Track II focused on the challenges facing the private sector and its key role in market recovery and resilience in the medium to long term. Discussions revolved around current and future opportunities for digitization, innovative business models and the cross-selling of remittance-related products and services that address the needs of both senders and recipients.
The shift from cash-based towards digital remittances is not a trend that emerged as a result of COVID-19. However, the pandemic clearly served as a catalyst for a more rapid “tech-celeration” of the industry, whereby service providers gave priority to improving mobile channels to prevent informality. Digitization helped many service providers to stay in business, despite the challenges brought by the crisis: reduction in volumes, liquidity issues and bank de-risking, among others.
Digitization should not be considered as a quick solution since it requires the strengthening of digital ecosystems, particularly in receiving countries. Without the right measures in place, the risk for a greater digital divide could actually exclude the un(der)banked, particularly women and the rural population.
The International Association of Money Transfer Networks (IAMTN) industry survey among remittance service providers in May 2020 indicated that:
69 per cent of RSPs saw a decrease in remittance volumes, whereas 31 per cent experienced an increase, mainly through a shift to digital driven by:
Lockdowns in many countries prohibited many migrants from accessing sending locations; and
Closure of brick-and-mortar locations in countries where remittances were not considered essential services (examples: Malaysia and UAE).
Some countries have been hit much harder than others:
South Asia, East Asia and the Pacific region have been most affected by outbound remittance changes; and
Nations in sub-Saharan Africa have been heavily impacted by the drop in inbound remittances.
Another important aspect that was explored during these qualitative discussions and through IAMTN´s monthly webinars during 2020 (otherwise difficult to quantify) is the move from informal to formal channels.
Impact of COVID-19 on mobile money. Mobile money providers became an integral part of countries’ COVID-19 response, working in close collaboration with governments and regulators, establishing a set of measures aimed at facilitating fast and safe transactions through mobile technologies. Measures included: increasing transaction and balance limits, transaction fee waivers, flexible KYC and on-boarding requirements, declarations of mobile money service providers and agents as essential service providers, liquidity support to agents, and disbursement of social transfers directly to mobile money wallets.
The prevalence and accessibility of mobile money services made them a preferred choice compared to other alternatives. Examples: across South Africa and sub-Saharan Africa.
Impact of COVID-19 on mobile money-enabled international remittances
Despite the World Bank’s projections, mobile money-enabled remittances had a healthy growth and remained resilient compared to other channels. This is due to many benefits of international remittances via mobile, including extended reach, enhanced security and convenience, and low costs. These benefits were also driven by a shift in consumer behavior, as a result of imposed restrictions in movements during the peak of pandemics, as well as the perception of cash as a COVID-19 transmission vehicle.
Going forward: challenges and opportunities
Financial inclusion – for migrants and their families – is a priority, whether digital or traditional access to financial services, and key stakeholders should work together to implement projects towards its achievement. Now that remittance fees are decreasing, the global community is shifting its focus on opportunities and solutions on how to leverage these funds rather than just lowering their transfer cost.
The de-risking approach taken by banks severely penalizes both remittance service providers and migrants. Rather than reducing risk, it contributes to increased vulnerability by pushing “high-risk” clients towards small financial institutions that may lack adequate Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) capacity, or even out of the financial sector altogether. Unfortunately, communication among relevant stakeholders on de-risking matters is still limited and needs to be strengthened.
Regulatory barriers can be overcome by:
facilitating market entry for non-traditional providers including fintechs and mobile network operators to encourage competition;
applying the principle of proportional regulation (i.e. lower requirements for lower balances/transfer amounts), for example for intra-African corridors, where most transactions tend to be lower than US$100 and even US$50;
streamlining the process of securing approval to connect new corridors via a previously approved hub, such as MFS Africa (https://mfsafrica.com/); and
taking into account multiple regulators and establishing a continuous dialogue to address shared challenges (one example is related to insurance products for migrants and families back home and cross-border remittances from the UAE, where central bank and insurance authorities are involved on both sides of the corridor).
