The azul waters of Mozambique’s coast seem like an unlikely place to hatch an idea to streamline remittance payments in Southern Africa. Hitchhiking his way up the east coast of Africa three years ago, a dreadlocked South African named Matt Coquillion met Raphael Grojnowski, a German aid worker who was touring the area in a big yellow school bus. They teamed up and began sharing experiences: Grojnowski was working for the United Nations World Food Program and Coquillion was on corporate sabbatical. As the friendship grew, the two stumbled upon the issue of remittances and the high fees that migrants across Southern Africa are forced to pay to send money home.
South Africa is one of the continent’s largest economies and a beacon for migrant laborers. Of the country’s 3.2m migrant workers, roughly 2m come from neighboring Zimbabwe. Unlike other economies of scale with similar migrant demographics, the South African remittance market is typified by extraordinarily high fees on money leaving the country. Bank licenses to operate remittance service are expensive too, leaving multinational corporations such as Western Union with the power to dominate the market and peg fees as high as 19% on cross-border remittances. According to the Zimbabwean press, remittances sent through traditional channels have averaged $1bn over the past three years. This translates to $200m per year just on this sub-sector of the migrant community.
Primary Recipients of Remittances from South Africa, 2012
“The whole idea with Mama Money came from Raphael, who was working in food security for the UN. He was spending money from the Gates Foundation on food security and going to these food-scarce areas and camps where he noticed everyone was receiving money from a friend or relative abroad,” Coquillon told me over coffee at Mama Money’s headquarters in Cape Town’s Woodstock neighborhood. “But, getting the money to them was a long and expensive process. Our idea was to say: If you can send a text message or a Whatsapp message and make a phone call to anyone in the world, why can’t sending money – especially low-value remittances – be as easy as that? Why does it have to be so complicated?”
Building solutions for an ignored class of customers
Mama Money’s business model is centered around creating solutions for migrants, a customer group long ignored by more established companies. With the explosion of smartphones in the last decade, migrants are now able to connect to home easier than at any other point in history. Using this connectivity spike to ease the financial burden of sending money home, Mama Money’s product is a step towards transforming the migrant class into a thriving customer base.
Like other financial inclusion projects, the company has taken a neglected and exploited class of customers and empowered them through cheap mobile financial services. Given the lack of interest in this customer base from larger banks and operators, Mama Money used a bespoke financial service to organically grow its customer base.
Despite their lack of finance experience, Coquillon and Grojnowski jumped head-first into the remittance market. Their first challenge: obtaining a remittance license from the Central Bank of South Africa. “We said to everyone, give us a chance,” Coquillon told me. “I don’t know exactly how it happened but we received a license, becoming the youngest guys ever to get a money transfer license in South Africa – and the first startup.”
With a license in hand, the company began by employing roughly 650 Zimbabweans in 2013 to act as agents and sign on other migrant workers for the service. These employees go to churches, markets, and other public places around South Africa armed with a smartphone to capture the identification details needed to create an account and set customers on their way.
The business is surprisingly simple: Customers register with agents or through a smartphone application. Once registered, money is sent digitally to recipients in home countries including Malawi, Nigeria, Ghana, Ethiopia, Zambia, and Zimbabwe for a flat 5% fee compared with the 18% charged by traditional brick-and-mortar remittance agents.
Mobile wallets as a stepping stone to new markets
Mama Money partners with mobile wallet operators in destination markets. Across emerging markets, mobile wallets are becoming more than digital ways of storing credit cards. Mobile wallets such as India’s PayTM, which partners with Mama Money, enables users to pay for everything from movie tickets to electricity bills using their phones. These platforms are key to Mama Money’s business model, as they unlock enormous potential in new markets from Ghana to Pakistan. Mobile wallets, in essence, are challenging the prominence of fiat money in many emerging markets. This is a critical opportunity for remittance operators like Mama Money.
