Picture: 123RF/LDR PROD
Picture: 123RF/LDR PROD

With the majority of African countries now facing steep economic activity declines in the devastating wake of Covid-19, the next few years will likely test the financial resilience of families and communities in new and severe ways.

Across the continent, where tourism and hospitality have come to a grinding halt, thousands of jobs have been lost in both the formal and informal sectors. Within this gloomy narrative, a shining light has been the formidable resilience of remittance flows into African markets after the initial shock of the pandemic and national lockdowns. 

This should not come as a big surprise given the increasingly pivotal role that remittances are playing in economic growth in developing markets: as the GSMA recently stated, remittances are an important private source of capital that exceeded the levels of foreign direct investment (FDI) into low- and middle-income countries (LMICs) for the first time in 2019. Additionally, remittance flows are three times greater than official development assistance into these countries. 

Despite the World Bank’s predictions that global remittances will decline by about 20% in 2020 as a result of the pandemic and its economic fallout, evidence in countries such as SA, Zimbabwe, Malawi and Zambia suggest that formal remittance flows across African borders have actually increased — and are proving to be more resilient (and buoyant) than many other financial services.

Notably, the GSMA affirmed that “remittances are expected to retain or even exceed their current levels of importance with FDI flows into LMICs expected to decline by as much as 35% over 2020”. 

Customers are transacting digitally (and securely) in a sophisticated ecosystem designed for the African customer... created by, and for, the African diaspora

There are many reasons behind formal African remittances continuing to flow, chief among them the undeniable reality that this money provides a lifeline to many thousands of families and communities.

Indeed, remittances are channeled into daily groceries, seeds for subsistence crops, school fees, home repairs, medical supplies and much more.

Yet as remittances and the mobile phone user journey for both senders and receivers becomes increasingly digitalised, there are ever-widening opportunities for remittance providers — and users — to boost Africa’s economic recovery by harnessing the routes to greater financial inclusion (and gradual wealth creation) that digitalisation inevitably provides. 

To understand the immense benefits that the steady digitalisation of remittances can provide to users and communities, it is critical to understand that this is a journey. Digitalisation is not a binary switch that is simply turned on once everything is in place — on the contrary, it is a journey that must be undertaken with clear and resolute steps in place.

In our view, taking customers on this journey is best done in deliberate and compelling increments, so that users can become accustomed to (and comfortable with) the new functionalities over time. And though each step may seem small, they actually represent significant and powerful leaps forward with regards to driving financial inclusion — and getting customers closer to financial tools and avenues that can propel economic growth on a large scale. 

Within our own digitalisation journey, recent steps include providing the ability to self sign-up for services over WhatsApp, and undergoing the know-your-customer (KYC) process without having to go into a branch. Once a customer has signed up over their channel/platform of choice, they receive ongoing digital communications — thereby getting each user accustomed to an entirely digitalised customer experience/user journey, and begin the journey of a digitalised customer as opposed to a series of transactions.

The “end goal” of this journey will be the creation of mobile or digital wallets, for instance, and the ability to transact using entirely electronic channels including electronic funds transfer (EFT), wallets and mobile money cards — and removing cash and physical processes from the user experience. In essence, this will mean that customers are transacting digitally (and securely) in a sophisticated ecosystem designed for the African customer, that is a home-grown, African digital solution created by, and for, the African diaspora and their loved ones.  

In addition to providing increased transparency and lowering the costs of transactions when links are removed (that can, in turn, lead to fraud and inefficiencies, and extract value), the gradual digitalisation of remittances generates new value for users and opens up pathways to key financial services. Indeed, as customers embrace elements such as self sign-up and digital onboarding, they begin to build up a robust financial transaction profile.

Over time, diaspora remittances and this increasingly comprehensive digital footprint can be harnessed as a strong indicator of creditworthiness — and, in many instances, these profiles could be leveraged to gain access to credit for capital accretion (rather than consumption). 

As with any digitalisation journey, there are formidable challenges for the formal remittances sector in African markets — and each step forward has to take its cue from the customer and their daily pain points.

Within our own evolving digital ecosystem, we make every attempt to ensure nothing is retrofitted — instead, we build continually and take each customer on a digital journey that suits their individual circumstances. Over time, there can be no doubt that this gradual but deliberate progress towards a fully digitalised ecosystem will play an integral role in boosting Africa’s economic recovery in the years to come. 

• Jury is CEO of fintech company Mukuru.

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