Open Banking and Payment Innovation

One of the latest trends to hit the money transfer industry in the UK and Europe is Open Banking. Based on the use of Application Programming Interface (API) technology – and initiated by PSD2 in 2016, the Open Banking movement allows banks to make their customers’ financial data shareable and enables third parties to access real-time financial information.

As a trend considered by many to be revolutionary in the money transfer industry, it’s important to analyse the advantages of account-to-account payments; the opportunities Open Banking can hold for banks, third parties and consumers; and finally, the challenges facing the use of Open Banking technology.

Fundamentals of Open Banking

Put simply, Open Banking is a framework that allows institutions to share financial data safely and securely with consumers and third-parties. Using APIs, licensed third-parties can gather financial information, integrate this data or even push payments directly from customers’ bank accounts to third party systems including mobile apps and online portals  

Account Information Service Providers (AISPs) can fetch read-only financial data which allows them to compile customers’ financial information, make recommendations, provide intuitive services and more. In comparison, Payment Initiation Service Providers (PISPs) can make direct bank transfers – or ‘Account to Account’ (A2A) payments – from bank accounts.

Key features

With recent surveys suggesting that over 86% of financial institutions are aiming to use open APIs to enable Open Banking in the near future [1], it’s no surprise that Open Banking offers a range of benefits to third-parties and consumers alike. For example, A2A payments have notable improvements to UX, including the removal of conversion barriers; these improvements result in a more efficient transaction journey, allowing consumers to make payments through their own banking app without the need for inputting card data.

Direct payments initiated by PISPs also have a higher transaction acceptance rate (95% in comparison to up to 14% failure rate for card transactions [2].

However, aside from these beneficial features, a key advantage of Open Banking for all involved is the reduced fees in comparison to card payments. A2A payments don’t involve transaction fees or operational costs, saving users up to 80% on fees in comparison to card payments [3].

Another benefit offered by Open Banking that seemed to excel in its rollout is that of security. With a significant increase in card fraud as a result of the rise in digital payments and remittances in recent years, the need for a more secure transaction experience was overdue. With Open Banking, this risk appears to have been reduced, with PSD2 and the UK’s Payment Services Regulations (PSRs) keeping Open Banking services in check.

Finally, similar to what we’ve seen with the rise of technology instruments such as E-wallets and Super Apps, Open Banking and Open-Source technology facilitate a wide range of new opportunities across not only the payments industry, but other verticals too. The collaboration between established banks, Fintech companies, third parties and software providers (such as RemitONE) encourages the integration of services to create new and improved propositions [4].

With new open-source technology and fintech enablers like RemitONE, consumers can have more control over their apps, and offer more services to their customers. Making use of RemitONE’s established Open Banking partners also allows Fintech start-ups, money transfer operators (MTOs) and banks to utilise new technologies and offer their customers a safer and better experience.  

Considerations

Open Banking has certainly gained traction over recent years and the benefits seem to be providing innovative solutions for common issues in the payments and remittance industries. However, as with all developments, it’s important to analyse the challenges presented by the introduction of new technology for both the clients and consumers. For example, the main challenge facing Open Banking is security, particularly as A2A payments are more often being utilised by smaller Fintech companies [5].

Final Reflections

It’s clear to see that Open Banking plays host to a range of key benefits for banks, third parties and consumers alike in all industries. It can offer lower fees and enhanced user experience, paving the way for collaboration between traditional and modern players in the payments and remittance industries.

However, the challenge of implementing new technology continues to be a essential part of the digital revolution. In the coming years, it will undoubtably be of interest to see how the Open Banking framework, PSD2 and Open-Source technology will continue to evolve, and where it will take the Payments industry.

References

[1] https://www.finextra.com/blogposting/20777/four-ways-open-banking-can-benefit-financial-institutions

[2] https://recurly.com/blog/benchmarking-minimizing-credit-card-transaction-decline-rates/

[3] https://truelayer.com/openbanking/open-banking-payments-vs-other-payment-methods/

[4] https://www.openbanking.org.uk/wp-content/uploads/Open-Banking-A-Consumer-Perspective.pdf

[5] https://www.comparethecloud.net/articles/opportunities-challenges-open-banking/

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Video: The Rise of Digital Remittances – How to capitalise?

Continuing our recent discussions exploring the evolution of the remittance sector, RemitONE hosted their IPR EMEA event on 2-3 March 2022. The 90-minute panel session centred around the future of digital remittances.

The panel consisted of experts from both RemitONE and our friends and partners in other global companies. In case you missed the discussion, here is a summary of the key insights.

Webinar moderator:

• Oussama Kseibati, Associate Sales Director, RemitONE

Panellists:

• Richard Arundel, Chief Evangelist & Co-Founder of Currencycloud
• Assad Alawneh, Owner at Alawneh Exchange
• Luke Flomo, CRO of Vyne Payments
• Walter D’Cruz, CEO of Moneo Solutions

We have seen a drastic change in the payments industry in the last five to six years, especially in E-payments or wallet payments. In your view, what have been the main developments in the industry. Do you think these developments are to stay? And is the growth of digital payments sustainable post-COVID. 

Richard: There’s a lot to unpack in that question. And you’re right, there’s been a load of change over the last five or six years in the payments industry. Firstly, we’ve seen huge advances in core technology. And, in particular, customer trust in this technology. We’ve seen, especially in the MTO and the remittance space, a rapid rise in digital-first MTOs, which has driven more established MTOs to respond by rapidly introducing some conditional initiation funding capabilities. Nearly a third of incumbent remittance companies have now become digital. And the pandemic has obviously accelerated the kind of these digital trends.

I think, on the technology side, more and more of these products and services delivered by technology and accessible by API’s so the menu that remittance companies can choose from has just gotten bigger and easier to read. In terms of mobile banking, as well, mobile apps and mobile banking downloads are going up 50% year on year, and people are preferring this digital method.  

Another area where I’ve seen a huge change in development is customer expectation. There was already a rise pre-pandemic as a digital company, but you add on the impact of COVID and this heightened digital expectation and we’ve seen a huge shift to digital products. And it’s driven these traditionally non-digital companies to think much more digitally. So, there’s this new age of competition.  

What new technological advances are now being utilized in the digital remittance industry, particularly in your area or space? 

Assad: I’d like to talk about the main elements of the technology, which is considered API. I think that the development of the API’s makes significant changes to the industry and to how we connect with partners – we connect with other services and provide the services in a different way. API’s are now a key driver for FinTech and for the payments industry. Without the API’s we wouldn’t be able to provide digital payments or even mobile applications, or payments through the mobile application, sending and receiving the remittances through the API or through the mobile application.

I think as well, this will increase the volume of the transaction because I think FinTech companies, now, their main development they have is the API because they can connect to any other service providers in the industry. Through the API’s, we can even improve the customer journey with the service. So, we have been able to provide payments through them with the application because we are able to connect to payments because if you want to provide a mobile application, for example, to send my resume by application, you need a way to pay for the transaction through your bank account or via the debit card. So again, this is connected through the API’s, and this technology as well. 

Where does open banking fit into all of this? How does it work? What are the benefits for money transfer businesses? 

Luke: The UK open banking framework that’s been created has helped in many respects, and gained access to payments infrastructure. But I think one of the key problems is the fact that the banks today aren’t incentivized to open up their back end in terms of all that information and data, because they’ve spent years and years capturing it. And now essentially, PSD two, as stipulated, they need to now open up all that data for free. And I think one of the big points that we need to work with these organizations from a FinTech perspective across the board is how do we help them to monetize that data to a certain extent, and how do we then consume it in a really accessible way, that means that we can reduce friction for a consumer. 

I think one interesting fact is that about 80% of the UK population have now got a smartphone and about 78% of adults are now digitally banked, and 14 million of them have got a digital-only bank account. So, there’s a real demand for this as a utilization of payment infrastructure. Many of you may be aware that open banking hit the 5 million consumer mark. So, consumers are utilizing this type of technology on a day-to-day basis. It’s now up to us in our costs across the globe to start allowing consumers to utilize this payment method in all the different use cases and scenarios. 

How can employers leverage technology to expand their networks without necessarily having a presence in that country? 

Richard: I think, firstly, if you’re looking at expanding your network, one way to do that is expanding the number of kinds of pay-out corridors or countries you can send money to, which ultimately expands your user base within the country that you’re working in. The second way you can do that is maybe looking at collections as well as payments, for example, we talked earlier about the current rise of e-payments or e-wallets. And thirdly, partnering with companies who can use technology to leverage their licenses and the compliance and their regulation, which enables you to expand on a global basis without necessarily having a presence in the country. 

How can crypto and blockchain assist NGOs in facilitating cross border payments? 

Walter: Firstly, I sat and watched the first panel today, the first session on digitalization and, you know, a lot of that crossed over to what we’ve been talking about today, which leads me to believe that actually it’s not about crypto and blockchain assisting MTOs, it’s about how they’re going to migrate into the digital world. And blockchain is just one technology platform that will support that move. 

