Technology: Key to enhancing Remittance in Africa

International Forum on Remittances 2009

Session:Role of technology in expanding the frontiers of finance

Speaker: Valentine Obi

Comments on the “Send Money Home” Report1.

Advantages and limitations of New technological frontiers2.

eTranzact-eRemit platform3.

Conclusion4.

Content Layout

— Integrating advanced technologies such as card, internet or mobile based transfers can strengthen remittances

— These models bring funds into the formal financial system and have the potential to impact the economy positively

— Need for the Financial institutions to offer attractive services to low-income earning segment of the market

— Expanding payment networks to small-scale merchants, MFI’s and Post Offices can strengthen remittances

— These groups, however, do not currently have the necessary infrastructure to carry out these tasks effectively even if permitted by regulators

— Allowing financiall institutions to pay in foreign currency??— “I prefer to see less punitive exchange rates than payments in foreign exchange,

which is vital to African countries, to serve external debts.”— Will create a lot of pressure on an already depressed local currencies

— Poor market competition— There is a need to remove exclusivity clauses between MTO’s and FI’s

Comments on the Report

• Bank/Western Union model most common for international remittance

• Low usage of New technologies for remittances

• According to comments made during this forum, most remittances are received as cash • Cash-to-Cash: 80-90%• Receiving via a bank

account: 5-7%• To phone/card???

(very low!!)

Statistics of Nigerian market

WU or Personal Bank or other; 5Other; 9

N/A; 18

WU or Personal Bank; 23

Western Union; 45

*Usage of Money Transfer Methods from US-Nigeria

WU or Personal Bank or otherOtherN/AWU or Personal BankWestern Union

Western Union leads in Funds transfer

1. * Statscorp LLC 2006 group survey of cross-section of Nigerians in New York

Traditional MTO transfers, as seen above, is mainly cash to cash and therefore do not help to retain the funds in the formal sector.

Technological Innovation, on the other hand, has widened the horizon for remittances and has provided the capability:

— To remit to bank accounts— To Cards — To mobile phones

And thus, has the ability to re-shape the face of the remittance industry and drive down costs of remittances especially in Africa

Integrating innovative technology in remittances

The Mobile opportunity― The Nigerian Statistics

― Population of 140 million people― 24 million banks accounts in over 49 years― Over 55 million mobile subscribers in about 7 years

The Distinction― Low entry threshold. Used by the rich and the poor― Anytime, anywhere convenience― Potential tool for financial inclusion

Remittances could easily become the killer application in Mobile money services

Integrating innovative technology in remittances

Trend: use of mobile phones in Nigeria

* Efina report: Access to Financial Services, Key Findings of EfInA’s 2008 National Survey

Unfortunately, Use of Mobile phones to access financial services is still a largely untapped service in Nigeria

— Increases Convenience* For the sender* For the recipient

— Cost reduction* eTranzact as a switching platform which has the banks on its platform. By

connecting to this platform, MTOs/RSPs are connected to that network. Saves cost of infrastructure deployment for them.

* Reduce cost of remittances to Africa— Accurate data collection/reporting tools

* Regulators can know true value and volume of remittance flows— Secure

* Embracing these technologies will reduce cash handling — Encourages market competition

— A level playing field is created for players, which basically will increase innovation on the part of the MTO’s, which eventually reduces cost of operation

Advantages of New technologies

― Enhances Expansion of Payment Networks― MFIs/ Post Offices can come on-board in a low-cost way― Widens access to remittance service especially to rural people

― Strengthens economic opportunity by providing a means to save— Rural poor WANT to have bank account

• To keep money safe• To send and receive money safely• Remittance to cards/phones provides the means to store money safely

These technological innovations provides access to financial services to the rural poor in a low-cost, secure and convenient manner – serves as an enabler to banking the unbanked in Africa

Advantages of New technologies

― Regulatory framework for cross-border remittance― Increasingly complex and varies by country― Need to put in place an enabling environment

― Lopsided market competition that is against smaller MTOs― Need for partnerships among players to drive interoperability― Exclusivity models should be discouraged― To achieve low costs, competition must be encouraged

― Overcoming the literacy barrier in Africa― Need to educate the rural people on use and benefits of these services using

effective marketing channels― Requires commitment of the project drivers

― Infrastructural challenges: ― MFI/Post offices do not have the infrastructure / funds to deploy the needed

infrastructure ― eTranzact plays a role here to provide such an infrastructure

Limitations to these innovations

eTranzact eRemit Platform

About eTranzact eTranzact is an award winning, innovative and cutting edge technology payment platform. It is a fully Integrated Multi-Channel Switching Platform, Payment Processor and Mobile Banking / Payment solution.

eTranzact is currently deployed in five African countries (Ghana, Ivory Coast, Nigeria, Zimbabwe and South Africa (WIP)) and aggressive plan is in place to deploy the platform across the various African countries at the shortest time possible.

There are currently over 35 banks and 15 MFI’s connected to the platform. Also, there are over 60 MTO’s on the network at the moment.

Sender RecipienteTranzact-eRemit platform

Remittance Organization

eTranzact-eRemit Architecture

Mobile phone

Pre-paid Card

Bank account and Cash Outlet

Multiple collection

points to drive usage.

EASY FOR AN MTO TO

‘PLUG IN & PLAY ‘

Boosting remittance levels is made easier using the eTranzact-eRemit platform

• A STRONG SWITCHING PLATFORM• AN ESTABLISHED NETWORK OF BANKS

CONVENIENCE FOR SENDER & RECEIVER

Remit to Bank Account

Remit to Card

Remit to Phone

Remit to Cash Outlet

eTranzact-eRemit FeaturesUser Alert

ServiceComprehen

sive Transaction

Report

Online Real-time

Local and Internationa

l Money Transfers

Seamless Interface

With Partner Payment Network

Secure Money

Transfer Service

Technology plays a key role in boosting remittance levels in developing countries because the use of innovative technology in remittance services enhances:

1. Savings • Especially valuable to the currently ‘unbanked’ market

2. Reduces cost across the entire value chain• Lower costs to deploy service translates to lower fees• Needed in these times of financial crisis

3. Convenience• Using an every day tool for your everyday transactions

Conclusion

“Remittances provide a lifeline to many poor countries. Although they remain resilient, even a small decline of 7 or 10 percent can pose significant hardships to the people and to governments, especially those facing external financing gaps. Reducing remittance fees and developing innovative tools to leverage remittances for financial inclusion and capital market access should be a part of our response to the financial crisis.”

- Dilip Ratha, Lead Economist in the Development Prospects Group of the World Bank, on the impact of the financial crisis on remittance levels.

Thank You