In April the Financial Times in London reported that Facebook was in the process of applying for a banking license in Ireland in order to enter the global money remittances industry and posed the question: “Are we about to see the emergence of FaceBank?”
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While FaceBank might be some way off yet, there’s no doubt that social media is a big part of the future for global remittances – an industry which the World Bank estimates totaled US$550-billion in 2013, of which US$414-billion went to developing countries, involving some 232 million migrants.
Michael Kent, CEO of the online social money transfer service Azimo, which was one of the companies linked with a rumoured acquisition by Facebook, explains the connection, “remittances are a flow of money and information. Sending and receiving the information is often the hardest part of the process. Traditionally the beneficiary (the person receiving the money) needs to know where to go to collect the money, how to collect it and what ID and passwords they need to take. If you’re the person sending money, you need your beneficiary’s personal information and bank details. There is an information flow that must be made for a successful remittance”.
Often sending the money is the easy part. And that’s where social media comes in — it connects senders and beneficiaries. The World Bank estimates that over 90% of transfers are sent to family members — people who you’re connected on social media.
Kent explains that, “with the social and information connection already existing on Facebook, it allows you to go from sharing pictures of your weekend to sharing money. For migrants living abroad Facebook is how they stay connected with life back home.”
It is unsurprising then that many of Facebook’s fastest growing markets are in developing nations which are traditional receive destinations for money transfers – there are currently over 13 million subscribers in Egypt, 9.2 million in South Africa and 5.5 million in Nigeria.
The power of this proposition is that it is right at the center of the hierarchy of human needs; the ability to send money around the world to support friends, families and communities. If you can’t chat to someone on your street then Facebook and other social networks become a very important social and cultural component of you existing as a migrant in a foreign country.
If you’re a Nigerian businessman living in Berlin, Facebook is how you stay up to date with everything from the latest Nollywood films or how Kano Pillars are doing in the Nigerian Premier League.
And then there is the cost saving. Social media is exclusively online which means a massive reduction in overheads. Traditional banks and legacy players operate an old-fashioned business model of stores and agents. Social media enables online services to cut the cost of physical infrastructure and intermediaries and pass on the savings direct to the customer.
Back in 2011 at the G20, Bill Gates said that, “if the transaction costs on remittances worldwide were cut from where they are today at around 10% to an average of 5%…….it would unlock US$15-billion a year in poor countries.”
For years African migrants have been overcharged by their providers. In May the Africa Progress Panel, a think tank chaired by Kofi Annan estimated that overcharging on remittances by the likes of Western Union and MoneyGram is costing sub-Saharan African’s alone an average of US$1.85-billion a year – money that belongs in the pockets of the families of these hard-working migrants.
The result of concerted pressure from new online businesses is that globally the cost of remittances has begun to fall, down to about 8.4% but remains stubbornly as high as 10-15% in many key migrant corridors. Azimo on the other hand charges less than 3% because being online significantly reduces cost and that means savings for customers.
So is Kent concerned by the thought of Facebook entering the market? Not at all as he explains, “when we founded Azimo our mission was to get prices as low as possible to save migrants money and social media enables Azimo to do that. If Mark Zuckerberg and Facebook come along get the prices down to zero for our customer, then our customers have won and that means we’ve won!”
Image by Flood G. via Flickr.
