Cross-border payments in Africa have long been plagued by challenges such as currency incompatibility, limited interoperability, and high costs.
In reality, cross-border transactions can be a convoluted and time-consuming process, and can also be halted at any point – causing friction, delays, and a suboptimal experience for all those involved.
But the International Fund for Agricultural Development noted that “migrant workers sent over US$95 billion to and within Africa in 2021, benefiting over 200 million family members, majority of whom live in rural areas.
However, recent developments and strategic partnerships are poised to transform this landscape.
The Nigerian Exchange Limited (NGX) and the Pan-African Payment Settlement System (PAPSS) have joined forces to facilitate seamless cross-border transactions across the continent’s capital markets.
Additionally, Ecobank Group and PAPSS, Thursday, signed a memorandum of understanding (MoU) to enable settlement of cross-border transactions, while a white paper by BankservAfrica sheds light on the potential of mutual digital infrastructure to revolutionize payments in the region.
These initiatives are poised to enhance trade, foster financial integration, and promote economic development across Africa.
Temi Popoola, Chief Executive Officer, NGX Limited said one challenge that all of these mechanisms face is the lack of compatibility of local currencies across African countries and, by extension on African exchanges. “It is important to efficiently settle transactions in local currencies, and this is where the collaboration between NGX and PAPSS comes in.”
Streamlining Cross-Border Capital Market Investments
Interestingly, the partnership between NGX and PAPSS addresses a significant challenge in African capital markets: the lack of compatibility of local currencies. By efficiently settling transactions in local currencies, this collaboration aims to facilitate cross-border capital market investments.
This move is crucial for unlocking local capital, which plays a vital role in driving deep, stable, and less volatile capital markets.
By reducing frictions, increasing market access, and deepening the flow of local capital, African exchanges can witness substantial growth and contribute to the continent’s economic prosperity.
PAPSS: A Catalyst for Intra-African Trade
PAPSS, developed by the Africa Export-Import Bank, is a continental payment system that aims to foster trade and investment across Africa. The recent partnership with NGX and other financial institutions is expected to extend its reach and impact significantly.
“We cannot promote investment and growth on our continent without integrating our capital markets and our securities market. The role of PAPSS is critical in helping to achieve this,” Prof. Benedict Oramah, President of Afreximbank.
With the involvement of nine central banks and over 50 commercial banks, PAPSS is already facilitating cross-border transactions.
As more central banks and financial institutions join this network, PAPSS will enhance inter-Africa trade, promote financial inclusion, and contribute to the objectives of the African Continental Free Trade Agreement.
Addressing Fragmentation and Cash Culture
Cross-border payments in Africa face the challenge of a pervasive cash culture, where the majority of transactions are still conducted with physical currency. Furthermore, the payment landscape is fragmented, with numerous mobile wallets, banks, and card networks operating across the continent.
World Bank report stated, “moving funds through the current corridors requires transferal through the relevant domestic payment systems, which often have different operating hours and are located in different time zones.
“For certain corridors, the funds must be routed through several banks and intermediaries before they reach their destination, leading to higher fees and slower payment settlement.”
This fragmentation hinders smooth transactions and increases costs for merchants and remittance service providers. However, the push for broad-based and all-to-all interoperability, combined with innovative digital solutions, can help overcome these barriers and encourage the shift from cash to digital payments.
Unlocking the Potential of Digital Solutions
To address the complexities associated with cross-border payments, the focus is increasingly shifting towards digital solutions.
The partnership between Ecobank Group and PAPSS exemplifies this trend, leveraging the power of a regional payment solution to enable efficient and instant payments across African currencies.
Additionally, the white paper by BankservAfrica and Cenfri highlights the value of a mutual digital infrastructure in driving formalized, accessible, and inclusive payments in the Southern African Development Community (SADC) region.
These digital solutions hold the potential to revolutionize cross-border payments, improve transparency, reduce costs, and enhance the overall payment experience.
Conclusion
The recent partnerships and initiatives in cross-border payments across Africa are poised to transform the way trade is conducted and financial transactions are processed.
By addressing currency incompatibility, promoting interoperability, and embracing digital solutions, these efforts have the potential to unlock the vast trade potential in Africa, foster financial inclusion, and contribute to the continent’s economic growth.
As collaboration and innovation continue to drive progress in this space, Africa is set to establish itself as a hub for seamless cross-border transactions, furthering regional integration and prosperity