However, in today’s world, the cost of compliance is getting higher and higher. And that’s where I see crypto coming into it, in terms of reducing that cost of compliance. In actual fact, the cost of sending money or moving value is going to get cheaper and cheaper, yet the cost of compliance is going up. So that’s where blockchain can assist, it’s not so much in the transfer of value, because it’s a currency right? The value is whatever the market perceives to be. What can you include in that blockchain that will enable better compliance, better transparency, and therefore fewer people or humans touching it, therefore driving your costs up? 

Oussama: I think one of the issues with Bitcoin was people are not using it as all it was built for – as a currency. Now it’s obviously more of an investment. And that’s where we see the volatility of it and of course, what’s happened. If crypto is pegged to a fiat currency, then absolutely. But then we get into the question of regulation; is there enough regulation? Is there going to be more regulation? Is it going to help people bypass some sanctions?  

What are the critical questions when evaluating a payments vendor gateway provider that we should be asking? 

Luke: It really depends on what you’re trying to achieve. In essence, I think most organizations are looking to acquire new consumers, retain existing consumers and make life as simple and as easy as possible for both the consumer and themselves in terms of working practices and UX and UI. So, I think the key thing you should be thinking about or contemplating when looking at a payment gateway and acquiring a vendor or an alternative payment method is where am I operating? Where are my consumers based? And can that organization support me in those specific territories, either with local payment knowledge, insights, data, as well as connectivity? If you’re operating outside of the UK, there are other alternative payment methods to the likes of credit cards, debit cards, and e-wallets, and there are specifically wallets and payment methods in certain territories. 

So we know that regulation is one of the biggest challenges in the industry, what new tech is out there to overcome these challenges? Specifically focusing on fraud as being one of the biggest challenges. 

Assad: I think for the regulator how do you identify the customer, and if you go back to the rational way where the customer will come to you and present his ID and you can see him in front of you face-to-face, and then you can know this customer is the one dealing with you. And when it comes to digital payments and online payments you have to identify the customer digitally. In order to identify your customer online and have the data available, you can verify the ID verification, you can do it online. 

Now, we can do video conferencing, and you can do even voice authentication in order to identify your customer. There are also companies providing the service – again, without the API’s, you will not be able to do this online verification and online customer KYC. Regarding fraud detection, I know they’ve been using big data optimized to analyze the fraud as well. I think artificial intelligence as well as is being used to identify fraud just from legitimate transactions for legitimate customers as well. As I said the video conference can take a live selfie in order to make sure that this person is the same person. So, there’s also technology now helping us to identify customers and again, to be compliant with the regulators and to avoid fraud as well. 

Oussama: In terms of regulation and transaction marginal what’s interesting is it depends on which region you’re in. But what also looks quite interesting are the steps that each region has been taking or will have not been taking. As an example, in Jordan, they don’t request any particular reports, they just request if there have been any suspicious activities. Whereas on the other hand, I know that the FCA in the UK do request a specific report and it has to be at those specific intervals. Furthermore, in Dubai, they’re coming up with lots of new regulations, but they again asked for specific reports in specific formats. 

Additionally, with AusTrack, the regulatory body for Australia that we’ve built into our system, now produces the AusTrack report and posts it straight to their website. I think it’s quite good because they’ve made those APIs available, so they’re trying to make compliance a little bit more attainable. And again, getting that information directly from the MTO themselves by being able to post that. I just think it’s a much neater way and it opened up the market for people because if they’re abiding by these regulations, that’s fine. So that was what was supposed to happen with PSD two, everyone’s supposed to abide by PSD two, and the banking was supposed to open up for everyone, which unfortunately didn’t happen.  

What does the future look like? Will cryptocurrencies replace major hard currencies in international payments? 

Walter: I don’t know what the future looks like. No, it changes every moment. But certainly, in certain corridors, crypto or digital currencies will replace hard currencies for international payments or remittances. Whether it be central bank-issued digital currencies, or the likes of Bitcoin, or some specific tethered or stable coin, a token program, most definitely. 

But, I think it’s inevitable. It’s going digital and you can’t stop that. I think the big challenge is it isn’t going to replace hard cash in the High Street, no chance. Certainly not in the developing countries where cash is still a big, big way of paying and exchanging goods and services. That’s not going to replace cash, but certainly in developed nations like Europe and the UK. 

Richard: I think the underlying technology is really interesting. I also think it depends on time horizons. In the last few years, maybe crypto has been a solution looking for a problem. I think it’s about time now that certain cryptocurrencies or blockchain technology go more mainstream. And you’re going to see more applications for it. And I think there are definitely solutions out there that can use a blockchain-driven solution, whatever crypto or stable coin that might be. 

For more information or to request a free consultation with one of our money transfer specialists, please email marketing@remitone.com

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Intelligent Design and the Digital Wallet Evolution

The shift to digital payments and money transfers has been evident for the best part of 10 years. This article looks at the increase in digital wallets over recent years, the benefits of wallet functionality, and the role of digital wallets in the road to financial inclusion.

Features and Functionality

Digital wallets are essential vehicles for storing and making payments online or with your mobile phone. Mobile wallets are instrumental in facilitating instant, contactless payments, online payments and can be topped up from bank accounts or with cash, making them a widely favoured payment vehicle when compared to other traditional methods. In addition, a digital wallet eliminates a range of friction points when compared to its physical counterpart; there’s no need to input card details or PIN to make payments. These features also prove vital for users when it comes to money transfers, making wallet-to-wallet transfers faster, safer and cheaper than ever before [1].

Mobile Wallet Popularity

At the end of 2020, over 2.8 billion mobile wallets were in use, with cosmic popularity across Asia, Africa, and the Middle East [2]. Moreover, when it comes to digital money transfers, mobile wallets are now used 50% of the time, surpassing other methods such as PayPal, credit cards and traditional bank transfers [3].

It’s clear that mobile wallets have gained enormous popularity worldwide in the payments and e-commerce world, and this trend is only set to continue, with an expected user increase of 74% over the next five years. In particular, in Europe and the Americas, digital payments are being dominated by mobile devices.

The payments industry mobile wallet evolution is driving a significant change in the fintech and money transfer realms.

The Merging of Industries

Mobile wallet payments usage is causing a seismic shift in consumer behaviour, especially in money transfers. Alongside the change towards digital remittances, a vital part of the mobile wallet evolution centres around creating a new marketplace in which these industries – retail, airtime, utility bill payments and remittances – are brought together. 

The merging of industries through mobile wallets also brings about further benefits. It makes it possible for these industries to tap into other verticals, creating more opportunities for transactional growth for supply-chain members and offering much more power and choice to the consumers.

As consumer demands continue to grow, the need for industries to unite becomes even more apparent, and with it comes a need for a ubiquitous wallet. We’re predicting this trend to snowball in the coming years, expanding the marketplace and thus fulfilling the needs of these industries and making money transfers more seamless and cost-effective.

The wallet will itself serve as a front end or gateway to these industries, literally putting the various services of these industries in the palm of the user/consumer.

Wallets for Financial Inclusion

The growing demand for money transfers and the shift to a digital world that we’ve been exploring brings us one step closer to financial inclusion.

The features and functionality of wallets offer great potential for breaking into unbanked regions, allowing users to access the financial system without the need for a traditional bank account. In fact, studies have shown that smartphone penetration now outpaces bank accounts [2]. It seems that wallets could be a solution for many users who prefer to remit money or make payments through an alternative to traditional money transfer methods.

While we’ve seen that 2.8 billion mobile wallets are currently in use worldwide, a staggering 1.7 billion adults remain unbanked despite two-thirds owning a mobile phone. The wallet is a replacement for a bank account for this 1.7 billion. This presents an enormous opportunity to Fintech players to put their wallets – with a range of backend services, including money transfers – in the hands of the unbanked via the mobile phone.

With the growing demand for digital money transfers, the increasing use of mobile devices, and the uniting of verticals, it’s clear that the payments and remittance industries are entering a new stage of their evolution. As consumer demands focus on more convenient payment methods, we can cautiously infer that mobile wallets will be critical on the journey to offering fairer transactions and overall financial inclusion.

What next?

Now that you’ve read our article, we want to help you get the most out of it and plan for 2022.

So tap into our experts and schedule a free consultation.

References

[1] https://imeremit.com.np/blog/cross-border-remittance-and-benefits-of-digital-wallet 

[2] https://wp-boku-2020.s3.eu-west-2.amazonaws.com/media/2021/09/18175330/2021-Mobile-Wallets-Report.pdf?utm_campaign=Mobile+Wallets+Report+2021+Download&utm_medium=email&utm_source=autopilot 

[3] https://securecdn.pymnts.com/wp-content/uploads/2021/09/PYMNTS-Cross-Border-Remittances-Report-September-2021.pdf 

Video: The International Money Transfer Market – Challenges, trends and opportunities

Continuing our recent discussions exploring the evolution of the remittance sector, RemitONE hosted their IPR EMEA event on 2-3 March 2022. The 90-minute panel session centred around the enormous rate of change over the last few years in the money transfer market, resulting in new technology, higher customer expectations and endless opportunities for MTOs.

The panel consisted of experts from both RemitONE and our friends and partners in other global companies. In case you missed the discussion, here is a summary of the key insights.

