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Author: Anoop Yersong

Online Money Transfer to Nigeria – Evolving Remittance Trend

Sending money to Nigeria through reliable IMTOs is fast and easy but such businesses struggle to operate without the cooperation of the authorities.


  • Migrants using international remit services contribute to 9% of the overall global GDP.
  • Online money transfer to Nigeria, Ghana, Kenya, and several other developing nations is the backbone of their economy.
  • Instead of introducing de-risking laws, banks and International Money Transfer Operators (IMTOs) need to work together to develop the global economy.
  • The blockchain is on its way to bring the next financial revolution.

In the annual year 2018, as per the Prospectus – Migration and Remittances Data, the global market has witnessed a remittance flow of up to US$689 billion which is already an increment of 10% from 2017. Moreover, it is estimated that this flow would at least increase by 3.7% by the end of 2019. To genuinely assess the large scale of global participation in international money transfer, we can see that the list of countries receiving the highest remittances in the world includes the world’s fastest-growing economy – India, and the most populous nation – China. Followed by the Philippines and Mexico, comes the democratic secular country of Nigeria around which, in this article, we will be discussing the recent trends in International remittances, along with the problems that this industry is facing, and lastly our data-driven predictions.

The Nigerian Diaspora

Almost 67% of the total remittances sent from across the world to Africa are targeted to just one country – Nigeria. World Bank studies show that international money transfers make a total of 6% of the total Gross Domestic Product (GDP) of Nigeria.

Figure: Contribution of remittances in total GDP for Nigeria, Algeria, China and Venezuela from 1981 to 2015.  

This money is sent by thousands of Nigerians among the 17.5 million migrants who have migrated to a different country for a better opportunity to secure a decent income source and a better lifestyle. With those numbers, it can be implied that the Nigerian population is spreading across the globe and while there are hundreds of extremists opposing the migration, it is imperative to understand the ground reality and basically an answer to the question –

Why do they have to migrate? How the remittances sent by migrants or in fact, any third-party can affect an entire diaspora?

The need for International Remittances

International Organization for Migration records shows that Nigerian migrants living in the United States make the largest portion of the remittance money, followed by the United Kingdom, Italy and Canada. A whopping total of $22 billion, as per the 2017 study, was part of international money transfer to Nigeria from all across the globe.

Figure: International remittance corridor

Remittance Prices Worldwide Database has identified multiple authorized corridors for 32 countries to send remittances to 89 developing countries that require monetary help to develop themselves. But there is a general misconception about remittance.

A majority of the population, who either have not availed the remittance service or are trying to understand the concept, considers international money transfer just as a process to help their friends and relatives to get economic assistance by draining another society instead of working in their own country.

“But there is more to it!”

Money transfer to Nigeria, Ghana, Kenya or any other developing nation across the globe enables the remittance senders to:

  1. Buy international property
  2. Support their family members by:
    • Paying for their children’s or even grandchildren’s education
    • Compensate for the daily expenses of their family
  3. Invest in an international venture
  4. Pay off the debts of their close ones
  5. Submit the insurance installments
  6. Help international population in need of help because of:
    • Poverty
    • Political instability
    • Civil war
    • Terror attacks
    • Natural disasters

Basically, this process supports the aspiring population to lead a better life. Out of a big pool of 153 developing nations, in 36 countries, including Nigeria, remittance makes up a bigger portion of the economy than the combined capital flow generated by public and private sources.

Remittances, apart from helping the natives to develop economically, allows them to connect themselves to the banking system. Once they are connected to the economy, even the government can get multiple data from their transactions and take better actions for their upliftment. Where there is a demand, there is an opportunity, and opportunity attracts business. So, private institutions have also jumped in this sector.

Enter – International Money Transfer Operators (IMTO)

The competition among money wiring platforms is based on their ability to provide a faster, affordable, and most importantly, safer transactions. In recent years, the remittance industry has seen a boom, both in terms of users (as discussed above) as well as the number of private companies who want to play an active role in an industry with $4.8 trillion transactions every day.

International Money Transfer Operators either use an internal system or use cross-border banking network to conduct the transfers. In the initial stages, such operators faced a few setbacks because of the trust issues, however, with the time, they have improved their services. Moreover, referring to the World Bank’s Remittance Prices Worldwide June 2017, a World Bank survey of 23 banks showed that the transaction fee charged by banks is much higher than that of the international money transfer operators. Although in 2017, the banks decreased their processing charges from 9.36% in 2016 to 8.8%, the IMTOs were not far behind in following this suit and dropped their fees as well.


Figure: International money transfer fees of banks and MTOs in the United States

Apparently, businesses follow the Metcalfe’s law which states that:

The ‘Value of a network’ is directly proportional to the square of the number of connected users.

Since the latter number (customers) is exponentially increasing, these organizations compete with one another to provide competitive offers to the users so as to claim a bigger share of this large industry. On the other hand, while the number of transactions has been on the rise, it is very contrasting to see that the transaction fee levied by the international banks had been constantly increasing from 7.23% in 2013 to up to 9.36% in 2016, and it is still very high as compared to all the other choices that the remit-users have. Since the consumers have a far better choice than that with the IMTOs who have never charged over 6.88% even in 2012 and are charging as low as 5.5% transaction fees, it is quite obvious to understand why the paradigm of bank remit is shifting towards the private organizations.

