OCTOBER 2017
Pesabase: Low cost Remittances, Payments and Banking Pushing Boundaries for the Unbanked and Under-banked in Africa Despite global innovation with banking and financial technologies, Africa still has lagged in terms of adoption and usage. This has created a wealth of challenges unlike most continents around the planet. From highest cost remittances to the region and low standards of living, to currency mismanagement, hyperinflation, extremely low financial inclusion, among other issues. ICO TBA
by NHIAL MAJOK CEO and Founder Pesabase, Australia
On financial inclusion, one could argue, not everyone has the means to have a bank account. However, everyone needs some form of access to finance and financial services, frequently referred to as being banked. After all, studies have constantly cited that access to finance and financial services go hand in hand with one’s living standards. Unfortunately, vast majority of the African citizenry are not banked. To give an idea about the magnitude of the problem, 73% of Africa’s 1.2 billion-population is not banked, the same can be said for the 40 million small businesses that account for 58% of employment, and contribute 33% to the continent’s GDP. In South Sudan alone, only 3% of the country’s population has access to finance and financial services. Traditional banking institutions that are predominant in the continent’s finance sector are too costly to run an account in; and not easy to access in terms of proximity. REMITTANCES ARE NOT CHEAP A typical case would be the story of a South Sudanese immigrant waitressing in a restaurant in America. Every pay cycle, she calculates how much tips she has collected plus her pay, how much she can remit back home to her family and at what cost. Such is the case with over 30 million Africans in Diaspora, whose families’ rely
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on remittance as a source of income. As a result, over USD40 billion is remitted into the continent every year through formal means, according to the World Bank. Remittances sent through informal means push this estimate to $175 billion. Here’s the problem. The price of remittances is inflated by the incumbent systems, who have limited competition. For every single remittance sent, a whole 9.81% fee of the amount is incurred. It’s worse with intra-country remittances within Africa that cost 22% in fees. As an aside, African countries suffer from inflation as high as 730% as was the case in South Sudan in 2016 and in Zimbabwe it hit 80,000,000,000% in 2008. But it’s worth mentioning that inflation as an existential threat to wealth is slowly forcing a demand for crypto-currencies. As an example, despite the recent Bitcoin price dip, Bitcoin is selling at $7,200 in Zimbabwe, a premier above all global prices. SIGNIFICANT TECHNOLOGY ADVANCEMENTS ARE PROMISING Africa might be behind the curve when it comes to bank account penetration, but the region is right up there with developed countries when it comes to mobile phone adoption and internet penetration.