Quite a lot is happening in the remittance space in Nigeria. With inflow rising from about 17.5 billion in 2019 to 25 billion in 2020, it isn’t hard to see that remittance inflow is a major source of development finance and foreign exchange for the country.
A PwC report projects that remittances into Nigeria could rise to $29 billion in 2021 and 35 billion by 2023. Indeed remittance into the country represents about 7% of GDP and as of 2018, was more than 80% of the national budget.
The figures behind remittance inflow have since piqued government interest and identifying it as a means of stemming the foreign exchange shortage in the country, introduced the 5 for 1 policy to encourage Nigerians to adopt government-approved means of remittances.
The 5 for 1 policy is a CBN rule which undertakes to give 5 Naira for every Dollar sent through its approved money transfer channels.
But while a lot of focus seems to be on remittance inflows, not quite enough is given to outflow and this is where Lemonade Finance comes in. While still offering its free inward remittance service, the fintech has also delved into outflow and recently launched a feature that allows its users in Nigeria and Canada to send money to the US and Europe free of charge.
“We are super excited to announce that Nigerian and Canadian users can now send money to the United Kingdom and Europe via the Lemonade Finance app for free,” the company said.
The problem with outbound money transfer
Asked why the startup decided to invest so much effort and resources into outbound money transfer, Growth Lead at Lemonade, Richard Oyome told Technext the plan is to solve the problem of high remittance fees for remittances that originate from the continent.
“When a remittance originates on the continent, senders are subjected to high fees that average 30% above global rates. We are therefore driven by the mission to help Africans be borderless and that means sending money out as well as sending money back home efficiently and affordably,”
Richard Oyome, Growth Lead at Lemonade
While there are several tech solutions that have crashed the cost as well as the time it takes to remit cash back home, very little has been done in the area of solutions for outgoing money transfers (OTM). Sending money out of Nigeria can be quite expensive. Western Union for instance charges up to $45 for transfer to a bank account. That is roughly about N18,000.
This is mainly because of onshore and offshore charges which have become quite standard because most Nigerian banks don’t have branches abroad. Indeed, Chinwike, a Nigerian processing his study abroad told Technext he paid as much as N17,000 to make a transfer of 50 euros.
When you factor in the highly erratic nature of the Nigerian currency and ever-depreciating exchange rate, you could see why transfers out of Nigeria can be very burdensome.
Richard noted that despite these problems, not many fintechs are playing in that sub-space with the view of solving the problems therein. This means Nigerians who wish to send money out of the country, be it for trade, studies, medical expenses etc are subjected to these high costs.
While remittance inflow stands at an impressive $25 billion, outflow stands at around $1 billion. The difference in value is abundantly clear and it is very evident which is more lucrative to invest technology and resources into.
Coupled with the hassles and general tediousness that comes with outbound remittances, it isn’t surprising that not many startups are venturing into it. But Richard says his company, Lemonade, expects this trend to change and foresees a turnaround in the outflow side of things.
“We expect outflow to grow especially because most of the outflow is an undocumented peer to peer transfers,” he said.
With the pandemic restricting movement both locally as well as internationally, and with the current craze of travelling abroad especially for study and medical tourism, outbound remittance would surely be expected to rise.
Lemonade is obviously positioning itself as the preferred facilitators for outbound money transfers.
“Our focus is on Africans who have payments to make abroad as well as those abroad looking to make payments back home. We also have a particular eye on improving the payment systems to very simply allow workers on the continent to receive salary or payment from abroad and preserve value,” Richard said.
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