There is Always a But…

National Banks across the globe, especially the Central Bank of Nigeria, often has been called out for taking ‘Draconian decisions’ to revoke the license of International Money Transfer Operators by using some catchy phrases such as ‘for a greater economic good’ and ‘to avoid undermining of a country’s foreign exchange’. Such policies do not just impact the businesses but also have a drastic effect on the user-base which at present consists of a 20 million strong community in Nigeria itself.

Debunking Myths About Money Transfer to Nigeria…

The Central Bank of Nigeria (CBN) has been clamping down on several money operators which constitute a significant portion of the overall international wire transfer facilitators. However, because of a strong retaliation from the majority of operators, CBN had to allow all the organizations who according to CBN Guidelines on International Money Transfer Services in Nigeria (2014) were provided a renewed license. The ground reality in this problem is not the regulations but the myths that have been circulated about the operators which affect the overall business. So, let us go through some of the myths and understand why it is important to expose them.

De-risking is important for public security

De-risking puts legitimate bank customers and licensed IMTOs at risk, and there have been hundreds of millions of instances in which banks use AML/CFT laws to ban multiple remittance accounts. If a consumer cannot send the money through a legitimate process, it is evident that because of the extreme de-risking laws, he or she would either have to opt for less secure or even illegitimate channels for the same. Pushing remit customers, who are in genuine need of decent service, to such platforms which do not have an adequate AML/CFT clearance could result in far worse results for the vigilance authorities, putting the entire process in a jeopardy.

Verifying the IMTO records is not worth the investment

In the digital era where consumers are already looking out for better service in terms of cost, transaction speed, and overall experience, banks do not promise all of those. Therefore, IMTOs are preferred. The basic point behind their argument is that:

  1. IMTOs are used by some individuals for a limited number of transactions which could be very challenging.
  2. They have a ‘high-risk’ factor because the transaction tracking by finance regulatory bodies becomes an even more challenging task when there is an intermediary.
  3. They may not have adequate regulations to keep a check on their transactions and services.

In such a case, instead of revoking the license or putting a complete ban on their operating bank accounts through de-risking or de-banking rules, it is a wiser choice to explore a better solution by framing a clear set of guidelines as per the norms of state and federal regulators instead of avoiding the question completely.

This must include the implementation of strict KYC record-keeping rules to ensure security for both the transactions and the intent of the user. Furthermore, the Financial Institutions Examinations Council and similar inter-agency groups must expand their section to include legitimate IMTOs under non-bank financial institutions. Once this regulation is followed, the MTOs can not only improve their AML/CFT monitoring capability but they can also lower their transactional fees as well as average remittance size, further reducing the possibilities of money laundering.

What does the Future Have in Store?

Money is basically a simple concept of credit. There is no physical value to it other than the promise of granting a specific value to the rightful person. Started from the barter system where the exchange was conducted under an agreement between the consulted parties, the same has been evolving. Then came coins which facilitated the ease of transactions. Further, paper money introduced in China was another upgrade for the commerce. In the 19th century, England defined gold as a standard for the transaction which then became a norm that has continued till date. As globalization hit the market, native currencies were obsolete making gold a universally accepted and adapted standard.

Figure: Evolution of Trade – From Barter to Bitcoin

Although during World War I, even gold was temporarily abandoned by various governments to finance the war, however, with the emergence of a stable US government backed with a strong economy and effective laws, the United States Dollar (USD) was considered as the world’s reserve currency. In the 1950s, credit cards came into being; followed by ATMs, and then the Society for Worldwide Interbank Financial Telecommunication (SWIFT) provided a reliable platform for all the financial institutions to send and receive information while conducting any international transaction(s). The market evolved further and after a few scuffles at the higher position between Bill Harris, Elon Musk and then Peter Thiel, PayPal – a multilingual worldwide online payment portal was born in July 2015. Therefore, we can conclude that since the time we had known about finance, money has shifted its shape, form to facilitate a simpler and faster system.

In line with that, the crypto and Blockchain market is estimated to become the next big change where mankind can explore another factor – inability to trust! With Blockchain’s distributed ledger, all the previous financial exchanges can simply fade away as it resolves all the concerns regarding speed (which could be drastically cut down from minutes or a few days to just an instant) and security (encrypted transactions and unalterable proof of work (POW)).

Numbers Don’t Lie

Although there are skeptics opposing every new idea, and the emerging industry could face certain hiccups along the way such as a decline in the initial coin offerings (ICOs), no one can ignore the 280% rise in the VC (Venture Capital) investment in the Blockchain technology in 2018 as compared to the previous year.

Figure: Venture Capital (VC) investment in Blockchain (in black) and Crypto-related firms (in grey)

Leading investors around the world are viewing adequate research and development in this technology to have the potential of inducing another financial revolution. Consequently, they are enrolling themselves in this evolving technology to be a part of the early 21st-century that could just be a vital financial history in the making.

Finance and economics are dynamic entities that influence each other in multiple ways. They would constantly go through multiple upgrades, multiple emerging businesses would fall and other giants will emerge. All in all, during this course, the world would witness drastic changes. Meanwhile, in the current globalized world, where 3% of the total population is generating over 9% of the global GDP, and 800 million people depend on an action called – remittance, it is a challenge, moreover, a responsibility of the regulatory bodies like national banks and governments, and remittance service providers to work together and pave a convenient, safe and affordable gateway for the users to get what they aspire for, moreover, what they actually deserve.

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