Digital remittance services and its Impact on Remittance Volumes to Africa

By: Emeka Madu, Co-Founder/CEO, RemitPlus

Digital remittance to Africa enhances access and convenience to much-needed cash, which is critical for many people’s financial survival, growth, and development. Reliance on digital remittance has emerged as the perfect solution. Let us look at the impact of digital remittance services on remittance volumes to Africa. 

Importance of remittance to Africa 

Most households in Africa <https://unctad.org/press-material/facts-and-figures-7> operate below the poverty line, highlighting the importance of digital remittance. Family and friends fortunate enough to live and work abroad send money back home, which is of great help, as can be seen on this IFAD website <https://www.ifad.org/en/web/latest/-/12-reasons-why-remittances-are-important>. 

For example, migrant workers send between 200-300USD monthly back home, which is about 15% of their earnings. However, this figure translates to about 60% of the recipients’ household income. Additionally, digital remittances, specifically money sent over mobile transfer, accounted for 65% of total remittances. 

First of all, let’s define what is digital remittances: Digital remittances refers to funds migrant workers send back home through the internet. Digital remittance services became active with advancements in ICT, according to data from the World Bank, digital remittances  experienced an exponential growth starting from the year 2000. Before 2000, remittances to Africa were below US$5 billion. The figure soon increased significantly, reaching US$20 billion by 2005. As the ICT industry developed, so did the amount transferred to Africa. The annual figure was close to US$50 billion just before the COVID pandemic. During COVID, the predicted dip in remittances was minimal due to people were still able to send funds back home from the comfort of their homes using the apps of major remittance companies, and this hekped defied predictions that remittance volumes would dip with most countries actually experiencing an increase.  This further highlighted the impact of digital solutions to remittances. 

Below are the highlights of the Benefits of digital remittance services to Africa:

  1. Digital remittances have boosted remittance volumes mainly through the advantages they pose. These services are an important reason why more people are sending money back home to Africa.

  2. Faster funds transfer: Senders can access instant money transfers, with the slowest taking a few hours before the recipient can access the funds. 

  3. Cheaper service charges: Digital remittance services charge relatively less for transfer support services due to decreased overheads and reliance on the already established ICT infrastructure. This increases their appeal and encourages more remittances. With better exchange rates and lower transaction costs, more money reaches the recipients, adding to the overall remitted sums. 

  4. Better access for everyone: Since a significant chunk of remittance volumes reaches rural areas, digital remittance enables more access by that population. Many in in rural areas most likely don’t have bank accounts and similar facilities. Having a mobile phone with internet access is enough for to access the funds sent to them which they can cash out from mobile money money agents in rural areas

Since most of the funds are deposited in via the beneficiary’s mobile money wallet or bank account, many people in Africa are beginning to open bank accounts and new mobile money accounts helping to drive financial inclusion in Africa.

The advent of digital remittances saw an increase in remittance volumes to Africa, and with good reason. Easing the remittance process and making it faster, more affordable, and accessible and has more people sending money back to their families and friends in Africa, the remittance volume to Africa would only increase as more companies find more innovative and cheaper ways for people to send money home.