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Will international money transfers through mobile phones reduce remittance costs?

Sanket Mohapatra's picture

Vodafone and Western Union announced a partnership that will allow cross-border remittances between the UK and Kenya through mobile phones, according to the Wall Street Journal (the pilot project is initially for residents of Reading in the UK but will be expanded in future). Safaricom subscribers in Kenya can choose to either withdraw the cash at any of the 4,000 M-Pesa agents, store upto 50,000 Kenyan Shilling (about $640) in their "mobile wallet", or even send it on to another mobile user. The FT adds that the maximum amount that can be transferred internationally is GBP 200 (about $300).

The price Kenyan migrants will have to pay for the convenience of being able to send money to relatives and friends back home through their cellphone is not low. The cost of sending GBP 100 would be GBP 4.90, i.e. about 5 percent of the transfer amount, and GBP 6.90 for sending larger amounts. This is lower  than the average fee of GBP 8.32 (exclusive of foreign exchange commissions) for sending a similar amount through a bank or money transfer firm from the UK to Kenya, but a staggering 40 to 55 times larger than the cost of a transfer through M-Pesa's domestic mobile money transfer service.

Apart from the convenience factor, unless prices come down to comparable levels - or at least somewhat closer to the cost of sending money domestically - there is still a long way to go before the potential of international mobile money transfers can be realized.       

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