Webinar moderator:

• Aamer Abedi, RemitONE

Panellists:

• Elizabeth Rossiello, CEO & Founder of AZA Finance
• Hasan Fardan Al Fardan, CEO at Al Fardan Exchange
• Leon Isaacs, CEO & Founder of DMA Global
• Alex Orechoff, Financial Services Vertical Growth at Worldpay from FIS

The World Bank reported remittance flows grew by 7% in 21, and declined by only 1.7% in 2020. This is despite the severe global recession caused by COVID-19. What factors do you think have contributed to this growth?

Leon: The first point in the question is about the resilience of remittances. The people who are sending remittances need to send money and to support them both with consumption and investment needs. And that need doesn’t just disappear. In fact, it probably increased during COVID times, as families back home, found it even harder. So it really meant that people who were sending money were even more committed to finding ways to do it.

One of the key things is the changing ways in which money was able to move. So the shift to digital has clearly had quite an impact. And now every company that makes any pronouncement on remittances, is always talking about their digital strategy, how that’s making a change in what they’re doing. And I think this focus has really helped to actually bring more some more people to the market.

Hasan: I very much echo and agree with a lot of the sentiments obviously, you know, the market that we predominantly serve is the second-largest market in the world. And obviously, the organisations that had a higher degree of digital preparedness, I know people talk about transformation, it’s a big buzzword. But ultimately, it needs to translate to some degree of digital preparedness – companies that were definitely much better prepared, and benefited from drastically converting traditional cash business into a digital business.

The biggest risk with a sector is the lack of regulatory oversight, and you don’t have the benefit of robust KYC, AML, and general compliance framework, so something that we’re definitely addressing at the industry level.

Alex: What Leon was mentioning as well, is that a lot of what has happened, thanks to COVID is that people have been introduced to new digital options, and that has forced companies to really innovate quickly and offer a lot of different avenues that people were not necessarily curious about before. It hasn’t been the best onboarding experience for people, because we’ve been just trying to get everything online for our partners as quickly as possible. And it’s not necessarily the most efficient.

Elizabeth: We process for over 28 of the largest remittance companies out of and across the African continent. And already six years ago, one of our fastest-growing operators launched a corridor into Nigeria, digital-only, and it was the fastest-growing product they’d ever launched. Before that, they were a cash-only agent collection remittance company, mainly out of North America.

So for me, I don’t know why we even use the word digital, because it’s what is remittance without digital at this point? And what are financial services without digital? So, you know, we don’t even think, to work with companies that don’t have a digital offering. It’s like saying, “what is digital banking?”, everything is digital these days. And we need to go beyond that. It’s not just how to get things digitised, it’s how to streamline operations and optimise in a world that’s so fast-moving.

From a technology solutions perspective, there is literally a 100% shift to digital. But is it still fair to say that there is still a lot of emphasis on cash? How do we reconcile the two comments here?

Elizabeth: Well, first of all, even cash networks use digital verification networks. I mean, nobody picks up cash with a paper slip anymore. Nobody goes really into the bank with a printed out terminal, you’re getting a mobile code on your phone, and then you’re going to the cash agent network. And the cash agent network is dominated by mobile treasury and float operations that are digitised. And if they’re not, they’re not going to work.

So I think the companies that aren’t thinking about that, from a user perspective, from a mobile perspective, are missing out. And again, it’s not just the app, it’s also the cash management, the operations, the treasury management.

What is it like in the UAE? Do you have some data to share about this channel cannibalisation from cash to digital? Is it supporting what others are saying?

Hasan: Now there’s a very large uptake and a very large migration from traditional cash to digital and the rate of growth is very aggressive. However, cash is still very much dominant, from numbers that I have seen still around 70-80% of the market is still operating on a cash basis and it’s not necessarily because of the lack of availability of digital solutions or digital touchpoints. As an organisation and I think as an industry as well we hear a lot of emphasis on digitally-driven financial inclusion, but digital inclusion doesn’t mean that you exclude the cash customers as well.

So the future is definitely digital and the migration is definitely much higher and it will continue to accelerate in the coming years, but I still see it being relevant in the medium term.

Aamer: So you have regulatory pressures, of course, for example in the UK and Europe there is a lot of pressure to go digital. So if you’re a cash-based business the regulator just makes the landscape really hard for you to operate. The companies that collect cash from the agent shops etc are dominated by a single player which doesn’t make it conducive for other participants to participate in a fair manner.

Based on the research data that you have access to, is there a market out there where the consumers are refusing to go digital and want to carry on using cash? I know there are a few regions that showed a lot of reluctance.

Leon: I think that it depends on which region of the world as to how fast it gets there and I also think it depends on your time horizon. Some parts of the world have been going 10 years or more using various digital services and the benefits to the users are normally so self-evident you do wonder why people don’t change, but there are a lot of cultural and historical factors.

Also, we have to remember a lot of people in the world have come from countries where they haven’t necessarily had significant amounts of money themselves and also, they haven’t trusted governments or local banks – they think governments may have influence over banks or banks have collapsed and so. There’s still a generation out there that has deep mistrust in anything that’s not physically in their hands or in somebody else’s.

When cash is still king for domestic payments, it is very difficult to then accelerate international payments to make a real dent. So what we need to do is continue to encourage domestic adoption and then the international will flow much more easily.

Alex: What it pulls down to are habits and trust. Anything you have to change a habit is a point of friction, it’s not something that you want to do or you feel comfortable doing, even if all the logic says that you should be doing this new habit. It’s just human nature. So if you’re using cash most of the time chances are you’re going to prefer to do cash in this transaction, and you have to have a really good catalyst to push you off that previous habit in preference.

Aamer: So basically, the panel of experts here feels that the statement ‘cash is king’ is an overstatement. The rate of transitioning that’s happening right now from cash to digital is happening at a pace we hadn’t imagined, it’s so rapid. One of the big three players, I think close to 30/35% of their total remittance volume is digital. Contrast this to 3 years ago when I was in one of the conferences, digital was over 5%. So over a period of three years, one of the big three players’ digital remittances have increased from 5 to 30% which is significant.

From a payments industry perspective, what do you think is coming next?

Alex: One thing is how do we make a frictionless experience for customers and how do we enable that? How do we enable people to grow quickly into the corridors that they want to be in? And how do you ensure that you can have a real-time treasury in the future? Because that’s obviously one of the biggest challenges that a lot of remittance companies have today.

We’ll definitely see greater use of cryptocurrency and CBDCs, but thankfully that’s a ‘future us’ problem – I would say that’s more of a 5/10-year pursuit, depending on where the various central banks are going, in which case we are going to have to think about what are the other things we offer to expand our breadth of products and to add more value to our various customers on the side of paying in but also on the side of paying out.

Can you just define ‘Super App’ and then we can discuss what we mean by this all-encompassing mobile app?

Aamer: There’s a new buzzword we’re hearing ‘Super Apps’. I was in Saudi Arabia a few months ago and I was using one of these taxi services like Uber, Kareem, Bolt. One of them was offering something interesting – they were offering on the app the ability for someone to order a nurse and they would send a nurse within 24 hours to do a Covid test or a PCR test etc. and this is all happening from that one ‘Super App’ if you will, and that’s the buzzword here in our industry.

A lot of these new companies from neighbouring verticals/peripheral industries have an established customer base and they are always thinking of generating revenue from new sources and remittance becomes the obvious choice. It’s a case of APIs. The API these days, from technology vendors especially, are so sophisticated that it’s just a case of plug-and-play. So if you have an existing app you can simply plug into RemitONE’s API and take advantage of the services they have through the API so there’s not much work to do.

Alex: That’s where you’ll see that as a key thing and it also happens to be because you trust the brand that is all-encompassing on that ‘Super App’ – we trust Kareem because it gets us from point A to B and therefore anyone they’re selecting is probably going to be trusted as a result. So that’s the big benefit of the ‘Super App’ that you mentioned there.

Elizabeth: We’ve had digital ‘Super App’s for over 8 years over the African continent and AZA launched the first ‘Super App’ which went from just mobile money wallets to offering health services, government payments and even some banking services. It even had a white label for banks to use as well and what we saw was a real success for services that were adjacent to its core business, but services that were too far off like the medical services ended up being replaced by companies focusing on that.

So for companies that are coming from the traditional brick and mortar space, they’re facing even more of a challenge for them to launch something so agile. What we also recommend for customers that want a white label is to work with companies that know what they’re doing like RemitONE. They have a great product it’s a white label product but maybe think about devoting a team to just doing that.

What obstacles or challenges do you see along the horizon what do MTOs or exchange houses in the money transfer space need to prepare for now?

Leon: One of the obstacles is if you’re not doing a fully digital solution now then either you’re too late or you need to do something immediately – you’re probably too late, but if you’re not doing anything that’s probably the biggest thing.

I think we also have big problems still with de-risking. I know we’ve probably been talking about this at conferences since at least 2012 if not before and I think it just rears its head in a different form.

It’s one thing of course to say that we want to go digital but actually doing the transition is a challenge in itself. As a very successful organisation in the Middle East, what are your thoughts on this? What are the typical challenges an MTO would face as it transitions?

