Mobile money supporters often tout the benefits of using transfer services to facilitate remittances. Many users are migrants who made the financial investment to live in a Western country and send financial resources back home. But that is only part of the story. According to a 2010 UN report , the number of South-to-South migrants (73 million) in 2010 was only slightly less than South-to-North migrants (74 million) worldwide. In Africa, one-tenth of remittances come from within the continent, and South Africa (a destination country) sees most of its remittances flow to neighboring countries. Where the people go, the money follows. The World Bank estimates the value of South-to-South remittances between $17.5 billion and $55.4 billion, or in other terms, 9 to 30% of all remittance traffic to developing countries.
Sending these payments is not cheap – the average global money transfer fee is 9% while the average fee to send funds within South-South corridors is 12%. Africa in particular is one of the most expensive remittance markets in the world (see figure). Currency conversions can be costly and many countries have strict regulations on cross-border transfers, which are meant to curb illicit money flows but in practice also prohibit open markets and competition. The lack of multiple service providers (in West Africa, 70% of payments are handled by one money transfer operator) puts the burden of high fees on the customer and pushes those who cannot afford them to use informal remittance channels.
There is untapped potential for both poverty alleviation and profit in making the flow of money faster and cheaper. A recent report from the Gates Foundation estimates that the “total volume of long-distance payments is $760 billion, and 50 to 60 percent of the transactions are in cash. With a conservative estimate of revenues at 2 percent of volume, this results in annual revenues of about $6.6 billion from electronic payments.” Clearly service providers have much to gain from mobile payments going to scale but so do countries themselves – in many instances, remittances represent a large part of GDP and often exceed foreign direct investment. If money becomes cheaper to send, the Kenyan example suggests that migrants will send more of it. If we consider migration a strategy for household financial investment – as Michael Clemens and Tim Ogden argue migrant-sending households do – then reducing the costs associated with that investment provides families higher returns.
French telecom operator Orange is a pioneer in the South-South remittance market. Last July, Orange launched an international money transfer service that allows customers to send funds between Mali, Senegal, and Cote D’Ivoire using only their mobile phones. (The three countries have a long history of intraregional migration, and share a common language and currency.) While other telecom operators provide some remittance feature, usually within the mobile-to-bank account or mobile-to-agent models, the Orange service is the first international, direct mobile-to-mobile transfer system. In 2012 remittance flows from Cote D’Ivoire to Mali alone were $153 million (compare that to flows from France to Mali at just $73 million) so there is big earnings potential for Orange, whose spokesperson told us by email that the service sends roughly 1,000 transactions per day. Mobile operator Tigo ( subsidiary of Luxembourg-based Millicom) announced this week that it too is providing the a mobile-to-mobile service but with a currency conversion feature for transfers between Rwanda and Tanzania. It will be interesting to see if other mobile operators leverage their existing African networks (MTN and Orange operate in 17 countries on the continent, Vodafone in 8 and Africa’s mobile phone penetration rate is 63%) to provide similar service as the remittance digital remittance market grows in the coming years.