On her arrival in South Africa this year Kenyan student Carol Muthoni discovered that South Africa did not host the money transfer operator, Western Union, which has a large presence back home.
For a month Muthoni had to rely on friends to receive money on her behalf, often with bank-to-bank transfer delays, before she was at last able to open her own bank account.
Last week, however, Western Union, in partnership with Absa, announced its re-entrance into the South African market after shutting up shop about seven years ago. Western Union has 16% to 17% global share of the money transfer market.
As part of the venture Absa is working with Western Union to create a cross-border money transfer offering using cellphone technology.
For millions of people, particularly from Africa, who migrate across the globe to study or to work, this has huge implications for the flow of remittances to and from their home countries.
Paulo Zambonini, Absa’s head of innovation and strategic projects, says the Reserve Bank approved the deal in July last year. He says cellphone technology is a ”leapfrog technology”, especially in rural areas where banking infrastructure has not reached communities.
A cellphone can act like a ”virtual branch” and can become a ”key infrastructure base” for banks says Zambonini. For un-banked communities, such as migrant workers, a product like this can ease their entrance into the banking environment, he says.
Last year Western Union began talks with the global trade association of mobile phone operators (GSMA), to begin developing technology for mobile phone money transfers, ”be they mobile-to-cash, cash-to-mobile or mobile-to-mobile”, says Khalid Fellahi, the company’s regional vice-president for Africa. The company launched a cross-border mobile transfer pilot project between the US and the Philippines last year.
But Western Union may already be facing competition on the continent as mobile transfer services are taking off in other parts of Africa.
In countries such as Kenya cash-to-cash mobile money transfers, particularly Safaricom’s M-Pesa offering, have taken the country by storm. Safaricom is one of the largest mobile telecoms companies in Kenya, with Vodafone as a significant shareholder.
M-Pesa, launched in 2007, allows anyone with a Safaricom account to send cash to another person by loading money on to their M-pesa account. The receiver gets an SMS that allows him or her to collect the cash at any local Safaricom dealer. Receivers do not need a bank account or to be Safaricom subscribers.
Because of the success of this service Vodafone announced the launch of a cross-border transfer offering that is being piloted between the United Kingdom and Kenya.
In the Southern African Development Community about half of the remittance market is managed through informal channels, says economics consultancy Genesis Analytics. Remittances in the region are valued at more than $1-billion, says the International Fund for Agriculture and Development.
According to Genesis, informal channels include family, friends and taxi drivers. To transfer about $40 across SADC borders in 2006, Genesis calculated that an inter-bank transfer could cost as much as $22, halving the value of the remitted sum.
Neither Absa nor Western Union would be drawn on the fee structures. Fellahi says, however, that transfers from South Africa will be structured ”competitively”.
But Richard Ketley, director at Genesis, says ”integration of traditional products and modern channels” is key to growing this market in South Africa. ”Unless the Absa Western Union [partnership] is able to leverage new channels, it will be restricted to providing services through bank branches that may not be in areas convenient to migrants,” he says.
Ketley says the major challenge in providing cross-border money transfers is to be able to create transactions that are compliant with regulations.
On a possible mobile transfer service Ketley says that before money can be transferred by phone to any service it needs to be uploaded or ”deposited” at a location that can support the necessary infrastructure to be compliant with the regulations. ”At present this means bank branches,” he says.
Crisis hits remittances?
Last week Reuters reported that in the fallout of the global market crisis remittances to Africa may take a knock. With the possibility of developed markets moving into a recession, the threat of job losses for migrant workers looms large.
Western union is assuming, for now, that business will continue as usual.
Khalid Fellahi, Western Union regional vice-president for Africa, says that the company is fairly confident that the remittance flows will remain steady. ”It is too soon to tell, but what we can say is that remittances tend to be stable inflows into developing countries,” says Fellahi.
”At the end of the day the money sent home is support money. It is not an expense that people cut.” Migrant labourers who do travel to earn money could also move to seek better opportunities, says Fellahi.