“We started with a basic solution. Anyone with a phone, even an old Nokia, can dial a code, login, and carry out a money transfer,” Coquillon explained as employees from various countries answered phone calls around us. “In the receiving country, we try to connect with mobile wallets like M-Pesa in Kenya, Mozambique, and East Africa or MTN Money in Ghana and West Africa. The great thing about the mobile wallet is that if you’re in a rural area in Ghana or Nigeria and you receive remittances, normally you have to travel to a big town to go and receive it from a Western Union branch, and that obviously costs money. Mobile money solves that. It makes sense for us to connect to mobile wallets.”
So why doesn’t Mama Money create a digital wallet of its own, instead of focusing heavily on remittances? The answer reveals the company’s long-term desire to use technology for good.
“We need to first help people be able to remit money easily and cheaply from the comfort of their own homes, using their mobile phones to create an order connected to the retail network in South Africa,” Coquillon explained. “We’re seeing that technology is definitely catching up. A lot of the bigger financial institutions always wrote off the lower end of the pyramid, saying they’re not tech savvy. But we’re saying they’re super tech savvy and want the technology, and they can use it.”
This doesn’t mean that that there haven’t been attempts to offer digital wallet services in South Africa. Vodacom, a leading South African mobile communications company, brought M-Pesa to the country in 2010 with the ambitious target of signing up 10m local users. The project failed and was shut down in 2016 due to a lack of demand. Given South Africa’s advanced banking sector and the fact that there is not a large unbanked population, there is little interest in M-Pesa-like products for South Africans. Even Chinese companies such as WeChat have been slow to push their mobile money products, despite recent forays into the South African market.
This hasn’t stopped Mama Money from working closely with mobile wallet operators outside the country. In their view, the development of mobile money is critical to expanding financial inclusion. “Mobile wallets now are going through different stages of maturity. M-Pesa in Kenya is obviously the most mature mobile money market, where I think a quarter of Kenya’s GDP flows through the M-Pesa network,” Coquillon noted. “In other countries where mobile wallets are young, users have few options to use their mobile money accounts to purchase items beyond airtime. What the mobile wallet operators need to say is: ‘No, don’t cash out, why don’t you pay for your school fees, why don’t you pay for your electricity, and add more services.’ That keeps the money in the network.”
First funeral insurance, then life
Our conversation drifted to the topic of insurance and Coquillon became animated about the opportunities in bespoke product offerings. Through on-the-ground research, the company has found a market for funeral insurance for migrants. Typically, communities rally together to raise funds to return bodies to their home countries, but the costs can be exorbitant. Coquillion’s idea was to offer a digital funeral insurance product tied to the remittance platform.
He recalled approaching insurance brokers with the idea. “They said: ‘Sure, we can do it, we don’t understand the space but we can make a bespoke product for your customers. Give us the data and [we’ll] sell it to your customers.’ Since we have their information from remittances, we can sell insurance and it’ll cost them R20-30 [$1.7-2.5] per month. After all, we know when they get paid so we can deduct the fees and they’ll have funeral insurance. This is where financial inclusion gets radical because none of these people have ever had access to even a bank account, let alone another form of insurance.” Put simply, Mama Money understands its customers in ways that insurance companies don’t because they are able observe trends across their customer base.
Sitting in Mama Money’s eclectic office space buzzing with migrants from around Africa, it is clear this project is more than a tech startup or financial product. The ethos is that technology can bring down the cost of a vital service that millions of previously neglected customers depend on daily. The savings that migrants achieve through using Mama Money’s platform can be spent on other vital needs.
The question that could define the company’s next chapter is what it will do with the user data it has accumulated through its product offering. Now that the previously underserved migrant customer base is becoming a target market, will data about these customers find new value? Perhaps, and that will enable a host of new products and services.
By the numbers: Mama Money
– More than 150,000 customers registered since 2013.
– 2,500 physical customer registration agents.
– 32,000 customer cash-in points at all major South African retailers.
– Connected to more than 100m mobile wallets and bank accounts across 10 markets in Africa and Asia.
– Growing at over 200% annually.