Digitization can facilitate the provision of affordable and accessible solutions through blockchain technology, as highlighted by GSMA and IFAD’s learning partnership: How mobile money is scaling international remittances and fostering financial resilience: Learnings from Valyou in Malaysia.
Collaboration between the private and public sector is imperative to ensure this transition to digital does not create a divide among countries and areas.
Digitizationrequires enablers and infrastructures to jointly collaborate, particularly in relation to digital identity, which entails an active role of the private sector.
Remote and digital on-boarding will ensure service continuity during future lockdowns and promote the acquisition of new customers.
The bundling of adjacent digital financial and non-financial services, such as insurance or savings, with remittances has proven to be an effective way to expand financial inclusion among previously un(der)banked remittance families. When these services are additionally supported with targeted literacy programmes, the impact tends to be greater.
Moving forward, it will be important to focus on opportunities that will allow for greateradoption of digital products, including:
inclusion of non-traditional actors in product development processes;
increased investments towards a digital ecosystem ensuring an inclusive switch from cash-based remittances, entailing greater smartphone availability and internet bandwidth;
investment in awareness and education in both digital and financial literacy for shifting consumer behaviour to move from cash-to-cash services to digital;
enhanced innovation in remote customer on-boarding; and
an e-KYC system that enables undocumented customers access to formal financial
Best practices and reports
Some of the initiatives taken by RSPs:
Priority was given to upscaling digital and mobile channels
Reducing or removingtransaction costs, when possible
Shaping marketing and awareness campaigns
Providing incentives for customers and expanding financial services
Improving agent networks and increasing partnerships within the industry, taking social responsibility to provide remittance services
Providing products and servicesformigrants’ immediate needs – remittances and financial services, access to telehealth, access to loans, insurance, and payment services, among others
Investing in financial education and digital literacy campaigns to bring as many migrants on-board to digital channels and many employers on-board to credit migrant wages through the digital platforms
In Senegal, many customers who did not have their required e-KYC documents could have access to mobile money services for the first time in a tiered way. Orange Money evidenced gender parity among new customers, as women could benefit from facilitated access, without the required e-KYC documents.
Vodacom in Mozambique protected its agents by giving them personal protective equipment during the pandemic, ensuring services were not disrupted.
Initiatives taken by the public sector:
Some governments released stimulus grants via mobile money platforms
Central banks eased regulations, including limits on mobile transactions
The Financial Action Task Force (FATF) released guidance on e-KYC
Initiatives by International Financial Institutions (IFIs):
IFAD, beyond its contribution to the global dialogue and role within the RCTF, shared its activities in response to the needs identified at the global, regional and national level. In particular:
To help address the existing data gap, it also launched the RemitSCOPE Africa portal to help support identifying market gaps and opportunities for RSPs.
IFAD is also conducting the first large-scale remittance market assessments in seven African countries (Gambia, Ghana, Kenya, Morocco, Senegal, South Africa and Uganda, and will be including Ethiopia and Cabo Verde as well) and analysing the impact of the COVID-19 crisis in the sector.
These are also aimed at engaging in national cross-sector dialogues to implement identified priorities in line with the Global Remittance Community Task Force findings – The Blueprint for Action on remittances in Times of Crisis.
In addition, and to support the implementation of findings and needs, IFAD kick-started its support to the remittances private sector by launching a series of National Calls for Proposals (The Gambia, Ghana, Senegal): to be extended to Kenya, Uganda, Morocco and South Africa.
To address identified region-wide challenges such as customer due diligence (CDD) and KYC issues in the remittances marketplace in Africa, IFAD launched a EUR 1.4 million project with the Centre for Financial Regulation and Inclusion (Cenfri) to support private sector entities in addressing these and identify viable business applications.
“During lockdown, some members [RSPs] started reducing the costs. To scale up, they needed financial support. It costs money to scale up to digital channels. So far, they did not transfer these costs to the final price.” Veronica Studsgaard, IAMTN
“There needs to be a paradigm shift: we need to make remittances count more, through financial inclusion. The private sector plays a key role towards this end.” Pedro De Vasconcelos, FFR-IFAD