A look into the cost of cross-border mobile money transfer

Cross-border mobile money transfer is now seamless across East Africa, particularly between Tanzania, Uganda, Kenya and Rwanda.

And though there has been the occasional glitch compromising transfer, it is only getting better. Improvement in the service has been progressive this past decade as the mobile-money revolution swept through the region and much of Africa.

Everything should be fine, except there has been a persistent concern of cost that I will get to in a moment.

First, the mobile-money revolution’s most notable accomplishment has been its inclusion of the unbanked, enabling them to save, make transfers, pay bills and improve their welfare. It has been life transforming.

The mobile service’s conveniences has also of late been dangled as a cheaper option at our diaspora, who the African Union defines as consisting “of people of African origin living outside the continent, irrespective of their citizenship and nationality and who are willing to contribute to the development of the continent and the building of the African Union”.

With the money they have been sending home, it is easy to see the point of AU’s mention of development in the definition.

For instance, sticking to East Africa, the recent World Bank Migration and Development Brief shows how, between 2013 and 2018, countries in the region received $17.38 billion from their citizens living abroad. This is hefty, not only lifting families’ fortunes but boosting foreign exchange reserves of the countries.

And, despite the high cost of sending, the remittances increased by more than 60 per cent from $2.84 billion in 2013 to $4.66 billion in 2018.

To get an idea of the cost, the global average cost of sending $200 stood at around seven per cent during the first quarter of 2019, with sub-Saharan African countries recording the highest at 9.3 per cent.

Note that these remittance costs mainly involve banks and post offices which, as a global concern, the aim is to reduce the remittance costs to three per cent by 2030.

While 2030 is still some way, respite has been shown to lie in mobile-money platforms. The global association of mobile network operators, GSMA, observes that it is 50 per cent cheaper to send remittances using mobile money than using global money transfer operators. The association also projects a decline in the cost of sending remittances through mobile phones.

But that is as the larger world is concerned. Things appear a bit different in East Africa. First, the good news is that the region is a step ahead with mobile money transactions, including transfer within the four countries.

The success is such that the volume of mobile-money transactions within the countries now almost matches or outstrips bank transactions of which Kenya is particularly an example.

The only problem is that similar success is yet to translate cross-border. The policy to enable cross-border transactions apparently is nonexistent, while the biggest hurdle is perhaps the cost of cross-border money transfer.

Thus the concern earlier mentioned. I will, for the sake of argument, take the example of Kenya’s Safaricom and Rwanda’s MTN to highlight the cost issue, especially as it plays out in the commission or fixed charges and the exchange rate margin.

To send the $200 (Rwf181,000) in Kenya shillings from the former to the latter, the MTN recipient will get around $183 (Rwf166,375.28). The transaction fee just over one US dollar (Rwf985.6) which works out as 0.5 per cent. However, the recipient gets the money minus $17 (Rwf15,400), an exchange rate margin of 8.5 per cent.

On the other hand, if one sends the $200 in Rwandan francs from MTN, the Safaricom recipient will receive $192 (Rwf173,760) at a transfer fee of $8.8 (Rwf8000). This works out as 4.4 per cent. The recipient gets the money $8 less, an exchange rate margin of 4 per cent.

The overall costs are nearly the same for the two networks; only that in the example of MTN Rwanda, it splits the costs between the sender and the recipient.

The general rule on costs, to quote Safaricom’s explanation on its website, is that charges for sending money vary depending on the amount sent, the country from which it is being sent and the partner channel via which the money is being sent from. Each partner advises the sender on applicable charges before the funds are sent.

The charges, however, are way above the three per cent prescribed under the UN Sustainable Development Goals. They also don’t seem to match the 50 per cent less the global average observed by GSMA.

This gives credence to the conclusion that sub-Saharan African countries record the highest costs. This bears noting, as East Africa is a leader in matters mobile money.

 The cost of transfer within the region ought to be looked into. The policy should also be looked into to enable more robust cross-border transactions like paying bills and such.

The views expressed in this article are of the author.

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