AFRICAN INSTITUTE FOR REMITTANCES (AIR) Send Money Africa www.sendmoneyafrica- au- air.org 1I ll December 2015 The Send Money Africa (SMA) remittance prices database provides data on the cost of sending remittances from selected countries worldwide to a number of countries in Africa, as well as within the African continent. The data are collected on a quarterly basis from a sample of the most used Remittance Service Providers amongst the migrant workers. The data analysis in this report is based on the costs of sending remittances to and within Africa that were collected for the Q3 2015 (on 29 th September 2015) from a total of 535 different remittance services to or within Africa. Key findings The average total cost of sending money to and within Africa in Q3 2015 was 9.21 percent, 2 a decrease from Q2 2014 when the average total cost was recorded at 11.01 percent and an historic low. The cost of sending money to Africa in Q3 2015 was 1.68 percentage points more expensive than the global average cost for the same period, which measured at 7.53 percent according to Remittance Prices Worldwide (see http://remittanceprices.worldbank.org). The 10 most expensive corridors were all intra-african, with seven of them originating in South Africa. The 10 least expensive corridors are dominated by the Gulf States, the USA, and the UK with the least expensive being USA to Nigeria, followed by USA to Liberia and Italy to Senegal. The most expensive originating markets among those surveyed are South Africa, Tanzania, and Canada. The cheapest originating markets are UAE followed by Spain, Saudi Arabia and France. Commercial banks continue to be the most expensive type of provider. The cheapest are Post Offices and Money Transfer Operators (MTOs). Bank account products are the most expensive with the newer, technology driven products of mobile and online remittances being the cheapest Page 1
Sample www.sendmoneyafrica-au-air.org allows users to compare the costs applied by several providers to send money from 16 major sending countries across Europe, the Middle East, North America, and within Africa, to 28 African receiving countries, for a total of 54 "country corridors". The number of services covered by Send Money Africa has decreased from 582 services last year to 535 in the current survey primarily because a number of relatively expensive and generally non-transparent bank account to bank account services were removed from the survey as their usage amongst migrant workers and indeed the broader Diasporas was deemed to be negligible. Some providers deemed non-transparent are however surveyed and included in the database online, though they have been removed from the calculated values. Non-transparent providers fail to provide information in easily accessible and understandable forms on one or more of the following: the total price (i.e. fees at both ends, foreign exchange rate offered, taxes and other costs to the customers), the factors that influence the price (e.g. how the recipient is paid, or ability of the sender to provide complete information such as an account number and bank identifier), the time it will take for the funds to reach the receiver, and the specific locations of the RSP access points in both sending and receiving countries. In particular, quite often providers do not disclose the exchange rate applied to the transaction and, therefore, do not reveal the full cost. Including them in the sample when calculating the average would bias the results, since the real total cost of these RSPs is not known. Of the surveyed 535 RSPs, 55 services (10.28 percent) were deemed nontransparent. As a group, banks are non-transparent significantly more often than the other types of providers 3. A number of relatively expensive and generally nontransparent bank account to bank account services were removed from the survey. They represent less than a third - 28 percent (graph 1) of the total sample and account for 87 percent of non-transparent surveyed services (graph 2). Money Transfer Operators (MTOs) make up a more sizeable proportion of the total sample than previously seen, up to 65 percent from 57 percent last year. The share of Post Offices and those using MTO s services at Post Offices remains at 5 percent, whilst banks offering an MTO service are ranked lowest, constituting 2% of all types of provider surveyed. 3 The majority of non-transparent banks are in European countries such as France, Germany, Italy, and the Netherlands, where they are consistently unable to provide an exchange rate for the currency of the African destination country. Since the inception of the survey in July 2011, very few non-transparent banks have become transparent. www.sendmoneyafrica-au-air.org 2
