December 26

Claire Scharwatt and Chris Williamson

Mobile Money Without Borders: How a new model is transforming the remittance landscape in West Africa

The GSMA recently released a case study that highlights early results from a promising new model for cross-border remittances. In this blog post, Claire Scharwatt and Chris Williamson share some insights into this new model, which they believe is transforming the remittance landscape in West Africa.

International remittances are a major source of income for people in many developing markets. One in seven Africans receives remittances from friends and family abroad. However, Africans pay the highest transaction fees in the world: 12.4 percent of the face value of the transaction on average —much higher than the global average of 8.6 percent.

Mobile network operators (MNOs) that were already providing domestic P2P transfers through their mobile money services quickly recognised an opportunity to leverage their transactional platforms and distribution networks for international remittances. To date, this has mostly taken the form of receiving partnerships with established Money Transfer Operators (MTOs), such as Western Union or MoneyGram. But recently, the industry has been experimenting with a new model that uses mobile money as both a sending and receiving channel. This allows operators in developing markets to target key intra-regional corridors.

What has been the success of this approach for international transfers? To answer this question, we analysed two of the first services using this new model: Orange Money International Transfer, which links up Côte d’Ivoire, Mali and Senegal, and a partnership between MTN Mobile Money in Côte d’Ivoire and Airtel Money in Burkina Faso.

The example of Orange: Cross-border remittances within an operator group

As its mobile money services in West Africa matured, Orange decided to launch international transfers via Orange Money between Côte d’Ivoire, Senegal and Mali, which are all members of the highly socio-economically integrated West African Economic and Monetary Union (WAEMU). Launching in three markets provided attractive network effects, but with a manageable level of cost and complexity, as the three services operate on the same platform, work with the same partner bank, and are regulated by the same Central Bank (the Banque Centrale des Etats de l’Afrique de l’Ouest).

Implementation was relatively straightforward; the service went live in July 2013, just six months after Orange decided to launch. The launch focused on convenience and ease of use, with Orange branding the service as “Faster, Simpler, Accessible Everywhere.” Economies of scope for the core domestic mobile money business also enabled Orange to compete strongly on pricing, with customers paying around 2 percent of the transaction value on average.

The rapid adoption of the service has surprised even Orange: transaction volumes and values have been doubling roughly every six months. By the second half of 2014, the value of cross-border remittances on Orange Money accounted for an impressive 24.7 percent of all remittances between the three markets.

The example of MTN Côte d’Ivoire and Airtel Burkina Faso: Partnering for cross-border remittances

In April 2014, MTN and Airtel launched a landmark collaboration that allowed MTN Mobile Money customers in Côte d’Ivoire to transfer money to Airtel Money customers in Burkina Faso. This was the first time two operators from different groups interconnected their mobile money services internationally to offer cross-border mobile money transfers.

Affordability for customers was at the core of the value proposition, as well as convenience. In fact, low-value mobile money remittances from Côte d’Ivoire to Burkina Faso cost the same for MTN users as domestic transfers. The customer experience was also designed to be very similar to sending money domestically, and marketing materials closely mirrored those used to promote domestic transfers.

The service quickly gained traction, particularly in rural Burkina Faso, where 60 percent of recipients live. The average value of transactions has also increased over time to reach USD 150, which is now close to the average value of remittances sent from within Africa to Burkina Faso. This underlines the level of trust that has been built up in the service.

Unlocking the opportunity beyond West Africa

These two early implementations provide some interesting technical, commercial and operational insights that will be relevant to other markets in the future:

· Cross-border remittances require interoperability between mobile money schemes. This can be implemented directly through bilateral agreements (as in the case of Orange) or indirectly through a processor (as in the case MTN and Airtel, which have opted to interconnect through a hub, HomeSend). These two models offer different trade-offs on complexity, cost, scalability and speed of implementation. In the long run, the GSMA envisages that the greatest opportunity will come from more operators interoperating across different groups.

· Compensation fees may not be necessary to align commercial incentives for sending and receiving operators. While MTN and Airtel created a compensation fee paid by the sending operator to the receiving operator, Orange opted for a “bill and keep” model with no compensation fee. The sending operator gets a transaction fee, while the receiving operator gets the standard cash-out margin, when the customer cashes out. This is a simple model that could become popular for other cross-border mobile money services.

· Operational costs are low for well-established mobile money operators. Orange, MTN and Airtel have found that cash-in and cash-out patterns for international remittances are similar to those associated with domestic P2P transfers, creating strong synergies in liquidity management. If their existing distribution networks are strong, the additional operational requirements are not onerous for operators.

Although cross-border mobile money transfers are in their infancy, these early implementations already highlight a remarkably strong underlying customer demand. Even outside the West African Economic Monetary Union, established mobile money operators that secure the permission of their central banks could carry a significant share of remittance flows between developing countries within a short period of time. While this could impact traditional remittance channels, underserved customers would stand to benefit from much more affordable, convenient and secure money transfer services.

Read the report, ‘Mobile money crosses borders: New remittance models in West Africa’.

Claire Scharwatt is the Market Engagement Senior Manager and Chris Williamson is the Mobile Money Services Senior Manager at the GSMA’s Mobile Money for the Unbanked program.

Photo courtesy of AMISOM Public Information.

digital payments, financial inclusion, mobile finance, remittances, research