As the world commemorated the 2020 International Day of Family Remittances (IDFR) on June 16 in this game-changing year, it is important to draw attention to the millions of migrant workers globally who play a vital role in global economies writes Desre Nieuwoudt, Huawei Southern Africa Senior Marketing Manager.
Countries around the world went to battle with a novel virus that emerged late in 2019 in order to save millions of lives, enforcing strict stay-at-home measures to curb the virus’s spread. As a result, economies globally came to a complete or a near-complete standstill. This will have directly impacted the more than 200 million migrant workers who support their 800 million family members back in their home countries (United Nations, 2020).
In April, the World Bank predicted the sharpest decline of remittances in recent history. Global remittances were projected to decline sharply by about 20 percent in 2020 due to the economic crisis induced by the COVID-19 pandemic and shutdown. Remittance flows to Sub-Saharan Africa are expected to decline by 23.1 percent to reach $37 billion in 2020, while recovery of 4 percent is expected in 2021.
The implications for those depending on these cash flows is especially profound given that the poorest across developing nations have little funds to save or put away for rainy days. For those families depending on remittances to fund their basic living costs, the risk of falling below the poverty line has increased substantially.
This illustrates Huawei’s position that Digital Financial Services (DFS) offers a new means for people, government and businesses to transact in a cashless way. With the pandemic forcing people to socially distance themselves from others, the adoption of DFS has been increasing across countries like Nigeria, Ghana and South Africa.
In Kenya where mobile money has already made great inroads, the government has actively been promoted cashless transactions as a means to limit contact spread of the virus. A MasterCard global consumer study conducted in April 2020 indicated that 75 percent of South African consumers were using contactless payments with 88 percent of the South African respondents viewing contactless as a cleaner as well as a faster way to pay and to limit the amount of time spent in stores.
Forbes Africa recently wrote that while consumers had already begun to embrace digital payment options prior to the pandemic, the health crisis rapidly accelerated the adoption rate with more consumers seeking safer, contact-free payment methods.
Estimates for DFS adoption globally may be as high as 67 percent post-pandemic adjusted 5-10 percent upwards from pre-pandemic estimates of 57% (Forbes Africa, 2020). Yet for the most marginalized and vulnerable in our economies and in society, some barriers remain that prevent more widespread adoption and use of DSF for remittances.
The most expensive corridors are observed mainly in the Southern African region, with costs as high as 20 percent. At the other end of the spectrum, the less expensive corridors had average costs of less than 3.6 percent. The World Bank estimated a cost of around 6.7 percent on a remittance value of $200 but for Sub Saharan Africa, this cost rose to 9 percent even through intra-regional migrants in Sub-Saharan Africa comprised over two-thirds of all international migration from the region.
The United Nations estimated that between US$200-300 was spent on the costs of transfers (United Nations, 2020). A major contributor to the high costs of remittances is the costly operations of cross border money operators handling cash transfers. Reducing the reliance on ash transfers and currency exchanges is thus an important way to reduce remittance costs for those sending money to Sub Saharan countries.
Digital money transfer options become essential to facilitating lower costs remittances for migrant workers. As DFS adoption increases and the ecosystem expands to bring in more services suited to the market it serves, the evolution of the platforms coupled with increased support from the government in the form of consumer protection, costs of remittances can be expected to gradually reduce.
Digital Financial Services allow for a multitude of benefits to be realized for countries and their people. Greater control of funds (how they flow and who they reach), improved accountability in systems and the ability of recipients of funds digital to better manage resources for their own development. It is important, however, for the full digital financial services ecosystem and value chain to be considered when initiatives are undertaken to improve participation rates.
In African countries with larger digital divides than more developed countries, informal channels offer the only means for migrant workers to send cash or groceries back home. Often, these resources are sent across borders with bus or taxi drivers with a portion never reaching the intended recipients. Low cost and more efficient methods for transferring funds have thus become essential.
The promised social welfare benefit for the unemployed in South Africa, for example, was delayed in part as not all intended recipients had bank accounts, could readily provide the required bank account details for payment. Additionally, some lake access to smartphones or awareness to apply for or access digital money transfers (The Rep, 2020). It is, therefore, more important than ever to improve access to digital financial services.
DFSs and remittances will thrive when the basics are in place to ensure every citizen in a country has equal access to the tools to participate in this part of the digital economy. Access to Broadband connectivity, access to smartphones to access digital financial and other services, access to affordable data, relevant content and the ability to understand and use these services are all essential precursors to a fully participative population.
The use of basic DFS is possible through existing 2G networks but this is coverage sensitive and user experience is limited when using only USSD based transactions. The use of DFS on smartphones using graphical menu systems provides better and more intuitive user experience and interface with a larger suite of services being available including easier credit or insurance application and provision and more stringent verification, authentication and security protocols being applied. Thus, more comprehensive digital service offerings and enhanced security around financial transactions conducted online requires better quality Broadband connections (Perlman and Wechler, 2019).
In Africa today, only 55% of the population of more than 1.3 million people are covered by 4G networks. (GSMA Intelligence, 2020). Hundreds of thousands of people remain uncovered and unconnected by high-speed Broadband the bulk of which are in rural areas. Without this access, many remain unconnected from other services that may be offered by governments in this time of crisis that can reach them only if networks have reached their villages and homesteads.
When financial support from family members working in other countries is no longer available and the ability to earn an income directly is impacted, the burden on governments then grows to provide food hampers, vouchers or even cash to the most at-risk groups of people. It is therefore in the best interests of governments across the continent to put their full might behind addressing the digital divide firstly with widespread quality Broadband access to all and then reducing barriers to accessing the Internet and digital services with speed.
Let us use this International Remittance Day to take stock of where we are as countries responding to our people’s needs for services to improve the quality of their lives in particular financial services. Core to the current need for people to be able to access funds sent to them in their time of heightened financial need is the ability to access Digital Financial Services as and when needed now and into the future.