West African Institute for Financial and Economic Management (WAIFEM) Money Transfers: Experience of a Practitioner. Presented by Mike Ogbalu III

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1 West African Institute for Financial and Economic Management (WAIFEM) Money Transfers: Experience of a Practitioner Presented by Mike Ogbalu III

2 The Nigerian Experience Nigeria is one of the largest recipient of remittances in Africa and the most populous country in the region. Estimates show that the country receives a significant percentage of total official remittance inflows within Sub-Saharan Africa and plays in the top 20 global remittance recipient countries. Nigeria is an oilproducing country and a significant member of OPEC. Nevertheless, the country s economic situation remains marked by high levels of poverty and income disparity. Nigeria is a receive only country with 2 dominant players Western Union and MoneyGram dominating the market and controlling over 90% of formal remittance business. Both players until recently commit their agent banks to a one way exclusivity agreement. Significant volumes still pass through informal channels. Remittance into Nigeria and indeed sub Saharan Africa over the years have been marked by a very impressive year on year growth. These flows (average $300) have in the past been for upkeep, medicals, school fees and petite projects. Recent trends in Nigeria show an increase in productive remittances targeted at capital projects.

Nigeria is an oilproducing country and a significant member of OPEC. Nevertheless, the country s economic situation remains marked by high levels of poverty and income disparity.

3 Effects of Exclusivity The two dominant money transfer operators in the region achieved market dominance by compelling agents in the countries to commit to a one way exclusivity agreement. This means that the agents will only pay-out or send remittance on behalf of one MTO while the MTO is free to sign as many agents as possible. In all of Western Africa a significant part of all formal remittance payments are handled by two money transfer operators. While exclusivity grants the MTO and sometime the bank superlative advantages, there are several adverse effects on the fund recipients and indeed the economy; It frustrates competition and erodes value for agents. Make the unregulated, undocumented informal sector to grow The beneficiary receives less value resulting in lower productivity The sender pays more Limits choices for both the senders and the beneficiaries Limits creativity on the side of the MTO

In all of Western Africa a significant part of all formal remittance payments are handled by two money transfer operators.

4 Afribank - Nutshell Afribank formally regarded as a member of an elite club of distinguished financial institutions called the Big Four. This was eroded over time due to unhealthy complexities in the management of the bank. However the following fundamentals stood the test of time creating significant opportunities for today s focused management team. Established in in 1959 with Good brand recognition Broad branch network across the country Efficient cost structure/strong essential products Dynamic Management/Motivated and dedicated Staff Strong technology environment 4

However the following fundamentals stood the test of time creating significant opportunities for today s focused management team.

5 Strengths for Remittances The following strength are particularly relevant to the bank s remittance business and have become a factor in recent strides by the bank in the remittance area. New, aggressive and focused management team Afribank s retail focus Fairly large branch network with rural presence Low fraud rate Loyal customers and Staff Functional ops support centre

area. New, aggressive and focused management team Afribank s retail focus Fairly large branch

6 Product Offerings The bank has two home-bound international remittance products, namely; MoneyGram International Money Transfer the second largest money transfer company in Nigeria and by far the most promising of the two major brands in Nigeria in the exclusivity era. Coinstar Money Transfer Formerly travelex money transfer with significant prospects in the Nigerian market.

and by far the most promising of the two major brands in Nigeria in the exclusivity era.

7 Previous Scenario Though the highlighted strengths above exist the following constraints needed to be addressed. Knowledge gaps especially at service points Complex processes Not so defined product marketing strategies Little or no brand association MTOs took advantage of knowledge gaps Performance measurement and enforcement weak

Knowledge gaps especially at service points Complex processes Not so defined

8 Steps Taken The following steps were taken to reposition the bank s remittance products; Crafting of a five year business repositioning plan Reviewing relationships Process re-engineering Documentations and training Ensuring internal buy-in Marketing Activities

repositioning plan Reviewing relationships Process re-engineering

9 REMITTANCE TRENDS IN 2008 TRENDS EXCLUSIVITY CLAUSE: The recent removal of exclusivity clauses in the agreements signed by Nigerian banks with International money transfer operators by CBN. REMITTANCE TO LATIN AMERICA & THE CARIBBEAN: Remittances reached $65.5b in 2007, but growth is at a seven-year low RISING & FLUCTUATING FOREIGN EXCHANGE RATE The exchange rate of a dollar to a naira rose from N115 to N130 in one month CREDIT CRUNCH SYNDROME Due to the credit crunch in US and UK, less migrants will be gainfully employed and have enough to remit home LIKELY IMPACT Multiple MTO sign-on by individual banks Increased competition amongst int l FT products and services Reduction of commission/charges on existing MTO products Cannibalisation of established products due to pockets of new MTOs Less marketing and branding support from existing MTO partners Increase in formal and total inflow into Nigeria More opportunities for investment in Africa remittance market More growth in global remittance to Africa Reduction in total volume of transfers Reduction in commission Increased foreign exchange risk It has been predicted that global remittances to sub-saharan Africa will drop considerably (1-6%) in 2009 due to recession in UK and US,

5b in 2007, but growth is at a seven-year low RISING & FLUCTUATING FOREIGN EXCHANGE RATE The exchange rate of a dollar to a naira rose from N115 to N130 in one month CREDIT CRUNCH SYNDROME Due to the

10 Players Agents/Banks/Outlets Regulator MTOs MTO Agent/Bank VPN/Internet SETTLEMENT Agent HO Agents/Banks/Outlets

11 Summary the bank s experience The bank s experience can be summarized by the following bullets below. It is strongly believed that most players share these experiences at varying degrees. Exposures and Compromises Law Enforcement Regulator(s) FX Sourcing, distribution and logistics Infrastructure and support Training and retraining Marketing Costs vis a vis MTO participation Impact of legacy brand associations Remittance can be very profitable

Exposures and Compromises Law Enforcement Regulator(s) FX Sourcing, distribution and logistics Infrastructure

12 THANK YOU

West African Institute for Financial and Economic Management (WAIFEM) Inherent Risk in Global Remittances. Presented by Mike Ogbalu III

West African Institute for Financial and Economic Management (WAIFEM) Inherent Risk in Global Remittances Presented by Mike Ogbalu III Fraud and losses due to fraud is an acceptable cost of doing business?