Hasan: You have to start from the perspective of the UX and I echo some of the comments from my colleagues here, provided you can deliver a seamless customer journey generally that really is the basis of transitioning your customer base. I would say players have different degrees of success, of how well they can execute that. You are seeing an environment of offline margin, you are seeing an environment of increasing compliance costs so really only the highly compliant and highly competitive and highly agile businesses will continue to succeed.

Who do you see winning the ‘Super App’ versus Marketplace battle when it comes to accessing financial services?

Alex: It’s going to depend on what other aspects of the market we’re talking about, so there are going to be situations where the ‘Super App’ is going to be preferred – either because that is the place where there’s the brand and the trust. Or that that’s where they’re getting other services that they prefer to use because it’s all of them in one place. It’s easier to just accept that I’m going to have a higher price or that I trust I’m going to have a better price for my remittance through the ‘Super App’.

Elizabeth: I think the marketplace where you’re going online is not something that the younger segments are using so we’re not seeing that inherent in the youth population, so I think customer segments are pretty split depending on age and just digital nativeness.

Leon: I think it ultimately comes down to who owns the customer and if you’ve got the right product. I would tend to lead towards a ‘Super App’ having more to offer than a Marketplace by definition, unless you actually own the customer accessing that Marketplace then you’re going to be challenged.

For more information or to request a free consultation with one of our money transfer specialists, please email marketing@remitone.com

Predictions for the Money Transfer Industry in 2022

Recent years have certainly reshaped the world of money transfers. The pandemic presented new challenges and the industry responded with innovative solutions. In 2020, we saw a great demand for mobile and online payments, driven by Covid-imposed restrictions worldwide – an astonishing 62% of banking customers considered switching from physical to digital platforms in 2020 alone [1]. It’s clear that this pace of change is showing no sign of stopping, so let’s explore the new trends and our predictions for 2022.

Cash v Digital: The Consequence of an Age-Old Question

An answer commonly sought in the money transfer space is whether the competition between cash and digital money transfer finally has a winner. Although it’s clear that cash isn’t going anywhere yet [2], digital remittances are continuing to rise, even outside the peak of the pandemic.

Customers and Money transfer Operators (MTOs) alike value convenience, security and cost-effectiveness; all of which can be easily offered by mobile and online payment systems. For example, eKYC, digital AML, payment gateway and other 3^rd party API solutions solve regulatory issues and give instant access to remitter, beneficiary and payment information. In addition, they also allow for changes to exchange rates while offering transparency to supply chain members and automating manual tasks.

As more MTOs enter the mobile money transfer space [3] – and the number of people with access to mobile devices increases [4] – digital money transfers will continue to evolve and thrive. This evolution has already made the role of technology solutions providers in this space mandatory. As a consequence, we predict we’ll be seeing these providers become a permanent part of the supply chain landscape.

Rise of Money Transfer Machines

Over the past 2 years, the money transfer industry has witnessed an array of technology features – that normally would have taken years to develop – reach the market within just a matter of months. Features such as Artificial Intelligence (AI), Big Data, Blockchain, Digital Wallets, Machine Learning (ML) and Open Banking are all entering the money transfer space. As a result, the role of technology solutions providers is becoming a mainstay in the landscape, and we can expect 2022 to be the year where these features are implemented.

The Uptake of Blockchain Technology

Most recently, there has been an increased use of blockchain-based technology for cross-border payments. The decentralised nature of blockchain not only speeds up transactions and reduces costs, but also has inherent security features which are tough to breach [5]. In addition, blockchain technology has an innate value that can eliminate the need for pre-funding in money transfers. Consequently, it can eliminate the biggest stumbling blocks for fintech start-ups in the money transfer space.

Open Banking

Another feature we’re currently seeing increasingly utilised in Europe is Open Banking. With the ability to connect banks, technical providers, aggregators and other 3^rd parties, Open Banking has allowed for a more seamless, transparent, secure and cost-effective experience for individuals.

Open Banking-powered money transfers appear to be improving the entire customer experience, reducing transaction costs and processing speeds in comparison to more traditional methods of payment. With the growing demand for improvement we’re currently seeing, it comes as no surprise that this is one trend we’re expecting to thrive.

Mobile Wallets

We’re also expecting that the definition of a mobile wallet will change in 2022. Whether it’s a send or receive market, the wallet functionality will add a host of services, including utility bill payments, airtime top-ups, micro-loans and wallet settlements. The digital wallet is en route to becoming a universal mobile bank account, through which all daily transactions of varying types will occur, regardless of where the individual is based.

What can we expect now?

Companies from neighbouring verticals such as hospitality, travel and telecoms are considering diversifying their product and service portfolios. Telcos, for example, are exploring ways to offer their own proprietary wallet with a variety of features, including money transfers, to customers. Taxi businesses are a further example of companies that are opening up remittance channels, so their drivers who are paid into wallets can send money directly from the wallet to their loved ones.

As a result, we can expect new alliances between previously disconnected verticals to take root. We can expect a rise in more Fintechs using a plug-and-play model to deliver a new breed of services involving money transfers. And finally, we can expect more aggregators to facilitate open-loop payments with instant delivery times.

To conclude, the main thing we’re predicting this year is diversification. From Open Banking and digital payment solutions to the coming together of firms from different verticals, we’re predicting more opportunities for Telcos, retail shops, MTOs, aggregators to deliver value to the customer through the digital wallet. The customer – the individual with a digital wallet – has never been in a better position to avail a variety of fully transparent services at cost-effective rates.

References

[1] https://newsroom.mastercard.com/eu/documents/mastercard-evolution-of-banking-2020-infographic/

[2] [3] https://www.remitone.com/ipr-report-2021/

[4] https://www.statista.com/statistics/330695/number-of-smartphone-users-worldwide/

[5] https://www.ibm.com/uk-en/topics/blockchain-security

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Online Event: Innovation in Payments and Remittances 2022 – Europe, Middle East and Africa

Video: The Digital Payments Boom – How to profit?

Continuing our recent discussions exploring some of the challenges and opportunities being faced by the remittance sector in these uncertain times, RemitONE hosted a webinar on the 24th of June 2021 regarding the digital payments boom that has come as a result of the COVID-19 pandemic and the rise of open banking. The panel was made up of experts from both RemitONE and our friends and partners in other global companies. In case you missed the webinar, here is a summary of the key insights.

Webinar moderator:

Ziad Mannan, Head of Engineering at RemitONE

Panellists:

• Walter D’Cruz, Director at Moneo Solutions and CEO at Livil Ltd
• Nadeem Qureshi, Chief Technology Officer at USI Money
• Mahmood Kamran, Managing Director at EToro
• Damien Cahill, Chief Operating Officer at Vyne

We’ve seen a lot of drastic changes in the payments industry in the last five to six years, particularly in the area of repayments or wallet payments. What have been the main developments in this industry?

Walter: There are certainly a lot more choices out there that have sprung up over the last five or six years, whether that’s faster payments, open banking or blockchain. One major development that I’ve noticed personally is in compliance. Although it can be a bit of a logistical headache, it is fundamentally important to all of our businesses. Because without compliance, there is no business. Technology, meanwhile, is being led by the fintech industry so it’s important that everyone else in the sector pays attention to what they are up to so they don’t get left behind.

Mahmood: The past five years have been great for the payments industry by and large, particularly in the past two years as COVID acted as a catalyst that forced payments to become digital, even in markets that were dragging their feet. Digital adoption rates have gone up by 200% and eToro saw 800% growth as businesses began moving to contactless payments. The pandemic fundamentally changed the way customers behave, the way we perceive threats and risk and how we adapt to operational challenges.

What is open banking and how does it work?

Damien: What open banking essentially does is remove all of the potential failure or friction points in open accounts and open payments. Because, at the end of the day, a card is nothing but a passport to a bank account, and all the stuff in between is border control. The Payment Service Directive 2 (PSD2), is a pretty wide-ranging piece of legislation, a piece of which essentially asks the banks to open their doors to tech companies and let them stack account information providers and payment initiation providers. It’s fairer because the cost is reduced, the controls applied by card providers are removed, the success rate is higher and most fraud aspects are removed because there are no 16 digits out there in the ether. It’s a bank-level transaction with biometric authentication that is married to the bank’s data and app. So it’s more or less 100% secure.

In what ways can instant payments become a factor for competitiveness and differentiation?

Nadeem: The objective at the moment is to achieve a real-time settlement environment. The fintech industry is moving so fast that you have to stay ahead by retaining your existing clients. One of the things driving this push is customer expectation as everyone wants access to their funds and in this regard PSD2, has created a legacy issue that we’ll probably continue to see develop over the next five years. Overall, however, not only do instant payments reduce risk, but they enhance things like reporting and onboarding too. In the supply chain, meanwhile, there is ample opportunity for new players to enter the space. For institutions though, any competitiveness is going to mean evaluating tech and reassessing functionalities such as the onboarding experience. It’s a growing trend that we’re only just seeing the impact of.

What are the implications that instant payments by open banking will have on the existing money transfer infrastructure?

