transparency can win customer trust essential to channeling higher volume of funds over formal channels. In Uganda for example, the Central Bank publishes a list of authorized remittance agents for public viewing to earn consumer confidence and trust. Comparative remittance price databases, such as the ones available in Australia and Germany, can improve uptake of formal remittance services in Africa.
MMA:VISION FOR AFRICA AND MARKET OUTLOOK
Currently, as per the World Bank, the share of mobile in international remittances is 2%. In Africa the share is even lower By harnessing existent mobile financial scheme to move monies, Terra’s mission is to ensure the quantum of international remittances channeled over the mobile grows to 20% in Africa.
African markets, as I have illustrated earlier, have a number of characteristics that provide fertile ground for growth of mobile remittance services. Terra believes a “perfect remittance product” is one that is securely and affordably delivered “on mobile--and by mobile” and complemented with additional micro-banking and payment services.
MMA: STAKEHOLDER EXPECTATIONS AT REMITTANCE AFRICA CONFERENCE
Building an international remittance marketplace entails the creation of a dynamic ecosystem where a broad range of industry player’s mobile network operators, banks, regulators, mobile payment providers and exchange houses – embrace the same vision and work collaboratively. Remittance Africa offers a platform to foreground vital growth-related industry issues around technology-driven market interventions, policy and regulation. This would aid in realizing a vision for low-cost remittances in Africa and accelerate the creation of an ecosystem to deliver essential value to stakeholders and consumers alike.