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Are African remittance startups missing the bigger picture?

Puzzle piece

Ventureburn recently posted an article about startups trying to pop Africa’s remittance bubble. I applaud the efforts of these startups in trying to address the issue of the above average cost of sending money to Africa which is a real hindrance to Africa’s development as a key player in the global trade arena.

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However a quick analysis of the list shows that most of the start-ups are focused on bitcoin as a more affordable currency alternative, peer to peer transfers and the uni-directional flow of money from western countries to Africa.

The problem with this I think is that they seem to be missing the bigger picture. While Bitcoin may offer significant cost advantages, it is still in its infancy as global payment mechanism.

These start-ups are therefore limiting their potential reach so early in the day and yet many opportunities exist to disrupt the market with universally accepted currencies. And the market is indeed ripe for disruption.

About 41% of remittance pay outs and 65% of all pay out locations are serviced by banks in partnership with Western Union and MoneyGram which have them locked in exclusivity agreements. This lack of flexibility and the high transaction fees needed to support their large distribution chains presents an opportunity for disruption.

Startups need to innovate around how to provide the global coverage afforded by the large remittance service providers at a fraction of the cost.

A better approach is to develop a platform that aggregates several smaller FX service providers onto one online interface. Therefore providing wider coverage than each of them is able to individually provide, while enabling the client select the best rate from a range of providers.

Peer to peer transfers and remittances from African migrants to the continent are just the tip of the iceberg when it comes to Africa’s potential. Companies need to start looking at ways to fill the gaps between Africa and whole global trade ecosystem.

There needs to be a move towards converting these remittances into investment and trade by easing the movement of money both to and from the continent.

In conclusion, lowering the cost of peer to peer, uni-directional remittances is a step in the right direction, however start-ups need to start thinking beyond this in order to truly disrupt
the market.

Cracking two-way global trade transactions at a micro, small and medium enterprise level will have a transformational impact on the continent, truly opening it up for business with the rest of the world.

Image: Cindee Snider Re via Flickr.

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