Partnership between telcos in East Africa are set to improve mobile money transfer services across countries and challenge traditional remittance agents such as banks, MoneyGram and Western Union.
The telcos are looking to get a larger share of the $48 billion the World Bank estimates Africans sent as remittances in 2014. The partnerships will also support efforts to deepen financial inclusion and boost regional integration.
Safaricom’s M-Pesa, Kenya’s leading mobile money transfer service, started the year off with a partnership with MTN Uganda, which will see subscribers send money to Uganda. However, the service will remain one-way until regulatory issues in Uganda are sorted out.
Last year, Safaricom announced similar partnerships with Vodacom in Tanzania and MTN Rwanda after the parent companies Vodafone Group and MTN Group agreed to interconnect mobile money switches in Kenya, Democratic Republic of Congo, Mozambique, Rwanda, Tanzania, Uganda and Zambia.
It costs Safaricom customers from Ksh22 ($0.2) to send money not exceeding Ksh499 ($4.8) and up to $2 for the maximum amount of Ksh70,000 ($686) to MTN Uganda and Vodacom Tanzania. The tariff bands are wider for lower values sent to MTN Rwanda recipients but the rates are the same for higher amounts.
Sending money from Kenya to Uganda through Western Union costs Ksh120 ($1.2) for amounts up to Ksh6,000 ($58), which would cost $0.8 if sent through Safaricom to MTN. To send Ksh70,000 ($686) via Western Union costs Ksh1,560 ($15).
Vodacom users in Tanzania enjoy the cheapest rates when sending money to Safaricom users in Kenya. They pay $0.05 for amounts between $2.3 and $4.6 and $2.3 for amounts between $464 and $686.
It costs MTN users in Rwanda Rwf300 ($0.4) to send any amount below $4 to the Safaricom network. Between $100 and $201 costs ($6.7). Amounts between $402 and $670 cost $16. Safaricom allows subscribers to send $686 twice daily.
However, traditional money transfer services still retain the advantage of allowing customers to send large amounts of money. Western Union, for instance, allows customers to send or receive up to Ksh777,000 ($7,617) at a cost of Ksh15,540 ($152).
This makes them better suited for large money transfers especially for businesses rather than person to person remittances, which telcos thrive on.
“International money transfer is one of the areas where we have noticed increasing demand for swift, safe and secure payments using the mobile phone. We currently have agreements in place with Western Union, MoneyGram, BICS, Vodacom and MTN for international transfers,” said Betty Mwangi, director of financial services at Safaricom.
Workers from Malawi, Mozambique and Zimbabwe employed in South Africa, and Ugandans remitting money home from Kenya, face charges in excess of 20 per cent if they make the transfer through banks according to a 2014 report by the Overseas Development Institute. For instance, to send Ksh70,000 ($686) to Uganda through a bank would cost Ksh14,000 ($137).
According to a report by Alliance for Financial Inclusion, a global network of financial inclusion policymakers, use of digital financial services will continue to be one of the key drivers for bringing on board the unbanked population.