Nadeem: In terms of positive implications, using open banking APIs would allow us to create a more level playing field with the older established banks. Open banking allows us to use secure channels effectively and gives the consumer a better understanding of their finances and a greater degree of flexibility. It also not only leads to new client acquisition but ensures we retain existing clients through cross-selling opportunities, forcing us to increase scalability and digitalisation. Every day we see innovations and PSD2 has opened unimaginable doors for us. Over the next few years, we will really start to see these functionalities being utilised. You may see the decline of cash and cards and people won’t want to even carry a physical card anymore, just a phone. It’s the one thing you don’t want to forget when you go out.

Can MSBs build more profitable client relationships by leveraging instant payments and open banking?

Walter: The formula hasn’t really changed. Instant payments are instant payments, the cost base is going to be the same across the base, as is the SLA. Personally, I foresee the growth of subscription-type models as there’s no other way you can build profitability in a market that has shrinking margins and increasing compliance costs. Subscription models are incredibly efficient, as if you’re paying someone each month, you’re more committed to using it as opposed to downloading competitor apps. The cost of customer acquisition isn’t decreasing either. You have to be innovative in how you bring customers in ahead of regulation and competitors. You can’t afford to sit back.

How are instant payments being positioned in the Middle East and Africa? Are they being positioned as the new normal, or premium services and what can MSPs do to set their offerings apart from those of the others?

Mahmood: What was once the premium is now the new normal. So now, with each transaction you’re always asking yourself “why does it need to take 3 to 5 days, why can’t it be instant?” This is always at the back of our minds. If a bank is not ready, such as in developing countries that are still working on legacy systems, they will be taken over by the new technology providers with the means to bring them into the modern age. We’ve seen this in the middle east as well. Banks need to catch up to this regime. The Singapore and Malaysian banks have adopted fast payment systems similar to what we see in the UK but the central banks in the middle east really need to start catching up.

When you’re looking at a payment gateway or provider, what are the critical questions to ask when evaluating a provider?

Nadeem: The key areas are reliability, settlement times and transactional cost. It’s best to go through recommendations too. Sometimes we don’t pay attention to the various card types and settlement fees but these are big issues if you’re a high turnover business. For example, you may realise your 0.2% became 0.4% because you didn’t factor in X, Y and Z. Look at the term of the contract for flexibility too. In such a fast-growing industry I would not want to tie myself up in a 2-year contract. Big innovations are happening. We also need to look at the merchant experience, the types of ports, the efficiency and the support. It’s these small areas that we sometimes tend to miss that are actually often the most important.

How does fraud play a challenge to instant payment – does faster payment mean faster fraud?

Damien: I don’t think it means faster fraud. Quite the opposite actually. Fraudsters will always try to penetrate systems, that’s what they do. But with the strong customer authentication that’s been brought in now, it’s no longer acceptable for the consumer to just have 16 digits and the expiry date, they’ve got to have two out of three prescribed things – something you are, something you have and something you know. For example, OTP (one-time passcodes). If you look at the way Vyne is set up, the transaction initiates through biometric ID into the banking app. It would be very difficult to defraud that system because your face or thumbprint is more secure than having 16 digits flying around. The way fraudsters work with card payments is they execute phishing attacks to get you to verify your card details. They’ll obtain tens of thousands of details and then run velocity check transactions with one pound to a charity if it goes through, then they start spending money with a remittance company or a retailer. You can’t phish attack those bank account things because it’s a closed loop. You can’t phish attack thumbprints or face ID.

What about the impact on profits? What will we see if we throw digital currency and blockchain into the mix?

Walter: I think you’ll see an increase in profits and the cost of compliance will definitely go down. As long you’ve got an efficient office and a way to connect to your partners then you’re always going to be ahead of the game as opposed to being stuck with a legacy system that takes forever to change or route to a different payment channel.

Mahmood: Cryptocurrency is going to continue to evolve as a method of payment. Visa recently launched their product which is based on USDC, a stable coin. They’re planning on doing the same for GBP and Eurostable coin and they’re looking for partners to initiate this. This becomes a settlement currency and represents the evolution of what digital currency will look like in the future. It’s interesting, 6 years ago I thought this was all a scam, now I’m saying it’s the future. It’s evolution.

What’s next, what’s coming up, what should we expect to see in this space in the next few years?

Mahmood: I believe you will see increased use of digital wallets and the way digital wallets are used. The behavioural change will happen. In fact, it’s happening now. A key player in this landscape, mainly for UK and Europe, is strong customer authentication, particularly biometric authentication. Strong customer authentication will be implemented as every cardholder and every merchant has to comply with this rule, and you’ll see that this makes a big change in the way by which digital payments will happen in the next twelve months. I also see cross border payments becoming more popular.

Walter: I want to talk a bit more about embedded finance services in markets like Africa, where the app will have the ability to get some micro-financing to finance lives on a smaller level. That’s definitely going to be driven by blockchain. I also think there’s going to be a lot of consolidation. Everyone is into it right now, and if you look at it historically, this isn’t a “fad” or a “trend” anymore – it’s a fact of life. In terms of crypto, you’ll see stable coins being a part of the central bank digital currency world. So settlement and liquidity for cross border payments will be instant. You’ll also see cryptos take different roles in terms of regulation. I don’t expect global consistency anytime soon though. That’s going to take a lot of time and a lot of trial and error.

Nadeem: There are the things we’re predicting, and things we’d like to see and there’s a lot of excitement and worry (on a technical level) when it comes to how we’re going to achieve these things. Personally, I think we’ll see great strides being made in the onboarding experience. Whether it’s by using open banking APIs or some other innovative tool, in terms of consumer experience, logging in and making a transaction will be extremely fluid. A lot of changes are going to happen but nobody can really predict how things will be in twelve months, at least not 100%. The generic product will be the same but the execution might be completely different.

Damien: A lot of things. Everyone said 2020 was the year for open banking. But it wasn’t. 2021 is the year of merchant adoption and 2022 will be the same but with more of an uptick of consumers getting involved in cryptocurrency and open banking, the adoption rates for which have been massive. It’s easy to see why too – they make the world of payments far easier for consumers and merchants alike – for operation and efficiency on the merchant’s side and for organising digital life for the consumers. It makes your business measurably better. Honestly, my message is adapt or die, crypto is the new technology, like it or not, it’s here to stay. There’s no stopping innovation.

Our thanks to Damien, Mahmood, Walter and Nadeem for their words and their time.

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Video: Perspectives on Digital ID – What the future may look like (eKYC and AML)

Continuing our recent discussions exploring some of the challenges and opportunities being faced by the remittance sector in these uncertain times, RemitONE hosted a webinar on the 24th of June 2021 regarding the ever-shifting perspectives on digital ID in the remittance sector, particularly in light of the COVID-19 pandemic. The panel was made up of experts from both RemitONE and our friends and partners in other global companies. In case you missed the webinar, here is a summary of the key insights.

Webinar moderator:

Saiful Alom, Head of R&D at RemitONE

Panellists:

• Richard Spink, Sales Director of Channel and Partnerships, GBG
• Osama Al Rahma, Head of Business Development, Emirates Bank
• Reynell Badoe, Payments Manager, Stanbic Bank

Why is digital ID important?

Osama Al Rahma: Digital ID is of course incredibly important through its use of KYC (know your customer) and the ability to identify the customer. In fact, it’s largely through the use of digital ID that we have been able to protect the financial regime from crime on a wide scale. The shift towards digital already started pre-pandemic and has only increased in recent months. No longer are banks encouraging the use of traditional brick and mortar branches. Instead, they are relying heavily on their digital offerings, which by default means that the ability to identify the genuine user of such services is more effective. We’re also seeing a shift to digital with eKYC (electronic know your customer) on a much larger scale when it comes to remittances. This will allow us access to machine learning with Artificial Intelligence, which is incredibly powerful when integrated with real-time streaming. Using this technology, we’ll be able to conduct more diligent processes within transaction screening and monitor the behaviour of certain users in greater depth. For the sake of financial security on the compliance side, this is incredibly important.

Richard Spink: At the end of the day, digital ID reduces compliance costs so it’s always going to be important from a purely financial perspective. However, there is no widely regarded standard for digital ID so far, at least as far as MTOs are concerned. What MTOs have generally been using as the core tenants of their ID is proof of identity and proof of address, which are attributes that can be used by financial services around the world. Of course, a standard would be ideal, but as there are so many different regulations in different countries, this is unlikely to happen anytime soon. As an aside, it’s worth noting that while Revolut has a lot of customers, they’re not profiting very well and the reason they’re not making enough money is supposedly due to the cost of compliance. Digital ID will help businesses globally and save money on the process of knowing who their customers are and the cost of compliance as a result. And I think the technology to do this already exists.

Saiful Alom: It would be ideal if there was a way to digitally identify a person, ensuring that they have met all KYC and AML needs. However, due to the world we live in, there are a lot of complications to work around.

What is the adoption of digital ID like in your respective markets and has COVID accelerated your options?

Reynell Badoe: From a Ghanaian perspective, if you look at the stats, the number of people with access to the internet is proportional to the number of people with access to so-called big data. Having access to the internet means giving up your information and as a result, you also have access to financial services and remittances. It’s a worthwhile trade-off for most. However, there are 1.2 billion people in Africa, and only a handful have access to the internet. While COVID certainly things and meant there had to be a quick adoption of digital money transfer channels from traditional methods, we still have a lot of catching up to do digitally. With regards to how? The pandemic has meant more people have had to use data platforms and open mobile wallets, creating a digital shift of necessity, so the groundwork has already been laid.

