Key Drivers to the Access of Digital Remittances: A Case Study of TerraPay Remittance Flows to Sub-Saharan Africa

Introduction

With an estimated 30.4 million of its citizens living and working abroad, Sub-Saharan Africa (SSA) received a combined $52.9 billion worth of remittances in 2022, accounting for about 3 percent of the region’s total GDP (World Bank 2022). While this is significant, it fails to accurately capture the true value of remittance flows to the region. Remittance data in Sub-Saharan Africa are sparse, and their quality is uneven, with some countries not reporting such data at all. When remittance flows are reported, it is often only on an aggregated or net basis. Moreover, estimating informal remittance flows continues to remain a challenge, leading to overall inbound remittance flows being significantly underestimated (UNCDF 2023). 

The surge in mobile phone use across Sub-Saharan Africa has paved the way for mobile money, expanding access to banking and payment services, including the opportunity to digitize international remittance flows. Digital remittances offer the advantages of reduced transaction costs, enhanced financial inclusion, and the opportunity to transition from informal to formal remittance channels. However, the formalization of remittances to Sub-Saharan Africa—intra-regional, in particular—is likely to unfold in distinct ways as the technology, regulatory environment, payment systems, and financial market infrastructure create pathways for remittances to be affordable and accessible through digital channels.  

UNCDF partnered with TerraPay, a global cross-border payment network, to study the growth of digital remittance channels in Africa in three regional economic commissions and/or communities (RECs), namely IGAD, ECCAS, and ECOWAS.ⁱ In these regions, under the leadership of respective REC Secretariats, UNCDF engages with policymakers and regulators to explore the potential of harmonizing remittance policies to facilitate inbound and outbound remittances that may strengthen the balance of payments, deepen the financial sector, and improve financial inclusion.  

This article presents insights from the analysis of more than 24 million anonymized inbound remittance transaction records transacted over the TerraPay network to demonstrate the size and growth patterns of digital remittances in African countries from January 2019 to December 2022. The article is the first in a series that tracks formal and digital flows granularly. Following the case of TerraPay, it examines the size and growth (potential) of formal remittance markets in Sub-Saharan Africa from 2019 to 2022, with a focus on digital remittances in ECOWAS, ECCAS, and IGAD.  

I. Growth of TerraPay in the Sub-Saharan Region 

TerraPay is a global cross-border payments network that facilitates licensed financial institutions and corporate entities to execute person-to-person (P2P) and business-to-business (B2B) international remittance transactions and ensures clearing and settlements for international remittances sent and received through bank accounts and mobile wallets. The payment rails connect financial service providers, mobile wallet providers, money transfer operators, banks, and payment platforms to create a single switch network for the movement of funds. TerraPay’s interoperable platform enables financial service customers to send and receive real-time transactions across diverse payment instruments, platforms, and regions (Partech 2020). 

TerraPay’s inward remittance volume in Sub-Saharan Africa has been steadily increasing since 2019.ⁱⁱ The company has been able to grow as a cross-border payment platform in many African markets, thereby contributing to an increase in the formal or digital flow of remittances to SSA. In 2022, TerraPay facilitated more than 9 million remittance transactions to Sub-Saharan Africa, with a combined value of over a billion US dollars. Analysis of these anonymized transactions reveals some interesting trends. Firstly, mobile wallet channels are increasingly popular. During the year 2022, 97 percent of these remittance flows to SSA were terminated in wallet accounts as a majority of TerraPay’s recipient financial institution partners are mobile money providers. Secondly, remittance ticket sizes to Sub-Saharan Africa tend to be small, averaging around $159 per transaction. Of all the mobile money transactions studied in Quarter 4 of 2022, 35 percent involved sums of less than $50, while just 8 percent of transactions exceeded $500 (Figure 1). Moreover, ticket sizes for transfers to mobile wallets were almost five times smaller than those sent to bank accounts.  

In some African countries, such small-ticket transactions may go unreported or under-reported—either because they are set below a certain threshold amount, or because the reporting requirements, especially for non-banking financial institutions that are facilitating low-value digital remittances, remain unclear. For TerraPay, these ‘small’ transactions accounted for almost $100 million in 2022 alone, flowing into Sub-Saharan African economies. Small-value transactions are most prone to being underestimated due to thresholds; particular attention should be paid to ensure that FIs and NBFIs facilitating small-value remittance transactions are obliged to report, with consistent regulatory guidance and enabling processes to be able to do so.  

