Opening the International Money Transfer Space

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Obinna Chima reckons that opening the international money transfer business space with the registration of more operators, will lead to increase in foreign exchange inflows and enhance service delivery in the forex market

The foreign exchange market has in recent times been facing challenges. The naira has lost so much of its value on the parallel market. Also, the gap between the official exchange rate and the parallel market has continued to widen.

The situation was a result of decline of the price of Nigeria’s major source of foreign exchange earner, crude oil, at the international market.
In trying to stem the tide, the Central Bank of Nigeria (CBN) had adopted measures to reduce the rate of foreign exchange outflow from the external reserves.

From the exemption of 41 items from the list of eligible items for foreign exchange, the reduction of the withdrawal limits on payment cards outside the country, among others, the central bank has shown its determination to stabilise the exchange rate.

Experts have however suggested that the solution to the perennial crisis in the foreign exchange market is to enhance inflows through increased export earnings, foreign direct investments and diaspora inflows.

Of all these three sources, diaspora inflows appear the most readily available source the country can harness to solve the macro-economic challenges posed by foreign exchange shortfall. This is because remittances are the second largest source of foreign exchange in Nigeria after the oil sector.

In 2015, an estimated $21billion flowed into the country, including $5.7billion sent from the United States and about $3.7billion from the United Kingdom.

For 2016, the World Bank estimates that nearly $34billion in remittances will flow into sub-Saharan Africa from the more than 30 million Africans living outside their countries of origin. Nearly two-thirds of this expected inflow in 2016, according to World Bank data, will come into Nigeria.

Perhaps it is this huge significance of the money transfer sector to the nation’s economic life that informed the recent efforts by CBN to ostensibly clean the sector. In a recent policy pronouncement, CBN advised citizens to “beware of the unwholesome activities of some unlicensed International Money Transfer Operators (IMTOs)” plying their trade in the country.
Citing “the greater economic good of Nigeria,” the Central Bank stated that it would “not condone any attempt aimed at undermining the country’s foreign exchange regime.”

Consequently, the regulator first revoked the licences of all but three money transfer companies that had been doing money transfer business in the country, before later approving a second batch of eleven other new international money transfer operators to bring the total number of approved operators for now to fourteen.
The three IMTOs that first passed the CBN litmus test were Western Union, MoneyGram and RIA. The second batch of newly registered eleven operators included Trans-East Remittance LLC; WorldRemit Limited; UAE Exchange Centre LLC; Home Send S.C.R.L; Cashpoint Limited; Weblink International Limited; DT&T Corporation Limited; Wari Limited; Small World Financial Services Group Limited; Fiem Group LLC and CP Express Limited.

According to the Director of Corporate Communications, Mr Isaac Okorafor, the move was part of “efforts to liberalise the foreign exchange market, ensure liquidity and make foreign exchange more readily available to low end users.”
He added: “The CBN also wishes to reiterate its commitment to providing an enabling environment for international money transfer services in Nigeria.”

Taming Fraudsters
In what looks like a mission to protect Nigerians against fraud and other negative antics of many money transfer organisations in the country undermining the CBN’s bid to ensure liquidity and increase the availability of dollars in the system, central bank is insisting that the newly licenced operators physically set up offices in the country.

Of the first three approved IMTOs in the country, MoneyGram, for example has Lagos as its operational hub for Anglophone West Africa while both Western Union and MoneyGram have strong partnership with almost all deposit banks in addition to a large pool of agents across the country. It is also a fact that operationally, the first three IMTOs control over 70 per cent of the market.
Given the fraud-prone nature of the money transfer business, the need for operators to have traceable presence in the country cannot be over-emphasised.

Pricing of Money Transfer Services
Of significance are also the issues relating to pricing of transactions. Pricing can vary from market to market as fees reflect the many benefits offered by the service sought.
There are many factors that go into pricing transactions. These include how the transactions are processed (e.g. telephone or internet), the particular MTO’s banking relationships worldwide, fees of other competing products, compliance and required time to transfer (convenience). The bottom-line however is the need to offer customers value for money in their transactions.

A study of rates and fees across several markets had shown that Nigeria is well within range. For example, as indicated on the company’s website, the MoneyGram global average fee including foreign exchange, of less than five per cent of the face value of the money transferred is substantially lower than the average fee for an international bank transfer and is very competitive in the fund transfer industry.

This fee is lower than the World Bank and G8 goals to provide affordable remittance services to underdeveloped parts of the world. Of additional benefit to the country however is the fact that local agents retain approximately half of the fee paid by the consumer, which in turn is re-invested in local businesses.

Anti-money Laundering Fight
The need to curb fraud and terrorism financing appear to be the most pressing justification for the effective regulation and control of the fund transfer business. This is perhaps more so as countries continue to grapple with growing influence of terrorism and other global crimes.

Experts opined that with adequate Anti-Money Laundering and Counter-Terrorism Act (AML/CFT) policies that serve as a compliance guide, it is possible to reduce fraud risk along with money laundering and terrorism financing. Stronger AML/CFT systems have been identified as being able to help improve the ability to trace and monitor transactions, improve financial inclusion, reduce remittance costs and reduce the use of cash transactions that are inherently risky in nature. This provides strong evidence that there is an overlap between AML/CFT and consumer protection.

In its ‘Guidelines on International Money Transfer Services in Nigeria’, CBN states that “All money transfer operators in Nigeria shall comply with the provisions of the Central Bank of Nigeria’s ‘Anti-Money Laundering and Combating the Financing of Terrorism in Banks and Other Financial Institutions Regulations 2013’ and all other applicable laws and regulations”.
The major IMTOs in the country have committed enormous resources to fraud prevention. For instance, Ria Money Transfer, with a worldwide agent network of more than 280,000 locations in more than 145 countries, prides itself in taking costumer protection seriously through its investments in the highest level of security and protection against fraud.

As a company incorporated in the United States, MoneyGram, the world’s second largest IMTOs recently restated its commitment to continue to comply with requirements set by OFAC of the Dept of Treasury, U.S.A. OFAC maintains a list called the Specially Designated Nationals and Blocked Entities List (“SDN List”).

Therefore, it is a rule that MoneyGram’s software should review and check all names listed on money transfer transactions against the SDN List and any transaction with a name that matches to a prohibited person or entity must be blocked and reported to OFAC to alert agents of transactions from known criminals or suspicious customers.

For customer protection, the network also has in place a number of security checks to protect customers as each transaction has a unique reference number, which is communicated to the sender. Agents are required to authenticate both senders and receivers, and locally recognized identification documents must be produced when sending or receiving a transaction. As an added security measure, each transaction carries a “test” question – the sender has the opportunity to ask a question only the receiver will know the answer to and should MoneyGram become suspicious regarding a transaction, it is suspended immediately. And specifically for Nigeria, MoneyGram has deployed a solution that allows transactions to be locked into specific locations thereby cutting teller fraud significantly

Success in money transfer services relies on convenience, safety, reliability and all of these at an affordable price. While it is true that the money transfer opportunity in Nigeria and with Nigerians in Diaspora is immense, it is imperative for the CBN and the licenced IMTOs to continue to fine-tune transaction processes to help consumers find more value in the sector.