It was on March 11th, 2020 that the World Health Organization (WHO) officially declared the novel coronavirus a pandemic. But while the health crisis was definitely already sending shockwaves through the global spending economy, it was until April 22nd before the World Bank let the word out on what would become of a COVID-19-infected remittance market.
Through that very release, the think tank predicted what would be “the sharpest decline of remittances in recent history”.
The World Bank’s forecast was that global remittances would experience a 20 percent drop in 2020, mostly due to the collapse in employment wages among migrant workers in diaspora. According to the Bank, remittances entering low and middle-income countries (LMICs) would dash down by 19.7 percent to USD 445 Bn.
“Remittances are a vital source of income for developing countries. The ongoing economic recession caused by COVID-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies,” World Bank Group President David Malpass said at the time.
Fast-forward to May 12th, 2021, when the World Bank came out with what had many makings of a prognostic revision. Apparently, the world’s remittance markets didn’t crash as much as the think tank expected.
Regardless of the countless economic consequences of the unprecedented pandemic, remittance registered a smaller decline than the World Bank predicted. In 2020, flows to low and middle-income countries broke through to USD 530 Bn, representing only a 1.6 percent difference with 2019’s USD 548 Bn total.
How did the planet’s remittance markets almost shrug a pandemic-shaped monkey off their backs? Besides the positive effects of fiscal stimulus in migrant-hosting countries, the shift from cash to digital as well as the jump from informal to formal channels played their respective major roles in holding up the remittance sky.
These factors seemed to have bode well for regions like Latin American and the Caribbean (experiencing growth of 6.5 percent), South Asia (growing 5.2 percent) and the MENA region (growing 2.3 percent), all despite the COVID-19 predicament.
However, for regions like East Asia and the Pacific (experiencing declining by 7.9 percent), Europe and Central Asia (down by 9.7 percent) and Sub-Saharan Africa (down by 12.5 percent), nothing similar held true.
Specifically, Sub-Saharan Africa experienced the sharpest decline of the said time frame, majorly because of the 28 percent decline on remittance flows to Nigeria.
If the West African nation—also the continent’s largest economy—were omitted, Sub-Saharan African would have recorded a resilient increase of 2.3 percent, no different from the scores in Middle East and North Africa.
The Nigerian anchor aside, sending money to Africa isn’t as seamless as in other regions like Southeast Asia, where remittances is on its way to become a USD 12 Bn industry.
While South Asia has the lowest average cost of remittances in the world, Sub-Saharan Africa is the costliest region to send money to. For one, this is most likely because the region still relies heavily on cash. But while Africa goes digital, there’s an effort to connect its remittance markets more tightly with that of Asia.
That brings us to African fintech, the grandpuppa sector of the continent’s venture capital inflow cartel. Riding on a multimillion dollar prerogative of startups from this sector, Kenya’s Wapi Pay raised USD 2.2 Mn in pre-seed to connect payments between Africa and Asia.
With offices in China and Singapore, a founding team of twin brothers looks to digitize payments between these two continents, and therefore beat down the costs associated with sending money between them.
Wapi Pay, which poses as a pan-African fintech, intends to charge as low as 3 percent for financial transactions between Africa and Asia (and also process payments under less than 24 hours), very well given the two continent’s historic trade relationship.
Before now, the USD 52.1 Bn trade between Africa and, contextually, China, was bedeviled by high fees (as much as 20 percent) and slow turnaround times (sometimes more than 7 days). Making the pain points go away with tech is a vital task long overdue, especially as Africa and Asia share a robust trading history (PDF).
A Kenyan startup banking a seven-figure VC cheque at the pre-seed stage isn’t an everyday African fundraising affair. The East African country’s local tech ecosystem lacks the kind of support that exists in other countries like Nigeria and South Africa. But, Wapi Pay’s USD 2.2 Mn, undoubtedly one of the biggest of its kind on many levels, comes majorly from Asian backers.
MSA Capital, a China-based fund that has exited unicorns like Uber, Meituan Dianping, Meituan, Mobike, NIO, and Boss Zhipin (Kanzhun) participated in the round. Transsion Holdings, Africa’s largest phone maker, and Gobi Ventures also invested all the way from Asia. On the homefront, pan-African VC firms Kepple, Future Hub and EchoVC joined in.
“Africa to Asia is a large trading corridor overlooked and underserved by tech today. We believe Wapi Pay is the best team to build the necessary infrastructure to support its growing trade volumes. We are excited to support them with our extensive China fintech network and playbook,” Tim Chen, vice president at MSA Capital, said in the VC’s official statement.
There has been much talk about Africa’s payments with that of countries like China, Japan and India, which is where services like AliPay, and Wechat Pay come in. Wapi Pay intends to accelerate the adoption of such platforms in an effort to boost Sino-Africa trade.
In July 2019, Flutterwave—currently a pan-African B2B fintech unicorn—tied strings with AliPay to facilitate payments between Africa and China. After making it easy for businesses to transact across Africa and with the United States, Flutterwave set out to be the infrastructure which plugs directly into AliPay.
Probably, when it’s easier to send and receive money between Africa and Asia, there’d be a viable way to do the same between the motherland and nether continents. Where traditional banks lack, fintechs like Wapi Pay make up for.
Featured Image: Cointelegraph