Have there been any challenges in terms of Trust Private Security?

Osama Al Rahma: Trust, privacy and security are the three main pillars when it comes to finance and that will never change. The challenge is that by the time that technology evolves, different unforeseen issues tend to arise. For example, using AI for facial recognition might be incredibly convenient when it comes to opening your phone with a glance but the negative consequence is that it is another means for fraud to occur. When we speak up about this, we need validity.

Saiful Alom: In terms of Trust Privacy Security, this is a concern for all of us as consumers – particularly seeing as online services have been adopted at such a large consumer scale since lockdown began. Trust has increased in these online services and so consumers use them more regularly. However, there are many issues to consider and chief among them is privacy. Because your data is a lot more venerable now and consumers transferring money online may question how secure their transactions really are, and if it can be hacked or breached.

Is digital ID a potential solution or a problem to identity fraud?

Richard Spink: If you’re lending money, then I think that there is certainly high risk. It’s a different process to opening up a bank account or sending money on behalf of someone else. The key thing is to ensure you are actually sending that money to the correct person and thankfully, there are more reliable tools that are able to detect these issues now. It comes down to the organisation’s fraud screening processes. The question is how much information are you able to acquire and what does that fraud screening process look like? The standard answer is that there is no silver bullet – there isn’t one organisation that has everything available to run the process at zero risk. However, in the same way, there is always risk in a face-to-face transaction too. As we all know. “Good friction” is necessary for both scenarios. What has changed in the digital process is that it is now acceptable to present an identity, run that process with a mobile phone and check for duplicates. In the future, things will get even more secure with the use of biometric technology and face recognition, thumbprint recognition and the ability to check a chip on a passport. This last process is something we’ve started working with recently. In all, there is a lot more information that is available when trying to detect fraud these days, however, the same rule still applies: you need to decide what information you want to capture and make a decision on it.

The government has been known to over-regulate and stifle innovation. Do you think that we have the right balance when it comes to trust vs innovation?

Reynell Badoe: I think that the government has a lot of responsibility to provide the basic and necessary requirements and nothing more. On the issue of trust, we’ve seen leakages in the past – breaches of customer information from companies. So, on a consumer level, there is the issue of trust to contend with, as people are sceptical as to whether or not their information is safe. An example of this is free apps – technically they’re not “free” in the sense that you give up some aspects of your digital ID data in exchange for access to that app. I’d say the question is: can the information be used against me in the future? In terms of innovation, there’s a need for better services – we need a safer place to operate without having to worry about any of these concerns and challenges. There needs to be a fine balance between regulation and opening up certain aspects of digital ID.

Where does the government sit within this space in terms of digital ID?

Osama Al Rahma: When it comes to the government, it comes down to the level of leadership of that nation and their perspective on digital transformation. They then need to lay down the military frameworks, the standards and the security aspects in order to develop a secure environment. It’s been said that once you introduce digital financial services then it’s not a case of if you will encounter fraudsters but when. There is a lot of truth to this adage, as I have seen myself when we launched a remittance app and immediately fraud occurring on a massive scale. The reality is that if you are not well-enough equipped in different aspects, you will likely encounter problems. One of those aspects is having clear risk mitigation policies, and the second is to use advanced technology to identify such risks. A third aspect, meanwhile, is knowledge and awareness. Most issues I’ve seen actually involve the consumer allowing the phishing to happen due to his lack of knowledge on how scams can occur. It’s all about protecting your consumers.

What advice would you give to MTOs and banks who are thinking of adopting digital ID within their processes?

Richard Spink: My advice would be to keep things simple and understand the regulation before you talk to a business like us. Everyone will give you different advice on regulation. In my world, I need to understand the regulation of the market the jurisdiction is operating in. For example, if your business is registered in Germany, the German financial regulation is very specific on how want that ID verification process to run. In fact, they want it done via video. But this isn’t the case for the whole of the EU. So, although the EU is one trading block, in theory, in practice there are different processes required depending on where your business is regulated. I’d also recommend considering what you need to do to confirm that someone is who they say they are. In my experience, finding proof of address is the hardest process and yet it’s required by most regulators. My experience in the last ten years shows that the proof of address data is large in quantity however there is still nowhere near enough to satisfy the global coverage.

What are the critical questions you will ask an ID verification provider?

Osama Al Rahma: Before asking the questions, develop your own strategy and consider what you will want in the near future, including your offerings, products and other engagements with the consumers as this will dictate the type of provider you want to consider. On one hand, look at the flexibility of upscaling the technology, as you want someone to partner with as opposed to a short-term solution that will leave you stuck with a legacy system that will hinder your ability to enhance your offerings in the future. On the other, look at the ability of the service provider – have they got a system that is dynamic enough to cope with the constantly shifting regulatory requirements?

What do you think this space will look like in two to five years?

Reynell Badoe: At this point, it’s all speculation, especially with the speed at which technology is advancing. For example, things that one would have expected to happen in a decade could happen as soon as next year. At this point, there’s already a lot of personal information online both knowingly or unknowingly. Now, people are less concerned about giving away their data and are more concerned about where it’s going. For example, if there’s a new online financial institution that people are gravitating towards then I, as a customer, would want to find out a bit more before parting with my information. This has led to the use of federated IDs where I can sign in to a website using my existing Google account because I would naturally be more comfortable leaving my limited information with Google as opposed to this relatively unknown third party. I personally expect to see a lot more use of federated IDs in the future.

How do you see the rate of digital adoption in sending and receiving markets, in terms of duration, post-pandemic and pre-pandemic?

Osama Al Rahma: During the pandemic, I think the main shift was that consumers released how digital engagement was beneficial to them. Why do you think China was able to so effectively control COVID-19? It’s because of their AI and biometrics. They were able to use this to track and trace the people who had been in touch with an infected person and find out which areas they were prominent in. The only positive, economic growth in 2020, in comparison to other developed countries, was China and one of the primary reasons was this biometric ability. This is already being applied elsewhere today – going through an airport completely contactless, for example. With regards to the future, the adoption of these new methods should be reviewed seriously by all financial companies. It might be a slow burn but always look at how they will impact your business model and how you will be able to use them to your advantage in the future.

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Mobile Money in Africa

Africa is something of an anomaly in the developing world. It’s a continent that many people forget is not a single country but 55 individual countries with dozens of currencies. It’s also a continent where around 66% of the adult population remain unbanked. However, while more than half of the continent has no access to a bank account, the mobile economy is booming. Indeed, Sub-Saharan Africa is the world’s fastest-growing mobile phone market. For the remittance sector, this poses a pretty enticing opportunity.

While the typical customer living out in rural Kenya might live several days away from the nearest bank, they are likely to have direct access to a mobile phone that can be used to send and receive digital payments. This is why the mobile money systems in the region have spread so fast. But how will MTOs cope with increasing digitisation and compliance issues as more customers go online and start using mobile apps to send their money?

To dive deeper into the current mobile money climate in Africa, RemitONE Associate Sales Director Oussama Kseibati recently hosted a webinar attended by esteemed panelists with expert knowledge of the regional remittance landscape. Muhammad M. Jagana, CEO of Kuringo,  Sidharth Gautam, Head of Sales at AZA Finance, Leon Issacs, Managing Director of DMA Global, and Linus Adaba, Head of Group Remittance Distribution at Ecobank lent us their thoughts and feelings on compliance and mobile money in Africa in the wake of the COVID-19 pandemic.

Muhammad M. Jagana

In larger cities and towns, there really is no issue when it comes to mobile adoption. Where we’ll face significant challenges is in the last mile of the inclusion journey; the towns or villages that are maybe 200 miles away from a major city.

How do you onboard these clients so they can use mobile money in their local shops and businesses and how will a small local shopkeeper take that payment and convert it into cash to pay their supplier? It’s one of those situations where unless everybody goes digital at the same time, there’s always going to be those at the bottom of the ladder missing out.

For these people, some of whom might not even be aware of the benefits of mobile money, it’s going to be a case of not only education but ensuring that regulators can make it easier for them. For example, in the Gambia, we have two mobile money operators and those two operators are incompatible with one another because they are direct competitors.

Rather than trying to shoehorn everyone onto the same network, we need to ensure there are regulations in place that allow for integration between different networks. It’s up to the regulators to figure out the logistics, of course, but the banks and agents need to play their part too. Something akin to the PSD2 regulations would make the most sense but realistically that’s a rather large hill to climb.

Sidharth Gautam

I completely believe that digitisation and mobile adoption is the key going forward in Africa. At the moment, cash is still king but there is a sea change on the horizon. There are hordes of challenges standing in the way of this change, of course. There are liquidity issues even on the cash pickup front, particularly in Western Africa, as well as the KYC process to sort out, user interface and customer satisfaction. It all comes into play.

There are a lot of plates that need to keep spinning, so to speak. And the regulator has to be on top of it all; the engine leading the train. It’s not an easy task to bring the offline to online puzzle together but it’s not insurmountable either.