TerraPay’s growth in Sub-Saharan Africa was most pronounced in the ECOWAS and IGAD regions (Figure 2) and was driven mainly by a greater number of transactions in specific countries. In the ECOWAS region, for example, Ghana alone represents 77 percent of inbound remittance transactions sent through TerraPay. Most remittances sent over the TerraPay network in the IGAD region went into Tanzania,ⁱⁱⁱ Uganda, and Kenya. Furthermore, in the ECCAS region, which was previously less dynamic, TerraPay has seen significant and sustained growth since Q4 2020. This growth is primarily driven by Cameroon, which accounts for over 90 percent of the total inflows to the region. The increase in Cameroon is partly caused by GIMAC, a harmonized interoperable payment system that connects domestic and international payments in the CEMAC region. A significant increase in inbound remittances to Cameroon was observed on the TerraPay network with the introduction of the GIMAC payment system.   

There is a significant opportunity to digitize intra-African remittance flows as it is estimated that around 40 percent of the remittances in Sub-Saharan Africa are intra-regional (Economist 2021).^iv However, most remittances to the IGAD, ECCAS, and ECOWAS regions, which use TerraPay’s network, come from outside Africa, specifically the United States, the European Union, and the United Kingdom (Figure 3). Intra-African digital remittance flows via the TerraPay network decreased significantly from 33 percent of the annual volume in 2019 to only 3 percent in December 2022 (Figure 4). The low share of intra-African remittances should be seen as a wider market issue; intra-African remittances are generally more likely to be cash-based and informal and less likely to be digital when compared to remittances sent from the US, the EU, and the UK to Africa.  

Compared to the World Bank data, in 2021, out of the $50 billion received in Sub-Saharan Africa, 63 percent of the transfers were sent from outside the region, while 37 percent were sent within Sub-Saharan Africa.^v There are various barriers to affordable and accessible intra-African digital remittance markets. Regulatory issues, such as legal, infrastructure, and market cooperation, can be identified as major obstacles that restrict the development of intra-Africa digital remittances (see, e.g., UNCDF 2021a:10). As highlighted in UNCDF remittance policy and regulatory diagnostics for ECCAS and IGAD (UNCDF 2021a:4-6; UNCDF 2021b), remittances everywhere can be subject to different or even inconsistent policies and regulations between countries. For example, there are different licensing requirements for who can be in the money-transfer business, especially between banks and non-bank financial institutions, but sometimes also between foreign- and domestic-owned remittance service providers (UNCDF 2021a, b). In some countries such as Ghana, financial service providers can be issued a single license for both mobile money and international remittances (GSMA 2017; Bank of Ghana 2015), while in other African countries such as Kenya, regulatory requirements generally mandate the need for two separate licenses to offer both mobile money and international remittance services. In some cases, countries may issue licenses for inbound remittances for RSPs relatively easily but may limit the options to send remittances for capital control reasons.  

Considering high intra-African remittances, more could be done through a harmonized approach towards affordable and accessible intra-African remittances through digital and formal channels (UNCDF ECCAS:10). Agreement amongst governments in the region on areas for possible convergence in the licensing, authorization, and supervision regimes could be a step forward. Policy and regulatory dialogue towards regional harmonization efforts can help address some of them. 

Another barrier to sending and receiving intra-African digital remittances is that it is still difficult to exchange African currencies to make remittance transfers. When individuals want to make cross-border payments, they often must go through a more liquid currency such as the Euro, GBP, or US$, adding transaction costs and increasing vulnerability to exchange rate fluctuations. There are also differing foreign exchange frameworks among the countries in the region. For example, some countries have restrictive exchange rate regimes, causing parallel exchange markets—that is, formal and informal markets. As a result, there is a gap between the official and informal exchange rates. This, in turn, encourages remittances to be channelled through unregulated channels with unpredictable exchange rates, presenting risks to both consumers and the financial system (UNCDF 2021b:7).  

The enormous size of informal remittance flows—estimated at 35-75 percent of recorded remittance flows—remains unaccounted for within the formal system of remittances (World Bank 2005), thus impacting their incorporation into broader policymaking and deepening of the financial sector. While there is little data available from the recent past, it is likely that intra-African remittance flows are significantly informal. In this respect, there is a significant business and public policy case for the digitization of remittances as it can help improve the transition from informal to formal remittances. 

