Remittance startups ride Africa’s migration wave

Remittance startups have injected new competition into a market long dominated by US giants like Western Union and MoneyGram. “Banks in Europe do not support remittances to Africa without a lot of hassle,” according to Olalere, who referred to the documents they can demand for large transfers and the days it can take for money to arrive.

With promises of faster and cheaper transactions, new startups are rapidly luring new customers. They’ve also made efforts to emphasize their commitment to tackling the ongoing challenge of fraud and flickering forex rates that can turn off some financial institutions from entering the sector.

Some are innovating with new technologies too. Juicyway, a startup headquartered in London and co-founded by a Nigerian, uses stablecoins — a cryptocurrency pegged to the US dollar — for crossborder money transfers in Africa. It has processed $1.3 billion for 4,000 customers since 2021 and raised $3 million last month from Nigerian venture capital firms.

In recent months Flutterwave, a Nigerian online payments firm, has expanded its remittance services, capitalizing on the sector’s rapid growth. Last September, it finalized a major deal with a Virginia-based bank that will enable users of its app to send money to Nigeria from every US state except Texas.

Remittances account for more than 5% of gross domestic product in 15 sub-Saharan African countries. And the true size of remittances is thought to be even larger due to flows through informal channels.

In the region’s smaller countries — such as The Gambia, Lesotho, and Comoros — money from migrants overseas represents large shares of GDP, reflecting the importance of remittances for local economies. The sector presents key opportunities for governments and companies to improve payment service systems, both within the region and internationally.

Still, reducing the cost of money transfers remains the biggest concern for most providers and policymakers with fees to send money to sub-Saharan Africa around two percentage points higher than the global average, according to the latest World Bank figures. For instance, sending money from South Africa — home to the highest number of immigrants in Africa — to other parts of the world is more expensive than from any other G20 nation.

Despite the flow of funding to remittance startups targeting Africa, sending money within and out of the region remains fraught with difficulty, said Babacar Seck, founder of Askya IP investment firm and a former Africa investor at French development financier Proparco.

“Is it easy today to send money abroad? No, it’s terrible. You pay very high fees, it’s slow, and there’s a lot of inefficiency,” Seck told Semafor. While it is increasingly convenient to send money into Africa, “even there, the reality is that you still have forex fees” that make the service expensive, he said.

The biggest rewards in remittances will flow to innovators who change the game, Seck added, by “reducing cost(s) and thinking about not just sending to Africa but from and within Africa.”

Nigeria remains sub-Saharan Africa’s top destination for remittances, receiving an estimated $20 billion in 2024 — more than the combined totals for eight of the top 10 including Kenya, Ghana, Senegal, and DR Congo.

Expanding job opportunities for foreign-born workers in high-income countries have driven up remittances since the COVID-19 pandemic, the World Bank noted in its recent report, adding that “enormous migration pressures” will only accelerate this growth.