China’s richest man, Jack Ma, and his acquisition of U.S.-based money transfer firm MoneyGram show the importance of remittances as a powerful driver of economic change at both the individual and international level, according to the competition.
Ma’s Ant Financial acquired MoneyGram for $880 million on Jan. 26, 2017. MoneyGram is the second largest provider of money transfers in the world, operating in more than 200 countries with about 347,000 offices.
Part of the fast-growing Alibaba Group and parent of AliPay, Ant Financial is stepping up its international expansion with the acquisition, Bloomberg reported.
The will connect MoneyGram’s network of 2.4 billion bank and mobile accounts with Ant’s customers, who will be able to use a variety of tech-based financial services including payments, credit and insurance products. The combination will provide consumers in over 200 countries and territories with financial services, furthering Ant’s objective to become the leading platform of its kind in the world, Crowdfund Insider reported.
MoneyGram specializes in sending money from immigrants back to their home countries, according to the New York Times. MoneyGram gives Ant a base with connections to many developing markets.
If Ant Financial expands access to mobile money, it could mean that even more people will receive remittances on their mobile money accounts, and that will be good for Ismail Ahmed.
Ahmed is a Somali entrepreneur and CEO of online money transfer service WorldRemit. WorldRemit lets people send money to Africa via smartphone, tablet or computer, selling itself as a “convenient, low-cost alternative” to traditional money transfer firms.
WorldRemit counts MoneyGram as one of its competitors. Another competitor is the informal remittance markets — those that occur through private, unrecorded channels.
Based in London, WorldRemit is licensed in most of the U.S., and more than half its revenue comes from transactions going to Africa, Ahmed told AFKInsider.
The firm processes over 580,000 transactions a month for senders in 50 countries with transfers to more than 140 destinations across Africa, Europe, Asia, Australia and the Americas.
“We’re doing business in almost 40 African countries — our aim is to offer the service in all 54 countries,” Ahmed said in June. “Particularly we do well where there are mobile money services — Nigeria, Zimbabwe, Kenya, Uganda, Cameroon, South Africa, Ghana.”
In 2015, the now-7-year-old company was valued at $500 million in a $100-million Series B funding round led by Technology Crossover Ventures (TCV), with participation from Accel Partners (early funder of Facebook, Spotify and Dropbox). In February 2016, WorldRemit secured a $45 million line of credit from U.S. growth fund TriplePoint Venture Growth and Silicon Valley Bank.
“The U.S. is not our biggest market, but in the next couple years we expect the U.S. to become our largest market,” Ahmed told AFKInsider. “The U.S. has the largest number of Africans.”
Being an online money transfer service, WorldRemit has access to just a small percentage of the remittances market. “Remarkably only 5 percent today is sent online,” according to WorldRemit. “The rest is cash, paid over the counter or at high street agents. However, this is projected to grow six-fold to reach at least 40 percent in the next few years.”
An increasing amount of attention is being focused on the size and impact of informal remittances. While formal remittances enter a country through official banking channels, informal remittances include money transfers occurring through private, unrecorded channels.
“The most important trend we see in Africa is the shift from informal (which accounts for more than 40 percent of total remittance volume) to formal remittances,” Ahmed told AFKInsider:
As technology improves, the need for informal channels has decreased. Mobile money is disrupting this space and making formal remittances easier to transact. For the more than 80 percent of sub-Saharan African adults who do not have a bank account, this is life changing. Users can now enjoy the speed and low cost of informal channels while benefiting from the increased security of these tech-savvy formal channels.
More than half of WorldRemit’s remittances made to Africa are received on mobile money accounts.
“Depending on what Ant Financial decides to do in Africa, it may help accelerate this trend,” Ahmed said.
Remittances are a $600 billion dollar industry and growing. Ahmed said he expects to see more deals of the MoneyGram-Ant Financial type in future. This merger follows PayPal’s acquisition of Xoom in July 2015, and UAE Exchange’s merger with Travelex in January 2015.
“A convergence of key technological and regulatory trends is driving new M&A activity,” according to WorldRemit.
Following the MoneyGram-Ant Financial merger, WorldRemit said it does not foresee an immediate impact on its business in Africa. “Perhaps the most likely impact could be Western Union losing its dominant position in China once MoneyGram integrates with Alipay,” Ahmed told AFKInsider. “It appears that the focus is China and other major markets in Asia.”
However, remittance fees are notoriously expensive, and that’s where WorldRemit hopes to compete.
Fees including taxes are among the highest in the world for Africans in the diaspora sending money home, according to the Overseas Development Institute, a U.K. think tank on international development and humanitarian issues.
In 2014, workers paid an average of 12 percent in fees to transfer money back to relatives in sub-Saharan Africa. “This ‘super tax’ shows there is a long way to go,” ODI reported in 2014. The organization urged governments to increase competition in money transfer remittances and be more transparent about how fees are set by all market operators.
WorldRemit says it is currently charging zero fees to send money to Kenya and 2.5 percent to send to Ghana and Nigeria.
MoneyGram, WorldRemit, Western Union, and Dahabshiil are all innovating Africa’s money transfer market, according to African Business Review:
Moneygram Africa prides itself on being fast and convenient. According to the firm, money can be collected within just 10 minutes of it being sent (subject to an agent’s hours of operation and local laws and regulations). Although Moneygram has teamed up with First National Bank and Standard Bank, no bank details are needed to complete a transfer. In 2015, MoneyGram announced an agreement with Safaricom that enabled customers in over 90 countries to deliver funds to almost 20 million customers of M-PESA, Kenya’s leading mobile wallet provider.
WorldRemit expanded in January 2016 into Rwanda, Uganda and Zambia using MTN Mobile Money. The Kenyan diaspora sends 1 million money transfers with WorldRemit.
Dahabshiil is the largest Africa-based money transfer company in the world. To send money, users register with an agent and the total amount will be available for collection on the other side within 15 minutes of sending. Dahabshill is renowned for its quality service and committed to contributing to African communities.
Western Union in August announced a collaboration agreement with Airtel Rwanda, an African telecommunications firm. The partnership will facilitate international money transfers for Rwandans and others wanting to send money to the East African country from across the globe. Airtel Money subscribers in Rwanda can now receive international money transfers through Western Union to their mobile wallet at no additional fee. Western Union’s new partnership demonstrates that transferring money with ease is of huge importance to the African diaspora.