RSP Market Breakdown (n=535) 2% 3% 28% 65% 2% Bank Money Transfer Operator Bank / Money Transfer Operator Money Transfer Operator / Post office Post office Graph 1 Non- Transparent Firm Breakdown (n=55) 11% 2% 87% Bank Money Transfer Operator Post office Graph 2 The average Total Cost of sending money to Africa decreased though it is 1.68 per cent higher than the global average The average total cost of sending USD 200 to and within Africa in Q3 2015 was 9.21 percent, which represents a significant decrease from Q2 2014, where the average total cost was 11.01 percent. The cost of sending larger amounts of money has also fallen significantly during the window between reports, moving down a 0.8 percent to 6.08 percent. This is especially significant as the global RPW average at this denomination for Q3 was 4.59 percent, suggesting the African remittance markets may be beginning to gain ground on remittances markets in other parts of the world. www.sendmoneyafrica-au-air.org 3
Equally however, the survey now measures less banks relative to MTOs than it has previously, so the large falls in average cost seen could partly be put down to banks making up much less of the sample. The Average Cost of Sending 200 USD and 500 USD to Africa 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Q4 2011 12.06% 11.40% 11.60% 11.90% 11.80% 11.70% 11.79% 11.48% 11.45% 12.0% 11.20% 11.01% 10.0% 9.21% 7.40%7.10%7.40%7.10%7.30%7.25%7.21%7.14% 7.88% 8.0% 7.24% 6.88% 6.0% 6.08% 4.0% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2015 2.0% 0.0% Graph 3 After a relatively significant increase in Q4 2013, where the average cost rose from 11.48 percent to 12.06 percent, average cost has since decreased throughout 2014 and 2015 with the average cost in Q3 2015 being 9.21 percent. The average total cost for sending USD500 also fell in Q3 2015, from 6.88 percent in Q2 2014 to 6.08 percent, again the lowest in the history of the surveys. According to Remittance Prices Worldwide Q3 2015 data released in October 2015, the global average total cost of sending USD200 worldwide is 7.53 percent. With an average total cost of 9.21 percent, sending USD200 to (and within) Africa is 1.68 percentage points higher than the global average. The disparity in costs in Q3 2015 has fallen by 1.20 percentage points relative to its size in Q2 of last year. Spread of Total Costs Total Cost 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% - 5.0% - 10.0% - 15.0% 0 100 200 300 400 500 600 Amount Sent ($) Mean Average www.sendmoneyafrica-au-air.org 4
Graph 4 The spread in the total cost between the least and most costly services offered in the market for sending USD200 and USD500 to and within Africa (Graph 4). The standard deviation in the cost of sending USD200 in Q3 2015 is close to double that for sending USD500, 0.0612 to 0.364 respectively. Such a big difference in price bunching may be due to the fact that many banks offer a flat fee which does not vary between the USD200 and USD500 amounts surveyed, but which is obviously lower as a percentage when applied to the USD500 amount. This is contrary to MTOs who tend to operate on a tiered charging band basis. It is also worth noting the presence of some surprising negative costs in the data. These tend to arise when parallel or grey exchange rates operate in certain markets. In these circumstances, it is likely banks and MTOs use a different interbank rate than the official one used by this report, which, in turn, leads to a negative measured foreign exchange margin and thus total cost. Therefore, the presence of negative margins is purely statistical. Average total cost of sending money to and within Africa varies by sending markets The cost of sending money to and within Africa varies considerably amongst sending markets. Average Total Cost by Send Country Q3 2015 ($200) 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% UAE SPA SAU FRA ITA USA GBR BEL NLD GER KEN CAN SA GHA TZA Average 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Graph 5 The most expensive sending markets in the sample are African countries specifically Tanzania, Ghana and South Africa, which measure 16.08, 16.06 and 14.79 percent respectively where there tend to be a limited number of service options and, as a consequence, relatively expensive bank account services tend to dominate these surveys (roughly 58% of Tanzania s survey data comes from banks) Graph 5. www.sendmoneyafrica-au-air.org 5
The two cheapest sending markets in the survey are the UAE and Spain, which measured at 4.96 percent and 5.99 percent respectively in Q3 2015. The competitiveness of Gulf markets in comparison to other sending markets in the sample reflects the fact that, globally, the Gulf region is amongst the cheapest for remittances due to the high level of competition present. Saudi Arabia is the third least expensive market to send money from, followed by France with 5.99 percent and 6.49 percent respectively. One significant factor in the relative cheapness of the French-African remittances market is the fact that the Euro is pegged to the CFA currency employed by major West African Francophone receiving markets hence no FX charge is incurred, reducing the cost of the remittance. Outside of Africa, Canada was measured as the most expensive send market at 11.42 percent with Europe s most expensive send markets found to be Germany at 9.11 percent, followed by The Netherlands at 8.34 percent. Though this is cheaper than presently seen in part due to the opening up of the German market and the appearance of relatively cheap online MTOs Germany is traditionally found to be the most expensive European send country to Africa. The