The new pan-African payment and settlement system launched recently is to reduce cross-border payment fees and transaction delays across the continent, and eventually help businesses scale.
WHETHER IT’S A HARD-WORKING MIGRANT remitting funds home to his family or a trader making a cross-border payment, sending money within Africa has been hitherto costly and slow. But a new pan-African endeavour might change both for the better reducing the reliance on foreign currency.
“It is set to save the continent up to $5 billion annually, which is the amount currency convertibility costs Africa,” said Benedict Oramah, Afreximbank President, about the initiative in January in Accra, Ghana.
The Pan-African Payment and Settlement System (PAPSS), a centralized payment and settlement infrastructure for intra-African trade and commerce payments developed with Afreximbank and the African Continental Free Trade Area (AfCFTA) secretariat, is set to allow for quick cross-border payments, reducing the reliance on the US dollar, UK pound and the delays these currencies incur. This follows a successful trial in the West African Monetary Zone (Nigeria, Ghana, Liberia, Sierra Leone, the Gambia and Guinea).
Currently, of the 42 currencies on the continent, few have value outside their country. AfCFTA is trying to bring together all 54 African countries to trade under a single market with liberalized tariffs and the
removal of non-tariff barriers to cross-border trading.
Thirty nine countries are onboard so far, Secretary-General of AfCFTA, Wamkele Mene, has said.
“PAPSS is designed to be a fundamental rail connecting African markets to each other and enabling individuals, businesses and governments on the continent to trade with each other seamlessly.
PAPSS will provide fresh impetus for businesses to scale more easily across Africa, essentially eliminating the borders that have balkanized us and robbed us of our economic prosperity for so long,” said Mike Ogablu III, CEO of PAPSS, at the operational roll-out of PAPSS on September 28 last year.
PAPSS claims it aims to ease the transactional burden on consumers. Prior to this, local currencies had to be converted into hard currencies, with transfers taking days. PAPSS attests that compliance, legal and sanction checks are performed instantly, and near-instant payments processed in 120 seconds.
Dominating news over the last two years, cryptocurrency is the new lexicon for money. How would the crypto world see this? Speaking with FORBES AFRICA, Blockonomics, a decentralized Bitcoin payment solution, offers how crypto and initiatives like PAPSS can work for greater financial freedom for Africa.
Blockonomics is trying to solve the problem of long waits and fees from a different direction.
Its VP of Growth Frederick Coleman says the decentralized nature of crypto exchange is just another avenue for Africans to use, as Bitcoin transcends borders.
“In conjunction, cryptocurrency and centralized initiatives like PAPSS can work, expanding the rights and horizons of people. Initiatives like PAPSS are needed; it doesn’t matter where it comes from, as long as people benefit,” says Coleman.
Forbes reports that mobile money transactions in Africa amounted to nearly $500 billion during the pandemic.
Mobile remittances in Africa will likely be positively impacted the most by PAPSS. In the past, Africans have had to find alternatives to traditional banks to make cross-border payments to friends and family.
Cash is still king on the continent. Oliver O’Brien, Executive Head of Strategy and Business Development at Mukuru, a money transfer provider in Africa, says PAPSS will allow access to online networks for cash-dependent clients. O’Brien says it may assist people on the journey from the informal to the formal, digital economy.
“Mukuru is very excited about the launch of the PAPSS. Systems like these that offer fast, affordable bank-to-bank (digital) cross-border transactions disrupt the existing slow, costly international payment networks that typically only cater for high-value bank transfers,” says O’Brien.
US based mobile payments company Boku, which has a strong presence in Africa, concurs.
“The creation of PAPSS is no doubt a good thing for everyone involved in the African economy, including payments providers. Boku is in favor of anything that enables more freeflowing movement of funds, especially across borders,” says Josh Gosliner, Boku’s Head of Marketing and Communications.
Prospects for a more unified African economy may begin with PAPSS, and time will tell if this means greater financial inclusion for traders, migrants and the majority of informal entrepreneurs thriving in Africa’s innards.