Remittances act as a crucial lifeline for recipient households, however, for migrant workers, getting their money back home can prove tricky at best and impossible at worst. Some of the barriers include affordability and regulatory barriers – only documented migrants can send via formal channels. There have been a number of regulatory changes in South Africa that have enabled more providers to enter the market. This article describes one of the most recent entrants to South Africa’s money transfer market – Mama Money.
Mama Money launched in early 2015 with a very clear vision for their company – bring down the costs to send money home for African migrants living and working in South Africa. The obvious starting point for Mama Money was the South Africa-Zimbabwe corridor. While there is no reliable data on the number of Zimbabwean migrants living in South Africa, current estimates suggest that there are between one to three million potential Zimbabwean remitters in South Africa. In addition, the cost to send money can be high – a pricing analysis conducted by Eighty20 Consulting found that the average price to send $200 over the corridor is 8.92% which is higher than the global average cost of 7.53% (as at Q1 2016) calculated by the World Bank. The large number of migrant workers coupled with the high costs of other money transfer operators, provided Mama Money with a good opportunity to disrupt the already well-established money transfer market in South Africa with their low cost proposition.
Originally Mama Money launched as a cashless service (senders were required to have access to a bank account to pay in the funds). They also launched as a predominantly branchless service; besides operating one branch in Cape Town, Mama Money almost exclusively relied on their team of agents to register new users across three major metros in South Africa – Cape Town, Johannesburg and Tshwane. It was understood that by offering a cashless and predominantly branchless service, Mama Money could keep their overhead and operational costs low allowing them to charge fees far lower than their competitors. However, operating a cashless service excluded a large number of Zimbabwean migrants due to the difficulties they face in opening bank accounts in South Africa. In addition to this, Mama Money’s reach was obviously constrained by the geographical location of their agent network. Most likely due to these two factors, within a year of launch Mama Money expanded their offering to accept cash payments through partnerships with eight large retailers in South Africa. They have also recently started to offer registrations in PEP stores, a low-cost retailer that has a large retail footprint throughout South Africa. Therefore, in little over a year, Mama Money have both expanded their target market to include unbanked Zimbabwean migrants as well as their reach due to their retail partnerships. This expansion of their offering has no doubt added to their operational costs. Despite this, their cost to customer has not changed. This is testament to the company’s dedication to their vision – to bring down the costs of cross-border remittances.
Had it not been for a change in South African regulation, Mama Money may not have been able to enter the market. South African regulation stipulates that for non-banks to offer cross border remittances, they must be awarded an Authorised Dealer with Limited Authority license (ADLA) by the South African Reserve Bank (SARB). In the past ADLA’s were required to partner with a bank to offer remittance services. This restricted new providers from entering the market as many banks already had partnerships with existing MTO’s. In early 2015, the SARB created a new category of ADLA (category 3) that allowed MTO’s to operate independently. Currently three providers operating the South Africa-Zimbabwe corridor have been granted this new license including Mama Money, Hello Paisa and Exchange4Free.
All three of these new entrants (Mama Money, Hello Paisa and Exchange4Free) are priced extremely competitively. This has introduced some healthy competition into the market, particularly for low-value transfers. Mama Money for example charges a 5% flat percentage fee on all transactions. This is considerably lower than the more established providers such as Western Union, MoneyGram and Mukuru which charge around 10% of the amount sent. We can expect that as the popularity of these new entrants increases, this will place pressure on established providers to lower their fees. While a number of South African banks offer SWIFT transfers, these are not suited for low-value remittances. For example to send $55 (R850 as at February 2016) via the bank would cost be between 30% – 40% of the amount sent.
So how does Mama Money offer their service at 5% whereas Mukuru, arguably the most popular service over the South Africa-Zimbabwe corridor, charges double this? From our experience of testing these two services, we noted a few key differences in how they operate which is likely to drive the cost differential between the two services. These differences include:
· Mama Money maintain low overhead costs. Mama Money operate a single branch in Cape Town whereas Mukuru operate at least seven of their own branches nationally and they also operate through the Inter Africa branch network
· Mama Money offer limited support beyond registration. In comparison, Mukuru operate a large 24 hour call centre and live chat function that supports and facilitates transfers. These support functions are no doubt very expensive to operate
· Mama Money have a single partner organisation in Zimbabwe. Mama Money only have a single partner in Zimbabwe, CABS bank, whereas Mukuru have partnerships with a number of banks, retailers and mobile wallets. That said, if Mama Money’s Facebook comments are anything to go by, they may be adding more partner organisations in Zimbabwe, so this factor may soon be invalidated
So while Mama Money’s competitors charge considerably higher fees, in the case of Mukuru, these higher fees are associated with some value-added benefits for the customer, for instance 24hr support on transactions for the sender and, for the recipient, a choice in how to receive the money.
While price is Mama Money’s primary differentiator, they also have an effective marketing strategy which sets them apart from their competitors. Mama Money’s marketing strategy is strongly focused on positioning themselves as the low-cost money transfer service to Zimbabwe as well as the trusted provider to send money home.
Their branding plays strongly to the emotional aspects of sending money home and all company branding reinforces this message. For instance, their brand name is derived from the fact that most people send money to their “Mama”, their logo is an image of an African women and their slogan is ‘More Money Home’. They also regularly run “Proudly Zimbabwean” competitions and many of their agents are Zimbabwean which ties the company closely to the Zimbabwean community. They also give back to the community through the Mama Diaspora Education Fund (MDEF). These are all efforts the company makes to develop trust amongst their target market.
To encourage greater use of their service, Mama Money regularly run promotional campaigns and competitions on social media, primarily Facebook. As can be seen in the images below, their promotional campaigns are typically aimed at encouraging greater use of their service at important times of the year (i.e. Christmas) or changing the behaviour of their users (i.e. send larger amounts of money such as school fees).
Mama Money adverts
While our preference would be to end this article with some data to indicate the value and volumes of transfers through each provider in South Africa, this data is unfortunately not publically available (but it is collected). Thus, we can’t comment on whether or not Mama Money have achieved their goal of disrupting the market. However, given that they are a new entrant with much lower than average fees, they have a very effective marketing strategy and are expanding their offering quickly, we can only assume that their user base is small but growing.
About this research:
Mama Money was one of thirteen transfer services tested by Eighty20 Consulting as part of a study on cross border remittances originating in South Africa conducted with the FinMark Trust and CENFRI. The research focussed on the user experience of sending money out of South Africa with specific focus on costs and access requirements. This study is in the process of being published.
By Jessica Robey & Claire Hayworth