Remittances, or the transfer of money by a foreign workers to an individuals in their home countries, are huge, especially in countries with large migrant and immigrant populations. How big? Well, US$440-billion in 2010, of which US$325-billion went to developing countries, involving some 192-million migrants or 3.0% of world population. That’s a number which will only have grown in the intervening years.
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The trouble is, the hefty fees charged by many remittance service providers can end up crippling the most vulnerable people using them. South African mobile social startup Mama Money is hoping to change that in a big way.
When the Cape Town-based startup — founded by Raphael Grojnowski and Mathieu Coquilon — goes live on Monday, it’ll enable Zimbabwean immigrants in South Africa to send money back home at a five percent fee with no hidden costs and no margin charged on the exchange rate. They’ll also be able to do so entirely through their mobile phones.
By way of comparison, the average fee charged around the world is eight percent, although some services charge as much as 29% to send money from one country to another.
Read more: Are African remittance startups missing the bigger picture?
South Africa, which has at least 1.7-million “non-citizens” living within its borders, is particularly bad in this regard and is widely considered to be one of the most expensive places in the world to send money from.
Grojnowski and Coquilon therefore feel that Mama Money has a serious chance of disrupting the status quo.
“We’re launching a product that people need every month,” Grojnowski told a media briefing in Cape Town. The pair of entrepreneurs, who met while traveling through Africa (Gronjowski spent most of his early professional life working in refugee camps across the continent), believe that five percent is the fairest price they could charge.
Of course they could charge more and introduce hidden fees to bring in more profit, but that isn’t really the aim of Mama Money. According to Grojnowski, the goal is disruption rather than profit.
“We’ve set up a business that has social good as a goal,” he said. “We want to be profit minimising, but sustainable.” That social good, he explained, could only come from disrupting the system and getting other players to bring their costs down.
Read more: MTN partners with WorldRemit for mobile money payments for Africans
“Once you reduce costs, more money arrives in the pockets of people who need it,” he said.
The point, Coquilon reiterated, is to “force other companies to modernise and lower costs”
A large part of the reason Mama Money is able to have such low fees is because it’s the first such company not to have to rely on a partnership with one of South Africa’s major banks. That’s because it’s also the first company in the country to be licensed by the South African Reserve Bank as an Authorised Dealer with Limited Authority (ADLA), Category 3 Money Transfer Operator. As well as eliminating the need for a banking partner, the license allows it to avoid having to include an exchange rate margin.
Aside from costs, Mama Money is also trying to make things as easy as possible from a technological point of view.
Whereas as most mobile remittance services rely on cash entering the equation at some point — most typically at the receiver’s end — transactions done on Mama Money are done entirely on mobile. Even signing up to the service, which is done face-to-face with Mama Money agents, takes place almost entirely on mobile.
Once senders have linked their bank accounts to the service — Grojnowski reckons that around 70% of the company’s potential customers are banked, but says that the company is working on an option for people who aren’t — they can immediately transact with any dependents they might have in their home countries. Once they’ve sent the money, the person on the other side should be able to use the money immediately either via a mobile wallet or with a Textacash card from Zimbabwean company CABS. The latter service apparently has more than 600 000 users in the country.
Read more: 6 clever tech startups trying to pop Africa’s remittance bubble
Mama Money also claims to be functional on everything from the most basic of dumb phones — via USSD — through to high-end smarpthones. In fact, Coquilon wasn’t allowed to upgrade from his dumb phone to a smartphone until the service was working on the former.
Initially, Mama Money will only work for remittances between South Africa and Zimbabwe but the startup is planning on expansion across the continent, with Malawi, Mozambique and Zambia next on the cards. Starting with Zimbabwe does however make sense, given that people from that country make up the vast majority of immigrants in South Africa.
Of course, all that talk of disruption low fees doesn’t change the fact that Mama Money is facing some serious competition. Quite apart from established services — mobile giant MTN and WorldRemit recently announced a global partnership that will enable WorldRemit customers to send payment instantly to MTN’s Mobile Money customers, also at five percent fee — there are also plenty of other startups looking to break into the space.
Most of them make use of Africa’s heavy mobile penetration with a select few, such as BitX and BitPesa, betting on Bitcoin as the remittance mechanism of the future.
Despite not having the financial clout as some of its competitors — the startup is 100% bootstrapped — Grojnowski and Coquilon are bullsih about the challenge facing them.
“We’re quite excited,” the former said. “We hope the competition is coming”.