Linus Adaba

Personally, I’ve always enjoyed working things into silos and that’s partly how I see mobile money adoption in remittance filtering through into the African market. I see one silo of mobile money that is state-led and the other that’s more private or enterprise led and we are seeing so much more innovation on the private enterprise side because of the lack of regulation.

In order for the state-led operators to catch up, they need to start investing in better compliance tools and putting good compliance managers in place. This way they can ensure people who are using mobile money are at the level of KYC that regulators expect.

When we’re talking about the last mile of the inclusion journey, as Muhammad mentioned, telecommunications companies are selling SIM cards even in the most remote villages, so the infrastructure is definitely there. The problem is that they need to subject themselves to the central bank in each country and there is a lot of technology that’s allowing nimble KYC to be done.

For remittance businesses, meanwhile, there needs to be something of a threshold. Because if it’s just remittance across borders, the full KYC protocol is simply not necessary. In this case, there could perhaps be some sort of a ‘KYC light’ solution. I also see a strong headwind in countries where you have a national ID system in place and we’re currently looking at ways to link this ID with SIM cards to help with faster and better KYC.

Oussama Kseibati

To lead on from Linus mentioning SIM cards and national ID. I think it would be hugely beneficial for the African mobile money market if there was a database such as PSD2 in Europe. With this database in place, once you’ve reached a certain compliance standard with your systems and technologies and you’re ticking the right boxes, doors can open for you automatically.

If there was a centralised database working across countries all linked to SIM cards, you’d be able to use that to do KYC. But what would need to happen first is for a standard to be implemented that will make it easier and more open for people to trade with each other. And that probably isn’t going to happen anytime soon.

For now, instant payments with instant delivery is the way forward for the region I feel. M-Pesa is a positive sign of things to come. It was a major success for Africa throughout the pandemic and the adoption of mobile wallets is continuing to rise in general. Indeed, digitally ready players have seen business growth through the roof as people are migrating towards mobile payments to remain safe from the virus. However, there has to be action in terms of regulation and regulatory frameworks.

Reaching the Great Unbanked

Everything is moving towards the digital market and many unbanked customers are using mobile platforms. That large influx and the onboarding that needs to be done is going to require a lot of compliance and a lot of work but it’s almost certainly going to result in faster, better and more affordable remittance for Africa. Given the fact that remittance rates are so high in the continent right now thanks to a heavy reliance on cash payouts and physical infrastructure, that can only be a good thing.

To read more on what our panellists had to say regarding the more specific challenges facing mobile adoption in the region, click here for our companion piece  or check out the full webinar here. If you are a money service business interested in expanding into the region, meanwhile, RemitONE is an award-winning provider of MSB technology.

If you need support with all your operational needs please contact us by emailing marketing@remitone.com to see how we can support you.

Video: Remittances in Africa – Market trends, regulation, challenges and opportunities

2020 was far from a banner year for many industries. But it is a year in which the remittance sector revealed itself to be defiantly resilient. The world bank projected a 20% fall in global remittance at the very start of the pandemic but by October they’d revised that figure to just a 7% drop, to be followed by another 7% drop this year (2021). This initially predicted fall was, by all accounts, supposed to have a particularly significant impact in Africa where migrant workers send around £11 billion per year.

RemitONE Associate Sales Director Oussama Kseibati feels that these are figures we always needed to take with a pinch of salt, not only because Africa is a region that is often underestimated on an economical level but because many countries there still lack the capability to capture data accurately. He adds: “Africa is also still a region where physical transfers are more common and it is harder to track physical transfers. That’s why these figures should be seen less as empirically accurate projections and more as rogue guidelines to give us a feel for how the market might be moving.”

To delve deeper into the current climate in Africa, Oussama recently hosted a webinar attended by four esteemed panellists with expert knowledge of the regional remittance landscape. Muhammad M. Jagana, CEO of Kuringo,  Sidharth Gautam, Head of Sales at AZA Finance, Leon Issacs, CEO of DMA Global and Linus Adaba, Head of Group Remittance Distribution at Ecobank lent us their thoughts and feelings on the trends, regulations, challenges and opportunities facing Africa in the wake of the COVID-19 pandemic.

To see the Q&A answers from our panellists click here.

Was 2020 as bad as expected?

If we’ve learned anything in the last 12 months, it’s that there’s always a risk in sticking your neck out for figures and projections. Nobody wants to die on that hill. In Africa, however, remittance continued to grow and thrive regardless of the pandemic and the World Bank’s scaremongering. Indeed, remittance was actually up by as much as 75% in the Gambia and 50% in Zimbabwe and even in developed countries such as Kenya, Morocco and Egypt, there were gains of around 12%.

Leon explains: “We’ve been hearing hundreds of positive stories of volumes from remittances across the region and we can only assume that’s because the migrants sending money home have a greater need to do so right now when we’re in the midst of a global crisis.”

Another key factor is the impact of the crisis on the informal market. Travel is particularly difficult right now and that means that many of the informal operators that were relying on physically moving cash just closed down after the pandemic forced travel to a standstill. The physical barriers put up between South Africa and Zimbabwe, for example, mean people were forced into using formal, regulated channels.

Leon adds: “Of course, there is also the major impact of digital to take into account, which makes it easier for people to transfer money and Africa has been dipping its toes into that particularly reservoir for a while now.”

How did Intra Africa remittances grow in 2020?

Linus feels that the remittance industry is a resilient one that tends to thrive in moments of crisis, so he’s not surprised it defied the World Bank projection. He explains: “Africans don’t forget home and they are very family-focused. That’s why I feel the African market grew so substantially in 2020. COVID provided a situation where, more than ever, people were willing to send money home.”

Where a partner has had a relationship with any other partner within the continent that allows transactions to happen between bank accounts or mobile wallets, that’s helped business for MTOs. More importantly, the government’s of most African countries saw remittances as COVID palliative. So they were quite willing to help facilitate these Intra African payments and even, in some cases, dedicated certain hours where people could queue and collect physical remittances while keeping safe and socially distanced.

Linus adds: “Some other countries like Kenya, for example, also increased the potential amount of each transaction per person. This not only meant less physical contact but it also meant that people were able to move more money more quickly between countries.” When you also factor in the various economic rules in place in various regions within Africa that allow for freedom of movement, it’s easy to see why Intra African remittances have been allowed to flourish.

As far as what needs to be done to boost the market, Leon adds: “To put it into context, the World Bank once estimated that for every $3 circulating within Africa, $2 originated within the continent. Most people look at Africa as one country rather than 55 and as somewhere that’s dependant on remittances from the rest of the world, but that’s not really the case.” He does believe, however, that there needs to be a regulatory shift in many countries to allow for easier transfer of money and this means allowing for different types of entities to operate alongside more traditional or formal channels.

How is technology going to help?

Currently, the cost of sending remittance to Africa is the highest rate in the world at around 9%. That’s around 5 times more costly than almost anywhere else and according to Oussama, the reason for this is simply because of the heavier reliance on cash payouts. Sidharth agrees, explaining: “For cash, you need so much more logistical support in terms of manpower, not to mention the actual physical locations. So technology is hopefully, in the long term, going to mean these costs reduce quite substantially, perhaps more in line with Southeast Asia where the rate is only around 2%.”

Leon believes that Africa is a hotbed for technology right now but that governments need to get involved on a deeper level to facilitate a safe space for transfers to happen between channels. This is something Mohammed also touches on, explaining that one of the problems is: “How many different currencies there are in Africa, which leads to issues with exchange rates.” He feels that a “single African currency” would be the most logical move. He adds: “We have 35 currencies in Africa and that’s always going to complicate remittances. The end user should not have to worry about exchange rates.”

This leads us quite neatly into the question of cryptocurrency. Sidharth has seen it being adopted in a big way through AZA’s separate crypto product, exploding from around $6,000 to $56,000 in just the last 2 quarters. He adds: “As regulations loosen up and mobile tech continues to build it will be more widely accepted as a means of payment, certainly within the next five years.”

Mohammed, meanwhile, feels adoption might be a little slower, mentioning that Nigeria recently stopped all crypto payments for B2B transactions. Leon, however, feels that it could become a big part of the solution in years to come but right now “people in Africa don’t have a good understanding of cryptocurrency yet.” That’s not to say they won’t in the future though and Oussama is hopeful that with time, that understanding will come. He believes that “a lot of end users right now are not using cryptocurrency as remittance but as more of an asset that will increase in value.” Education will undoubtedly play a major role in that regard.

How have the central bank measures promoting remittance impacted operations in Africa?

The regulation that the Central Bank of Nigeria (CBN) issued in December last year was designed to boost US dollar supply into the economy and simplify remittances by ensuring the beneficiary always collects the money in dollars. Linus explains: “70% to 80% of remittances to Nigeria in the last two years have been to bank accounts because of the instant delivery the banks offer.” So, the central bank changing the currency from Nigerian Naira to Dollar makes a lot of sense but Linus stresses it’s not necessarily a Nigerian “dollarisation.” What the central bank is doing, he argues, is simply allowing the individual to negotiate rates themselves and trying to unify the exchange rate because they “can see how remittances can be used to help aid development.”

