MILLIONS in sub-Saharan Africa rely on money sent by family members working overseas, but transferring funds remains expensive. According to the World Bank, sub-Saharan Africa has the highest remittance costs globally, averaging 8.37 percent per transaction as of mid-2024.
A wave of African-founded financial technology (fintech) firms is challenging traditional providers like Western Union and MoneyGram by offering lower-cost digital remittance services. These companies aim to boost financial inclusion and ensure more money reaches recipients rather than being lost to fees.
CNN reports that in 2023, remittances to sub-Saharan Africa totalled $54bn, accounting for significant portions of GDP in countries like The Gambia, Lesotho, and Liberia. Lower fees could encourage more remittances, strengthening economies and household incomes.
The push for digital payments
One major challenge is shifting customers from cash-based transactions to digital solutions. Processing physical cash is costly due to the need for infrastructure such as booths, tellers, and security. Andy Jury, CEO of remittance firm Mukuru, explains that moving to digital platforms can significantly reduce these costs.
However, barriers remain. Internet penetration in sub-Saharan Africa is just 37 percent, limiting access to digital payment services. Many older users also prefer traditional cash transactions, while younger generations are more open to fintech solutions.
‘If you get somebody to use it, they educate themselves on the benefit, and they can get that “aha!” moment,’ Jury told CNN.
Cutting out the middlemen
Traditional remittance channels involve multiple intermediaries, including foreign exchange traders and third-party processors, all of whom take a cut. Many fintech firms—such as NALA, Flutterwave, LemFi, and Chipper Cash—are removing these middlemen by holding local currency reserves and using proprietary software to facilitate direct transfers.
NALA COO Nicolai Eddy explains that this approach eliminates unnecessary steps, reducing costs and speeding up transactions. ‘We’re cutting out two steps; in some cases, it’s like five or six steps,’ he said.
Still, regulatory challenges persist. Each African country has different licensing and compliance requirements, making it difficult to streamline services across borders.
Regulatory support could lower costs further
The UN has set a target of reducing global remittance costs to 3 percent. However, fintech firms argue that fees charged by banks and digital wallets within Africa remain a significant barrier.
Eddy suggests that governments could help by capping fees on essential transactions like family remittances. Others, like Dr Joseph Antwi Baafi from Akenten Appiah-Menka University in Ghana, believe that reducing taxes and supporting financial infrastructure would help fintechs operate more efficiently.
Despite the challenges, the African remittance market is evolving rapidly. With a growing young population and increasing migration, the demand for affordable digital financial services is only expected to rise.
