Issue 8 - Money Laundering in Remittances: Should Fintechs be Worried?

Africa’s fintech scene is booming, reshaping how we transact, save, and send money across borders. The growth of fintech in Africa has unlocked new opportunities for remittances, allowing millions to send and receive money with ease.

However, this surge in cross-border transactions has also brought to light a serious concern: money laundering. Is this the next big challenge for Africa’s fintechs?

Remittances are a lifeline for many African households, with the continent receiving over $95 billion in remittances in 2021 alone. This figure continues to grow, fueled by digital platforms that make it easier than ever to send money home. 

But with this growth comes risk. The very features that make remittances so effective—speed, convenience, and cross-border reach—also make them attractive to money launderers. According to the Financial Action Task Force (FATF), remittance channels can be exploited to move illicit funds across borders with minimal detection.

The Impact on Fintechs

The implications for fintech companies operating in Africa are significant. With the rise of digital platforms facilitating remittances, the potential for abuse is higher.  The last thing a growing fintech needs is to be embroiled in a money laundering scandal. Besides legal and financial repercussions, the damage to reputation could be crippling.

Fintechs must be vigilant and proactive in their approach to combating money laundering. This includes implementing robust Know Your Customer (KYC) and Anti-Money Laundering (AML) measures.

How Fintechs Can Fight Back

1. Step-Up Surveillance: Fintechs need to leverage AI and machine learning to spot unusual trading patterns that could indicate money laundering. It’s about being smarter and faster than those who seek to exploit the system.

2. Regulatory Rigor: Compliance isn’t just a checkbox—it's a necessity. African fintechs must stay ahead of local and global AML regulations, ensuring their operations are airtight. This includes conducting thorough KYC during customer onboarding and frequent AML checks.

3. Empower Your Teams: Continuous training on the latest money laundering tactics and how to counter them will keep your staff sharp and vigilant.

The Road Ahead

As Africa’s fintech ecosystem continues to thrive, the industry must tackle the challenge of money laundering head-on. By fortifying their defences, fintechs can protect not only their business but also contribute to a more secure and transparent financial environment across the continent.

Fraud Watch

• New Scam on the Horizon, Mocking the Police

  Fraudsters are getting more brazen with their lies in the absence of any repercussions for stealing people’s money, frustrating efforts of the police and authorities. Read more here

Country News Coverage

• The new way scammers are picking their targets in South Africa

  According to the Southern African Fraud Prevention Service (SAFPS) 2024 fraud statistics, there has been a 32% increase in reported fraud incidents in the previous year. Learn more on the latest way scammers are picking targets in South Africa here

• FSCA Suspends License of KwaZulu-Natal-based state-owned development bank

  The Financial Sector Conduct Authority (FSCA) has suspended the licence of Ithala Limited. According to FSCA, this suspension is effective from 26 July 2024 and will remain in place until the bank meets the conditions for its licence to be lifted. Read more here.

Ask the Experts

Let’s hear your thoughts or questions you may have. Hit reply and let's chat on anything identity verification or AML compliance related in Africa. 

Till next time,

The Smile ID Team.