The Nigerian remittance industry has witnessed growth over the years. With around USD ~ billion of total inward remittance, in 2015 Nigeria was ranked sixth largest country in the list of remittance receiving countries A large portion of the Nigerian population is dependent on the remittance received. Remittance fund sent by Nigerian to their families and friends help the people in meeting their daily expenses. Better job opportunities with high salary and better standard of living are the main reasons for Nigerians to migrate which have resulted in the overall growth of the remittance and the bill payment industry. However there was a sharp decline in the growth rate of international remittance market in 2016. This abrupt fall was majorly contributed by the decline in commodity prices, especially oil in the remittance sending countries. The major destination countries for Nigerian expatriates are the United States, United Kingdom and European Countries.
The Nigerian remittance industry until recent years was majorly dependent on traditional companies, but there has been a transition in the mode preferred by the Nigerian population. They population is now opting for online method and mobile based services.
In the past few years the growth in the bill payment market size has been over ~% in Nigeria. The increase in migration towards urban areas has lead to increase in number of house hold, which has resulted in the overall growth of the bill payment market. Another reason that can be attributed to the robust growth in the bill payment market is the increase in number of mobile subscribers and internet users. In Nigeria international remittance is a critical source of income for the people and has changed their standard of living to a great extent. Remittance inflow from other countries into Nigeria has resulted in development of the country in many ways.
Around ~% of international remittance fund is transacted through banks. One of the primary reasons for this is the regulations imposed by the government on the international money transfer agencies to curb black marketing. Due to these regulations there are only a handful of licensed IMTOs in the country
Another reason for people majorly using the banks to transfer money is the low transfer fee charged in comparison to the non-bank channels, which is on an average ~% of the money transferred. The percentage of banked population has also increased consistently over the years. In 2008 only ~% of the total population was banked where in 2016 it grew to ~%, i.e. around ~ million people were banked in 2016. However in recent years the transaction volume through banks in terms of percentage has decreased. Besides the increase in the number of banked population, the number of banks available per 100,000 adults has decreased over the years. Non-availability of enough banks in the neighborhood has resulted in a shift of a large number of users to non-bank channels. Remittance companies are continuously increasing the penetration of these non-bank channels. These companies are gradually expanding the outreach of their agents to rural parts of the country. The services offered by these agents are getting more and more accessible and are easy to use. Some of the Major Banks in Nigeria are the Zenith Bank, First Bank of Nigeria, Access Bank, United Bank of Africa and others.
Over the years, international remittance in Nigeria through non-bank channels has increased. Currently it is around ~% of the total remittance flow. Several factors have played a vital part in the growing share of the non-bank channel. Introduction of newer web-applications by various companies, launch of new startups and increased competition has supported the growth of transactions from non-bank channels. Non-bank channel in Nigeria majorly consists of the money transfer agencies, local merchants and exchange houses.
Better and easy services provided by money transfer organizations which are centered on remittances, has also resulted in the gradual increase in transactions from unbanked channels.
On the other hand the transfer fee charged by these non-bank channels on an average is ~ of the money transferred, which in comparison to the banks is almost double. This has been one of the deterrents for the growth of the non-bank channels. Some of the major banks in the international remittance market include Guaranty Trust Bank, Eco Bank, Fidelity Bank and others.
In the Nigerian remittance market the majority of the share in terms of transaction volume is dominated by electronic transfer. The total market size captured by electronic transfers has grown from ~% in 2011 to about ~% in 2016. There has been constant growth in the market share of electronic transfer from the past five years. This growth in the electronic payments methods is mainly because of the easy availability of electronic mode of transfer to the sender and increasing penetration of mobile payment methods in rural areas. The increase in number of smartphone users from ~ million in 2014 to an estimated ~ million in 2016 has supported this. Furthermore, competition amongst companies to provide online transfer methods to the sender as well as the user has strongly supported the electronic mode of transfers.
Remittance money through electronic mode is prevalent because of ease of accessibility, ease of use, lesser time taken and is also cheaper in comparison to cash transfer
The NEFT, RTGS, ECS, Banks Cards, electronic transfer through the MTO (Money Transfer Operator) and others are the most popular forms of electronic transfer prevailing in the country. In Electronic transfer the money reaches the desired beneficiary within 24 to 72 hours.
The bill payments market of Nigeria includes the bills paid for Groceries, utilities, fuel, DTH and broadband services and mobile recharges. The payments made for the groceries bills contribute majorly in the Nigerian bill payment market. The payments made for the electricity bill constitute the major share of the utility bill payment transaction volume.
