Vodafone, MTN partner to offer cheaper money transfer

Vodafone Group and MTN Group have put new pressure on international money transfer platforms with the interconnection of mobile money transfers in seven East African countries.

The partnership will allow M-Pesa and MTN Mobile Money customers to transfer money to each other using their mobile devices in Kenya, DR Congo, Mozambique, Rwanda, Tanzania, Uganda and Zambia.

“Together, we aim to build a scalable model that will accelerate remittance rollout across the continent. MTN is currently looking at ways to open new remittance corridors and help those living abroad to remit money back home at a more affordable rate and with greater convenience,” said Serigne Dioum, MTN group head of mobile financial services in an e-mail to The EastAfrican.

Such partnerships may pose a threat to traditional methods of sending money like banks and money transfer service providers, among them Western Union, MoneyGram and Visa.

“From a consumer perspective, it will be cheaper, faster and better embedded in existing payment behaviour; besides, the ‘unbanked’ audience can now be served,” said Erik der Dussen, associate director, Deloitte East Africa’s, strategy and innovation (media) team.

The two telcos said the new partnership is expected to charge lower rates than those of current money transfer options across the seven countries. The fee could be two per cent below that of the transacted amount to beat the existing rates offered by Western Union, MoneyGram and banks, which are deemed to be the most expensive.

A quick test on MoneyGram’s website shows that the US-based money transfer company charges an average of 4.5 per cent to send money between most of the seven countries. It costs 5.5 per cent of the total amount to send money to South Africa from Uganda while 4 per cent is charged on a transaction from Tanzania to South Africa and 4.5 per cent from Kenya to Nigeria; and 4.2 per cent from Tanzania to DR Congo.

“This estimate is for money transfers made at MoneyGram agent locations only. Actual prices may vary at some locations. In addition to the transfer fee, a currency exchange rate may apply. The actual exchange rate will be the exchange rate that is in effect at the time the transfer is received. Government restrictions in your destination country, state or province may affect your money transfer. Transfer fees vary based on the service option and transfer amount. Prices are subject to change,” says MoneyGram.

A 2014 report by the Overseas Development Institute (ODI), a UK-based independent think tank on international development and humanitarian issues, found 10 routes in Africa with bank transfer charges of over 20 per cent.

READ: Africa loses $1.8bn in high money transfer costs a year

Charges from Nigeria to Ghana were at 22 per cent. Transactions from Tanzania to the rest of East Africa, or from South Africa to its neighbours were particularly expensive, peaking at 25 per cent for bank transfers between South Africa and Malawi. Some of the fees charged by money transfer companies are even higher — if you send money from Ghana to Nigeria, you may have to pay a staggering 39 per cent.

Workers from Malawi, Mozambique and Zimbabwe employed in South Africa, and Ugandans remitting money home from Kenya, face charges well in excess of 20 per cent if they make the transfer through banks.

Difficult to replicate

The two telcos will ride on their huge network, which is hard for traditional money transfer service providers to replicate because they require huge investments to establish a physical presence. While money transfer service providers and banks are faced with the challenge of putting agents in places where they were never willing to put branches before, telcos have mobile money platforms that are convenient and cheaper.

Vodafone has 7.6 million M-Pesa users in Africa through its Vodacom Group Ltd unit, and more than 20 million Kenyan subscribers through Safaricom Ltd. MTN has more than 22 million mobile money users. In East Africa, the combined M-Pesa agent network for Safaricom in Kenya and Vodacom in Tanzania is 150,000.

In Zambia, out of the 10.1 million total mobile phone subscribers, MTN has 48 per cent, Airtel 37 per cent and Zamtel 15 per cent.

Safaricom has over 80 per cent market share of mobile money services in Kenya while Vodacom has over 65 per cent market share for mobile money services in Tanzania. MoneyGram has 334,000 agent locations in 200 countries and territories around the world.

The ODI report shows that on average, Africans in the diaspora pay 12 per cent in fees for transfers of $200. The report attributed the high charges to lack of competition with two money transfer operators — Western Union and MoneyGram — controlling almost two-thirds of the remittance market in Africa. The companies operate “exclusivity arrangements” with agents, which restricts market entry.

According to Moses Kemibaro, an IT and digital specialist, in East Africa, partnerships between telcos could open up a whole range of interesting possibilities for regional trade.

“SADC, EAC and Comesa are expected to kick off the tripartite deal this year, which will create more trade and business opportunities; companies are gearing up to tap remittances through mobile money transfers,” said Mr Kemibaro.