Benchmarked against the World Bank’s estimation of remittance flows (KNOMAD/World Bank 2022), TerraPay’s market share in the Sub-Saharan Africa (SSA) region by transaction value increased significantly by 70 percent between 2020 and 2022, bringing their overall market share to 2.9 percent. The network has a large presence in Cameroon (36 percent market share in 2022), Uganda (22 percent), Tanzania (16 percent), Côte d’Ivoire (10 percent), and Ghana (10 percent). 

The increase in transactions on the TerraPay network is largely driven by the number of new business partnerships they have formed. The company registered more than 50 partners on the sending side and over 40 partners on the receiving side. These partners are licensed financial institutions such as money transfer operators (MTOs), mobile money operators, banks, payment service providers, and payment aggregators. These partnerships enabled TerraPay to deliver transactions to over 300 financial institutions, such as mobile wallets and banks across Sub-Saharan Africa, where recipients hold accounts and have been able to receive funds. However, some partners of TerraPay account for more transactions on the network than others. This is the case with the Ghana corridor where over 90 percent of the inbound remittance volume is transited through two aggregator payment platforms. Moreover, the success of TerraPay in the IGAD region is linked to the partnerships built with several mobile money leaders in Tanzania, Uganda, and in Kenya.  In Cameroon, the connection with the GIMAC payments platform implemented in the CEMAC region contributed to accelerating access to remittances, with over 90 percent of the inbound flow transiting through this retail switch. 

In addition to GIMAC, there are other comparable initiatives such as the Pan-African Payment and Settlement System (PAPSS), which is a centralized payment and settlement infrastructure active in West Africa, or the SADC-RTGS real-time gross settlement system. Such settlement systems could benefit digital remittance markets if and when they allow small-value cross-border payments.^vi The intended output is to achieve cross-border interoperability and harmonization of these payment infrastructures’ operating standards to achieve high rates of automated straight-through processing (STP) of remittances. 

Policymakers should support and encourage the development of harmonized instant and inclusive payment systems throughout Africa to facilitate affordable and accessible intra-African digital remittances (AfricaNenda 2022). 

Conducting analysis on Ghana, where TerraPay holds a substantial and relatively stable market share of 10 percent, Figure 6 shows the gradual growth in inbound digital remittance transactions from 2019 to 2022, despite the COVID-19 pandemic. At the start of the pandemic, Figure 6 shows an initial small dip in inbound remittance transactions in March 2020 due to the COVID-19 lockdown, which is then immediately followed by a spike in transactions until August 2020. This V-shaped trend has been observed in other countries and studies (IMF 2021) and likely indicates an acceleration of the use of digital channels due to the limited availability of cash-based alternatives during the pandemic (ILO 2020). Several policies were introduced during the first lockdown that contributed to the increase in digital remittances, including how mobile money users could send up to GH₵100 for free, and the simplification of tiered KYC enabling customers to onboard to mobile money using only their mobile phone registration details (Bank of Ghana 2020). During the second and third lockdowns, we observe similar spikes but with a lower magnitude. Transaction data analytics can be beneficial to identify such trends in external and unforeseen shocks, whether it’s for the COVID-19 pandemic, exchange rate, inflation shocks, natural disasters, or political crises. 

Remittance data in Sub-Saharan Africa are sparse, and digital transactions, many of which are small-ticket transfers, often go unreported or under-reported in official figures. Access to more real-time data will give decision-makers, including governments and central banks, a powerful tool for measuring and including digital flows in their national statistics. It will also improve their estimations of international remittance transfers. It can further help monitor the market during unforeseen events and external shocks such as the one illustrated in this article for the case of COVID-19 in Ghana. Central banks and other policymakers are in a unique position to not only influence the market through policy but also through data that they choose to make available. For example, central banks can consider the need for reporting transactions made by non-bank RSPs as well as small-value transfers to ensure proper estimation and monitoring of digital remittance flows in the market.  RSPs have started to express the need for a better understanding of the size and growth of both sending and receiving markets, especially as digital payments are growing rapidly (UNCDF, 2021b). 

The case of TerraPay illustrates the substantive growth potential for international digital remittance flows in Sub-Saharan Africa. The article illustrated that it is important to better understand formal and informal remittance markets to strengthen digitization of remittances in Sub-Saharan Africa—towards the reduction of remittance transaction costs, and the deepening of the financial sector.

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