Uncategorized From Startups to Institutions: Solving X-Border Challenges in Africa to Facilitate Remittance Flows – pymnts.com
For most consumers sending money abroad, peer-to-peer (P2P) payments are slow and costly.
According to data PYMNTS gathered on cross-border remittances, of the 70% of consumers who pay a fee to send money overseas, 41% pay a percentage fee averaging 6.2%, while 28% pay a fixed fee that averages $14.80.
For U.S. senders alone, this represents a staggering cost of $3.5 billion. And even the 30% of respondents who said that they do not pay a fee may be paying exchange rate costs.
Read more: The Cross-Border Remittances Report
Published in collaboration with the Stellar Development Foundation, the research also found another significant point of friction which is long payment delays. It takes more than two days on average for recipients to access the funds.
This is especially challenging as the highest percentage of P2P payments were sent to friends or family in dire financial need because of the pandemic (32%), indicating that these long payment delays and high transaction fees may have a significant impact on receivers’ access to funds or on the ability of payors to send the total amounts originally intended.
Due to these hurdles, there is no doubt that consumers are eager for alternatives that are swift, secure and frictionless to transfer funds across borders, and companies like Tanzanian FinTech NALA are rising up to the challenge.
Starting from local money transfers, the cross-border payments company expanded to include international remittances last year, helping customers in the United Kingdom and the United States send money to receivers in six African countries: Tanzania, Kenya, Uganda, Rwanda, Ghana and South Africa.
In the past six months alone, more than 8,000 customers have transferred tens of millions of dollars to Africa. This figure is set to increase by the end of this year as the company plans to expand to an additional six African countries, including Nigeria.
See more: Tanzanian Payments FinTech NALA Raises $10M
To further boost its growth, the company announced in a LinkedIn post Thursday (Jan. 27) that it has secured a $10 million seed fundraise, money that Founder and CEO Benjamin Fernandes said will go toward developing its infrastructure.
“My take is that payments across the continent is 1% built, and there’s a lot of infrastructure and software that needs to be built deeply,” he said. “That’s where we want to sit and this $10 million round is going to do a lot of that.”
In the meantime, the firm has received license approvals to go live in the U.S. and the EU, Fernandes added, noting that those locations “will be going live in a month and a half in at least one other EU country, probably France.”
African FinTech firm Chipper Cash is another company looking to bridge the gaps in the remittance space and facilitate money transfers across borders. The firm closed a $150 million Series C extended funding round in November at a more than $2 billion valuation, bringing its total fundraising to $305 million.
Read also: African FinTech Chipper Cash Raises $150M at $2B+ Valuation
Co-founded in 2018, the payments company, which has over 4 million users, specializes in app-based, no-charge, P2P, cross-border payments, and it operates across seven African countries — Ghana, Kenya, Nigeria, Rwanda, South Africa, Tanzania and Uganda.
But it’s not just private firms that are looking to help solve the remittance challenge across the region. Just this month, the Africa Export-Import Bank (Afreximbank) launched the Pan-African Payment and Settlement System (PAPSS), in collaboration with African Union (AU) and African Continental Free Trade Area (AfCFTA).
See more: Afreximbank’s Payment System Goes Live With 12 African Banks
As PYMNTS reported, the system is expected to boost cross-border transactions across Africa, saving businesses and households in the region about $5 billion in the yearly cost of transactions.
“PAPSS provides the state-of-the-art financial market infrastructure connecting African markets to each other, thereby enabling instant cross-border payments in respective local African currencies for cross-border trade,” Afreximbank President and Chairman Benedict Oramah said at the launch event in Accra, Ghana.
Read also: Repairing Regulatory Fragmentation Will Spur Cross-Border Payments Across Africa
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