costs in other European markets in the sample such as Spain, UK, Italy, and Belgium are significantly lower than the average; in these markets there is often a greater number of options, thus creating downward pressure on the total costs. Average Total Cost by Send Country Q3 2015 ($500) Total Cost 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% UAE SAU SPA USA ITA FRA GBR KEN NLD BEL CAN GER TZA SA GHA Average 0.0% Graph 6 The average cost of sending USD500 by send country and reveals that the pattern is broadly with the exception of Ghana measuring 12.81 percent similar to sending USD200 with South Africa and Tanzania the most expensive send countries; measuring 8.98 and 8.03 percent respectively Graph 6. The UAE remains the least expensive country, measuring 3.37 percent. Again, with the exception of Ghana (where there are very few options for making cross border payments in the formal market), there is generally an economy of scale in sending larger amounts of money to Africa evidenced by consistently lower averages for sending USD500 to Africa compared to USD200. www.sendmoneyafrica-au-air.org 6
The top 10 most expensive Corridors are in Africa. It is not unexpected that all of the 10 most expensive corridors are intra-african corridors; mostly from South Africa and Tanzania whose markets both comprise of a number of relatively expensive bank account services Graph 7. The most expensive corridor in the sample is South Africa to Botswana which measured at 18.22 percent, followed by Tanzania to Rwanda at 17.43 percent and South Africa to Malawi at 17.38 percent. The order in which these corridors appear changes from survey to survey generally due to fluctuations in the FX margins recorded but the corridors shown in graph 7 are consistently amongst the most expensive. Corridor The Top 10 Most Expensive Corridors Q3 2015 Average Total Cost ($200) 0.00% 5.00% 10.00% 15.00% 20.00% SA- BWA TZA- RWA SA- MWI TZA- UGA GHA- NGA SA- MOZ SA- ZMB SA- AGO SA- LSO SA- SWZ Graph 7 Corridor The Top 10 Least Expensive Corridors Q3 2015 Average Total Cost ($200) 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% USA- NGA USA- LBR UAE- EGY FRA- MLI FRA- SEN ITA- SEN ITA- MAR GBR- SLE GBR- GHA USA- ETH www.sendmoneyafrica-au-air.org 7
Graph 8 Graph 8 shows the 10 least expensive corridors in the sample. The cheapest corridor was found to be USA-Nigeria measured at 3.96 percent which is a new corridor finding in this survey. Indeed, as graph 8 shows, there is a notable US presence in corridors which are amongst the cheapest in the sample indicating that whilst there is not a great deal of choice (competition) in USA-Africa markets, the leading providers do offer relatively cheap services to African receiving countries in the sample. Such lower costs could also be as a result of the existence of grey or parallel currency markets whereby banks and MTOs get a better exchange rate than the official interbank one used in the survey to measure foreign exchange margins; this puts a negative buffer on total cost calculations and biases them downwards 4 Nigeria and Liberia are also well-known for this phenomenon. The 10 least expensive corridors are far more geographically widespread than the Africa-centric 10 most expensive corridors; including, along with the Gulf corridors, relatively competitive sending markets with large African Diasporas such as USA, France and Italy. Cost of sending money to and within Africa by RSP type 18.0% 16.0% 14.0% 12.0% Average Total Cost % ($200) Total Cost 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Bank Bank / Money Transfer Operator Money Transfer Operator Money Transfer Operator / Post office Post office Graph 9 With an average total cost of 15.45 percent, commercial banks continue to be the most expensive RSP type in Q3 2015 Graph 9. The very high cost for banks is due to the fact that they rarely offer dedicated services to remittance senders as well as a lack of transparency across them. As a result, often the only services included in the 4 Sometimes banks, and other financial institutions, in countries with exchange control will provide a better exchange rate that the quoted interbank rate because the bank concerned can then sell the foreign currency used to settle the remittance at an increased margin to importers from their country. www.sendmoneyafrica-au-air.org 8
sample are expensive wire (SWIFT) transfer services, designed for transferring amounts that are higher than the typical remittance. In particular, only a few banks in the entire African continent offer a competitive money transfer service targeting remittance senders who need to send small amounts from one African country to another. Unsurprisingly, products offered by Post Offices and MTOs are the least expensive services for sending money to Africa, measured at 7.03 percent and 7.42 percent respectively. Whilst Post Office services tend to be cost effective they also tend to be far slower than the average MTO service with the transaction taking a number of days from start to completion in many cases. And, in a number of the send countries surveyed the national Post Office offers an affiliate MTO service in addition to its own