Sidharth agrees though he says that AZA is always going to be a firm that promotes local currencies. He feels the regulation is going to provide a major challenge for the Naira even though he thinks it will be good for remittance and things will improve in the long term. Leon, meanwhile, explains that DMA is currently “working with the British government to try and understand the impact on the UK to Nigeria remittance corridor and how it has impacted both the senders and receivers.”

Right now he says it’s been a bit of a mixed bag, with some saying the measures have led to an increase in remittance and others saying it’s led to a decline and some of that’s due to the fact there was no notice given to some of the operators.

Oussama adds that it’s all part of a broad approach by CBN to try and manage the different exchange rates and the parallel market that exists in Nigeria where the exchange rate could be as much as 20% different to the official rate because the Naira isn’t floating. Over time there will almost certainly be tweaks made to the policy that will fit into the much broader range of initiatives but in the short term, the CBN are at least now very much in a dialogue with the operators. If this continues then hopefully it won’t go the way of Zimbabwe a few years ago, where they had to essentially dollarise the whole economy because of rampant inflation and overvalued local currency.

Resilience of Remittance

Generally speaking, the future looks bright for the African remittance sector as long as local governments and banks are willing to invest in regulatory change and incentivise a shift towards digital payments. There are definitely a few significant challenges to overcome in terms of financial inclusion and KYC but advancement in technology is a perfect solution and Africa is by no means on the back foot as far as technology is concerned.

To read more on what our panellists have to say regarding the more specific challenges facing mobile adoption in the region, click here for our companion piece or check out the full webinar here. If you are a money service business interested in expanding into the region, meanwhile, RemitONE is an award-winning provider of MSB technology.

If you need support with all your operational needs please contact us by emailing marketing@remitone.com to see how we can support you.

Panel Q&A

Q1. Can you provide an overview of the licensing regime in Africa? What licences do PSPs and Telcoms need to be able to conduct intra-Africa and international payments?

Muhammad: I believe this is one area that African governments can use to unleash huge opportunities to elevate disruptions in this domain which can help propel ‘The last Mile of the Financial Inclusion Journey’. The challenge in most African countries is that most GSM/Telcos are so flushed with cash (capital) compared to new FinTech companies that sometimes the offerings from these big operators are difficult to match.

Also, because of legacy infrastructures (Anglophone, Francophone, different currencies, FX regulations) it makes it impossible to effectively promote intra-African remittances, and scale to the potentials that are there. For example, Kuringo was in discussions with a potential partner in Ghana to explore the GM/GH corridor. We faced several bottlenecks, such as both our currencies (Dalasi/Cedi) are not convertible and we opted to use USD. Then our partners required waivers from the Central Bank of Ghana because in order to settle us in the US they have to fulfil FX control restrictions. In the end we abandoned the project because of complicated regulatory issues.

Q2. How do the panellists evaluate intra-Africa transactions vis-a-vis AcFTA which was launched in January 2021?

Linus: It is a good initiative that is more than overdue. It will facilitate big ticket payments of goods and services. Major countries in Africa have executed the treaty which shows political will to make it a success.

Muhammad: Huge potential if only there could be a single digital currency that could be used to settle intra-Africa trade, hence mitigating exchange losses. With over 35 currencies used across Africa, SME who are the backbones of most economies would be able to fully benefit from AcFTA.

Q3. With regards to AML/CFT and remittances, is Africa a significant corridor and has the pandemic accelerated this; what new typologies have emerged in this past year?

Linus: Regarding AML/CFT Africa is certainly a significant corridor. AML/CFT has always been a concern for regulators which each remittance scheme is expected to put in place before the advent of Covid-19.

Q4. Have you seen an increase in remittance/FinTech partnerships since 2020 and is Ecobank looking at new ways to partner international players to increase value added services into Africa?

Linus: Yes certainly.

Q5. Do you believe central banks are likely to open up in the ways others have regarding Cryptocurrency? E.g. CBDCs?

Leon: Over time they will, but it’s unlikely to be in the near future.

Sidharth: Medium to long term, Crypto will gain momentum in Africa due to the high cost of sending remittances and over-relying on cash in the continent. But this has its own challenges like central banks, regulations and onramp/offramp from local currencies.

Q6. Inoperability is a big issue with Telcos in Africa, to boost remittances even within the same country. Is it a regulatory, technology or lack of will issue?

Linus: Interoperability required a clearing house to succeed. Some aggregators can offer this service, but there is need for a clearing framework within the region or country by the regulator to make this effective. Telcos are beginning to find ways on how to cooperate in this respect, but candidly the services on an impartial arbiter are required.

Leon: Completely agree. Most Telcos don’t want to cooperate, similiar to how MTOs were 15 years ago. Regulators need to get involved to make it happen.

Sidharth: Except Nigeria, where there is some sort of interoperability/common rails due to Interswitch, this is still a distant task and much is needed to make this happen. CBs/regulators have to play a pivotal role in making this happen both for bringing down the cost and making remittances happen real-time across the continent.

Q7. What are your views on Telcos doing some banking functions, given that Telcos have huge subscribers etc? Are banks not concerned about this for the future, as they appear to be doing banking work and revenues may dwindle for banks?

Linus: Telcos are assisting to expand financial includion and deploring affordable technologies or infrastructures where the banks cannot venture becayse of a typical bank operating model. I see collaboration between Telcos and banks rather than competition. Each part has assets to offer in the financial inclusion narrative.

Leon: Exactly right. Telcos will be the distribution channel and banks the service provider – these will be white-label product providers.

Q8. Do you think the new regulations in Nigeria are against African money transfer companies who are sendig from Africa to Nigeria?

Linus: No

Leon: It is not against African MTOs, indeed, it should be helpful to them.

Q9. Regarding one of Leon’s explanations of regulatory frameworks being challenging for intra-African remittances, how does this work with Crypto where there is no regulatory framework in place?

Leon: Great question. Unfortunately, because there is no framework there is no approval to operate these services. The only way around this is to obtain a letter of consent or to use sandboxes. It will take time but is not high priority at the moment for most central banks.

Q10. Do you think that Cryptocurrencies can be a solution to solve settlement problems for intra-Africa cross-border remittances?

Leon: They can help will illiquid currencies or imperfect settlement processes. But they are not an answer for consumers right now unless there are ways for people to exchange Crypto for local currency.

Q11. Will the change to USD in Nigeria have much impact especially slowing the black market traders? And what is the impact of this Naira to USD change?

Linus: There will be impact. More awareness on the current changes in remittance payout in Nigeria may change this. The beneficiary of the remittance is involved in the Naira value for the Dollar received which is determined by market forces rather than policy fiat.

Q12. Why do African Money Transfer players not want to play outside of Africa and directly service the African diaspora?

Linus: RapidTransfer, for example, is in Europe serving African diaspora. The success of this new addition to the 33 countries where Ecobank is operating in Africa could spur future expansion to other countries where we have diaspora presence.

Q13. Nigeria was implementing two exchange rates concurrently. What are the benefits and challenges of this policy? How can Ethiopia learn from stringent rules and regulations like this?

Linus: Yes, before the switch to USD payout by policy of November 30th 2020, the second official exchange rate is a premium above the first for Naira payout for inbound remittances into Nigeria. It was to reward the Nigeria diaspora to channel their hard-earned money back into the country and to use approved schemes and instruments. Central banks do share experiences, I would advise that tour central bank gets in touch with the Nigerian central bank to compare notes.

Q14. When and where can we obtain Leon’s consumer research?

Leon: Not sure of the exact timing, but we expect this to be around the end of April or early May. We’ll be happy to circulate it.

Q15. Do you think that remittance in our region is at the point that you expected it would be 5 years ago?

Leon: I think it is progressing faster than I would have expected.

Muhammad: The evolution of affordable smart phones and mobiles in general, we have seen a huge growth in the remittances both in the formal an informal market. Today most informal operators (within countries) are using WhatsApp, text message and mobile phone calls to move money within border and across/intra-Africa.

Q16. Regarding the bound on Crypto in Nigeria and the fat that people have to collect USD in place of Naira, what is the advice for a startup?

Linus: Play to the rules and seek partners and banks that share your business vision.

Q17. What are your views on the introduction of individual CBDCs and its effect on intra-Africa remittances and global remittances; what harmonisation is needed to move past the current status quo in terms of exchange rates?

Leon: A good but complex question. They can only be effective if there is much more digitisation in everyday payments in Africa. Ideally an intraregional currency would bring more stability.

Q18. What can be done to help the end users use their money in digital ways, but also have access to cash with more ATM machines?

Muhammad: The Last Mile Solutions for Africa might not be ATMs, but rather small corner/community shops that are dotted all over villages, towns, cities across Africa. How can we onboard them to accept digital payments and give them access to smart POS that would work on mobiles that can be used as withdrawal points (ATM, Payment Centres).

Leon: There needs to be much more digitisation in general life in African countries. This has to happen way before we worry about international payments. Remittances are relevant for payouts but only ride on domestic rails for this.

If you need support with any operational needs, or have further questions, please contact us by emailing marketing@remitone.com to see how we can support you.