The cost of internet usage is very high in Nigeria. In a month it costs 18 to 19 thousand Naira for a 60 Mbps broadband connection. Internet and mobile users in Nigeria do not have much choice as the major Internet Service Providers (ISPs) are few. Presence of only a handful of major players in the market has resulted in high costs for the users.
Declining Unbanked Population in the Country: The Nigerian government has been actively working towards financial inclusion and that is clearly reflected in the decline in unbanked population of the country. In 2016 around ~% of Nigeria’s adult population owns a bank account or is formally/informally included into the financial system. There has been a rise in government efforts and the service companies have continuously encouraged the population to open bank accounts. As per the financial inclusion strategy The Central Bank of Nigeria (CBN) is committed to bring down the adult financial exclusion to ~% by 2020.
Emergence of digital payment methods: The smart phones have made transferring money and payment of bills easier and cheaper. The industry is transitioning from the traditional modes of transfer to online modes based on newer technology. The growth in the telecom sector will further support this transition and support the growth of the online remittance and digital payment methods. This trend has compelled the traditional companies to improvise their strategy for the Nigerian market and come up with digital platforms that are capable of providing a range of services.
Government tie-ups with corporate: The Central Bank of Nigeria through its policies has iterated that it envisions a cashless economy. It has made progressive changes in its regulations for Banks, MTOs and other online financial service providers the government has encouraged companies to increase the interconnectivity and also increase the coverage of the network. Many companies have been granted the license to operate as super agents in Nigeria. Initiatives like these will help in overall financial inclusion of the population and help establish a cashless economy.
Fluctuating exchange rates: Due to slow economic growth in remittance-sending countries in Europe, poor performance of Euro and British Pound along with decline in commodity prices, especially oil has had a negative impact in remittance receiving countries like Nigeria. Remittances represent a stable inflow of foreign currency for many small developing economies. For some countries, remittances are now a greater source of foreign exchange than foreign direct investment and portfolio investment flows. Remittances have an indirect stabilizing effect of exchange rate volatility.
High cost of remittance: In Nigeria the remittance fee charged by the companies is exorbitantly high. In compliance with the Sustainable Development Goal (SDG) the fee charged should be 3% of the remitted amount. The global average cost of remitting money is ~%. While in the Sub-Saharan Region the average cost is the highest at ~%. The remittance cost in many countries of Africa is above ~%. Companies like Western Union and MoneyGram have been accused of charging fee as high as ~% in some parts of Africa. This is primarily due to inadequate penetration of new technology, lack of competition in the market and low volume of formal flow.
Challenges of Unlicensed IMTOs: One of the challenges that the government faces is the opaque nature of the remittance business in Nigeria. While there are three registered International Money Transfer Operators, namely Western Union, Moneygram and Ria, the industry is replete with operators who are not registered or licensed by the apex bank and who also do not have any presence in the country.
The Nigerian international remittance industry in 2015 was the 6th largest in the world with a market size of around USD ~ billion. Some of the major banks in the remittance market of the country include Guaranty Trust Bank, Eco Bank, Fidelity Bank and others. The industry till now was monopolistic with only a few major companies like Western Union, Moneygram and Ria dominating the industry. In order to liberalize and increase healthy competition in the industry the Central Bank of Nigeria in September 2016 had introduced regulations which once again made it legal for the for small MTOs to operate in Nigeria. Earlier in 2015 the CBN has issued regulations which made all the MTO except Western Union, Moneygram and Ria illegal to operate in Nigeria.
The growth in the telecom sector is gradually developing the necessary infrastructure for companies to compete in the digital remittance business as well. As the reach of internet will penetrate the rural regions of Nigeria, remittance companies are expected to compete with each other to increase their user base and offer better services at cheaper rates to the user.
Considering the present geo-political scenario and slow revival of the remittance sending countries from the economic crises it has been estimated that the market will grow at a CAGR of ~% from USD ~Billion in 2017 to USD ~ Billion in 2019. The rising Nigerian immigrants in other countries will result in the increasing number of transactions from other countries to Nigeria. Moreover, the companies are giving their customers greater choice, safety and control, which serve to be an advantage for those who are sending and receiving money internationally.
The bill payment industry will rise at a CAGR of ~% during 2020-2022. Newer players will enter with market disrupting technologies and make it easier and cheap for the consumer to pay their bills. These services will be faster and more convenient and will be majorly offered by non-banking players.
The growth in the telecom sector has led to the rise in internet using population of the country. This has encouraged companies to offer more online services to the customers at cheaper rates. A similar trend is expected, which will overall increase the user base and the number of transactions being done.
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Ankur Gupta, Head Marketing & Communications