remittance service or does not actually offer an independent remittance service but rather operates purely as an agent for the MTO. Transparency and innovation are the main drivers of remittances transfer cost reduction Transparency of prices and service features allows consumers to make informed choices between different services and helps to foster a competitive and safe market for remittances. Banks are the least transparent and account products are by far the most expensive method to transfer money to and within Africa, with an average total cost of 15.07 percent, followed by debit/credit card products also bank products - which cost an average of 8.99 percent Graph 10. Cash services mostly provided by MTOs by far the most dominant method of sending money to Africa, are measured at 7.53 percent while the growing market of online services (especially online to cash) are measured at 6.41 percent cheaper than cash-to-cash services. The more niche mobile products are found to be the cheapest in the survey at 6.15 percent for USD200 transfers. It is the quickly growing online service market however, where the number of products has increased more than twofold from 43 in Q2 2014 to 90 in Q3 2015. Giving users online access allows for quicker, easier and more transparent price comparison by consumers, as well as encouraging competition and innovation between providers through reduced barriers to entry (there are fewer infrastructural requirements online). Product Cost Breakdown ($200) Mobile service Online service Cash Pre- paid card service Credit/debit card service Bank Account 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% www.sendmoneyafrica-au-air.org 9
Graph 10 Appendix: Africa average The average for Africa as shown in this report is calculated as follows: The total of the average price for each corridor (excluding any non-transparent providers) divided by the number of corridors. It should be noted that the average for SendMoneyAfrica is different to that which the World Bank publishes as part of its RemittancePricesWorldwide (RPW) website as RPW shows the average for Sub- Saharan Africa only whereas SMA includes the whole of Africa. Appendix: Market Share Our main objective was to ensure that 80 percent of the official market for each corridor was surveyed. The competitiveness in terms of choice of each corridor has had a direct impact on the number of banks surveyed for that corridor. The more competitive the market, the higher the proportion of MTOs making up the desired 80 percent surveyed. This has reduced the number of banks surveyed in these markets. Glossary of different types of services 1. Account to account: the sender transfers funds from their bank account into the beneficiary s bank account in the receiving country. 2. Account to cash: the sender transfers funds from their bank account to a branch or agent in the receiving country where the beneficiary can pick up the funds in cash. 3. Cash to account: the sender pays cash over the counter to transfer funds to the beneficiary s bank account in the receiving country. 4. Cash to cash: the sender pays cash over the counter at a branch or agent to transfer funds to a branch or agent in the receiving country where the beneficiary can pick up the funds in cash. 5. Cash to mobile: the sender pays cash over the counter at a branch or agent to transfer funds into the beneficiary s mobile account in the receiving country. Depending on the service, the beneficiary can then use the funds as e-money through their mobile provider or pick up the funds in cash from a branch or agent of their mobile provider. 6. Mobile to cash: the sender transfers funds from their mobile account to an affiliated branch or agent in the receiving country where the beneficiary can pick up the funds in cash. www.sendmoneyafrica-au-air.org 10
7. Multiple to account: the sender can choose from a number of options card, bank account, cash to transfer funds to the beneficiary s bank account in the receiving country. 8. Multiple to cash: the sender can choose from a number of options card, bank account, cash to transfer funds to a branch or agent in the receiving country where the beneficiary can pick up the funds in cash. 9. Multiple to mobile: the sender can choose from a number of options card, bank account, cash to transfer funds into the beneficiary s mobile account in the receiving country. Depending on the service, the beneficiary can then use the funds as e-money through their mobile provider or pick up the funds in cash from a branch or agent of their mobile provider. 10. Online to account: the sender uses an online service (platform) to transfer funds from a card or account into the beneficiary s bank account in the receiving country. 11. Online to cash: the sender uses an online service (platform) to transfer funds from a card or account to a branch or agent in the receiving country where the beneficiary can pick up the funds in cash. 12. Prepaid to prepaid: the sender uses a primary (prepaid) card to transfer uploaded funds to the beneficiary s companion card. The beneficiary can then collect the funds from an affiliated ATM network in the receiving country. www.sendmoneyafrica-au-air.org 11