Imagine this… you have done a hard weeks work and you need to get the money that you have earned sent back to your home in the Eastern Cape. You chat to the local taxi driver about delivering the money for you. He asks you for R200 as payment for the delivery. Reluctantly you agree because you are unbanked and you do not have sufficient trust in financial institutions. You have no guarantee that your money will actually arrive via the taxi but you don’t feel like you have any other option.
Believe it or not, before the adoption of Money Transfers in South Africa, this was the reality for many people; they were sending money to family and friends by taxis and buses. The person needing to send the money would simply approach a taxi driver at a station and ask that they drop money off with the identified person. The driver would charge a fee for doing so but you had no way of knowing what the fee would be on the day, as the driver would decide then and there. There was no formal agreement or guarantee that the money would arrive at its destination and as a result, there are many reported cases where drivers denied having received the money, where they were robbed during the journey or where they never arrived at the agreed location as planned.
Money Transfers has fast-tracked the financial inclusion of Africa’s unbanked, providing these individuals with a means to send money without having a bank account. Imagine what it has done for them and their families. For example, the migrant worker supporting a family in a developing country. According to an article released by the World Bank Group on Migration and Remittances, worldwide Money Transfers flows to low and middle income countries (LMIC’s) are projected to reach $596 billion in 2018, an increase of 4.8 percent from 2017. Those workers now have peace of mind that their money will arrive and their family will be fed, clothed and educated for another week.
Money Transfers was launched in South Africa in the early 2000’s and is the process of sending money from one person (the sender) to another (the receiver), by means of Money Transfers services located at various local retailers. Money can be sent domestically (within the borders of a country) or internationally depending on the service provider chosen by the sender. The whole process is governed by regulations set by the relevant Reserve Banks, but I will unpack this in a later post.
Customers transferring money benefit from the fact that the funds are instantly available at the other end, whether it be a domestic or international transfer. This has an advantage over bank transfers which can take a lot longer to process. Fees for Money Transfers work differently depending on the service provider, and can be a flat fee or an ad valorem fee based on the principal amount being sent.
The statistics highlight just how great the need is. According to a report by TechnoServe (‘Domestic Remittances in South Africa’ – Nov. 2016), in South Africa alone there are over 24 million people who are active users of formal domestic Money Transfers services. In addition, of the 57 million South African residents, 7.7 million are inter-provincial migrants and 3.2 million are international migrants.
Due to the vast levels of reliance on the transfer of money, it is imperative that the services are extremely secure. The providers of transfer services are increasingly being governed by Reserve Banks, whose task is to ensure the safety and security of the funds of all customers. In South Africa, the rules are stringent but this is brilliant considering the users of these services are those that can least afford to lose their money.
Today, there are a multitude of Money Transfers service providers globally. Two of the most internationally recognised are Western Union and MoneyGram. In South Africa Shoprite, PEP, Ackermans and Spar Money Transfers, are the most popular.
Money Transfers is not a new concept but is an integral part of the livelihood of many people around the world. The improvement it has brought to the financial security of, in particular, the unbanked in South Africa is enormous. No longer are they solely reliant on busses and taxis to move their money, but now have other options for safe and secure delivery of money. This certainly gives me peace of mind!
My next post will focus on cross-border transfers.
Wesley Fetter is Product Manager for Ecentric’s Money Transfers solution, currently being used by Shoprite.