Mobile money as a pathway to SDG 10C: Reducing transaction costs of remittances

Remittances are a vital source of funds for migrant families in low- and middle-income countries (LMICs). Despite the global economic slowdown, remittances to LMICs reached $626 billion in 2022, according to KNOMAD’s Migration and Development Brief # 37, released in November.

However, according to the World Bank’s Remittance Prices Worldwide (RPW), the global average cost of sending $200 to LMICs remained above 6 per cent throughout the first half of 2022, twice the UN’s SDG 10 C target of 3 per cent. Banks were the costliest service provider (11 per cent) when sending $200, followed by post offices (6.45 per cent) and money transfer operators (5.22 per cent). Mobile money providers remained the least costly (3.45 per cent).

The GSMA commissioned an independent remittance price survey in Q3 of 2022 as part of its work on the topic and published the results. The survey is based on the World Bank’s methodology but only looks at remittances between mobile money accounts, i.e., where the sending and receiving instruments are both mobile money accounts. The survey covered 161 corridors between 23 sending and 37 receiving countries. The key findings from the survey are below.

  • The average price for sending $200 in international remittance between two mobile money accounts is 3.73 per cent indicating a 0.2 percentage point increase from the GSMA’s 2020 survey.
  • Mobile money is the least costly instrument for sending remittances. The average cost of sending $200 through mobile money is 37.9 per cent lower than the global average remittance cost for Q2 2022, published by the RPW.
  • The FX margin component of the mobile money remittance transactions stayed at 1.7 per cent between the two GSMA surveys.
  • 45.3 per cent of services achieved the UN’s SDG 10 C target well before 2030.

The increase in average cost is due to the rise in transaction fees charged by the mobile money provider on the sending side. While the reason for this increase was not assessed as part of the research, separate discussions with stakeholders indicate that transaction fees increased due to increased regulatory compliance costs related to AML/CFT and correspondent banking access.

While the average FX margin remains unchanged, it needs to be noted that there are sometimes substantial differences in FX rates when using different providers in the same corridors. For example, when sending $200 in remittance from Ecocash in South Africa to Airtel and MTN in Uganda, whilst the fee is the same at ZAR 88, the FX margin in the transaction to Airtel Uganda is 2.63 per cent compared to 1.48 per cent to MTN Uganda. Note that the data collected was on a specific date and time. FX rates are dynamic and may change every minute. Hence, it does not mean that sending money from Ecocash to Airtel will always be more expensive than sending it to MTN in Uganda. The choice of the provider on the sending side can also impact the cost due to the fee structures, including FX models in different corridors. 

Mobile money remittances, being digital and account-to-account, do not include a cash-out fee. This is because cashing out from the mobile money account at the agent location is treated as a separate transaction. The scenario is similar to remittances to bank accounts, where the transaction is completed when funds are deposited in the recipient’s bank account.  

The survey, however, assessed the impact of cash-out transactions on the price of mobile money remittances. If a recipient decided to instantly cash out the equivalent of the $200 remittance received in the mobile money account, and if the cash-out fee was hypothetically included in the total transaction fee, this would increase the total average transaction fee by 1.39 percentage points to 5.12 per cent.   

The survey results indicate that while mobile money remittance transaction fees are transparent, these are only sometimes provided upfront to the customer unless asked. This is often difficult as the customer, in such a situation, needs to suspend the transaction on the handset and either call the call centre or travel to an agent’s location.   

Mobile money remains the leading pathway to achieve the UN’s SDG 10 C target well before the 2030 timeline. To ensure sustainability, regulators must modernise the regulatory frameworks for mobile money remittances to ensure that these are market and technology neutral, cost-effective, and flexible.

The GSMA will continue to provide thought leadership on this crucial topic and work closely with all stakeholders to support accessible, affordable and safer international remittances, enabling economic resilience for those at the last mile.