Many remittance service providers (RSPs) face a tough balancing act; they’re trying to innovate and grow, but it feels like they’re driving with the brakes on. On one side, they need to expand and lower costs to reach more customers, but on the other, strict compliance rules are slowing them down. This undermines the potential of remittances to fully support sustainable development for low-income and rural populations.

Under the IFAD Remittance Access Initiative (RAI), Cenfri engaged with several RSPs and regulators in Africa and provided technical assistance to address the challenges and opportunities that surfaced. These engagements highlighted three key opportunities for innovation:

Opportunity 1: A shift towards the use of data-driven approaches

The remittance industry is seeing a clear shift toward digital channels. In a recent study by AfricaNenda, remittances emerged as one of the most digitalised payment use cases. This shift is largely driven by the growing adoption of mobile money, which facilitates wallet termination for remittances and the demand for faster, traceable, and more efficient financial services.  Although non-face-to-face transactions are inherently viewed as high-risk, evidence from Cenfri’s work shows that digital channels can have a lower risk profile than less digitalised options. The key is for RSPs to focus their risk mitigation strategies on the specific channel’s vulnerabilities, as every type of channel carries unique risks. Using data-driven approaches to understand and manage risks can enhance compliance and financial integrity outcomes.

By using data-driven risk assessments, organisations can better navigate and manage third-party and partnership risks associated with digital remittance channels. The recently published IFAD Remittance Innovation Toolkit[i], which Cenfri developed in collaboration with IFAD, provides a risk assessment framework to help institutions understand and manage these emerging risks while ensuring compliance and fostering innovation. It also outlines how a customer profile system can improve risk management and expand access to underserved populations by building detailed customer profiles over time.

Opportunity 2: Streamlining front-end processes with technology

In Africa, sending money costs, on average, 8.5% of the amount transferred, compared to the global average of less than 6%. The high cost is partly driven by extensive due diligence and documentation processes, which increase compliance costs and force customers to endure long wait times and navigate complicated paperwork when sending or receiving remittances in person.

A key way to address this is by streamlining front-end processes based on customer risk levels. While digital services are growing, 80% of remittances in Africa still involve cash, and low levels of digital literacy among recipients mean that cash-based remittances are likely to remain a reality for some time to come. As a result, many recipients are likely to continue visiting a physical RSP branch to cash out, highlighting the need for more efficient in-branch processes. To serve these customers effectively, organisations must reduce time spent on front-end documentation while still ensuring compliance.

Our toolkit also helps RSPs identify and implement simple innovations to streamline their processes. These include introducing a digital ID database or a customer profile system and replacing manual forms with printed receipts. These fairly simple interventions can streamline onboarding, help cut down errors and improve customer service efficiency – benefiting both staff and customers. They can also enhance security and enable firms to offer customers better-tailored products.

Opportunity 3: Identifying lower-risk customers and implementing proportionate measures to reduce exclusion

Overly stringent know-your-customer (KYC) requirements can push remittance customers toward informal channels. Informal remittances can expose users to security, legal, and corruption risks. Pervasive informality also undermines the potential of formal remittance systems to support unbanked and underbanked populations.

The data-driven risk assessment outlined in the IFAD Remittance Innovation Toolkit enables RSPs to identify lower-risk customers and implement proportionate measures such as simplified due diligence. This can help to bridge the gap between formal and informal services.

Other interventions noted above can also help to reduce exclusion from formal remittances: replacing manual forms with printed system receipts helps to include less literate and digitally able customers by removing the need for hand-written forms, while the digital ID database ensures that customers without current access to a foundational ID can still be reliably identified and verified through other digital means.

Entrenching a data-driven culture

A common thread across the three opportunities is the need to overcome the tendency to rely on perceptions instead of data to understand and assess risk. This leads to over-compliance that stifles growth and innovation. As a result, compliance and risk-mitigation resources are misallocated to low-risk customers and accounts, leaving medium and higher-risk areas under-resourced. This practice not only increases the risk profile of RSPs but also exposes the broader sector and country to higher risks, especially if it becomes widespread.

We saw this firsthand in our work with the IFAD Remittance Access Initiative. RSPs too often act on fear of non-compliance rather than objective data. One way of overcoming this would be developing a deeper understanding of regulation (as we showcase in the regulatory assessment) and engaging with regulators to align on actual risks versus perceived ones. Openly engaging with regulators and supporting suggestions with empirical evidence, could unlock risk-proportionate innovation opportunities in the remittance market.

Where to start?

The IFAD Remittance Innovation Toolkit provides a step-by-step guide for those RSPs wanting to ease off the brakes to innovation. It explains how RSPs can streamline operations, move toward digital channels, and tailor services for low-risk customers while staying compliant. By adopting the suggested interventions, RSPs could unlock growth, expand financial inclusion, and confidently navigate the evolving remittance landscape.

For more information on the IFAD Remittance Innovation Toolkit, click here. For more information on the interventions discussed in the toolkit, refer to the series of short handouts added below.

Handout 1:  Risk assessment and proportionate response

Handout 2: Replacing manual forms with printed receipts

Handout 3: Regulatory assessment

Handout 4: Customer profile & digital ID database

Handout 5:  Agent expansion and management

[i] The toolkit builds on our experience under the Remittance Access Initiative (RAI), which we rolled out in seven African countries as part of IFAD’s Financing Facility For Remittances (FFR) programme PRIME Africa, financed by the European Union. The initiative is also cofinanced by Sweden, Luxembourg and Spain.