Instant payment systems are key for cross-Africa commerce

Wednesday June 08 2022
Mobile payment.

The high cost of sending and receiving payments from one region to another in Africa hurts trade. PHOTO | FILE


The high cost of sending and receiving payments from one region to another is proving to be one of the biggest challenges to trading within Africa even as the continent eyes increased commerce and investment from a free trade area.

The Africa Continental Free Trade Area (AfCFTA) is projected to increase the volume of exports in Africa by 29 percent and intra-Africa trade by 81 percent, lift over 60 million Africans from extreme poverty and raise the continent’s real income by seven percent to $450 billion by 2035.

In East Africa, according to the United Nations Economic Commission for Africa (UNECA), AfCFTA will create at least eight million new jobs and yield an estimated $35 billion in welfare gains.

But the high cost of cross-border transactions may haul the prospects of the continental trade agreement, added to the jitters of partial implementation of the terms of the same and persisting non-tariff barriers.

High costs

According to AfricaNenda, a pan-African organisation that advocates for financial inclusion, the average cost of cross-border payments in Africa is about 12 to 18 percent of the value of transaction against a global average of six to seven percent.


Cumbersome transactions cost Africa about $5 billion in money transfer charges each year, according to Benedict Oramah, President of the African Export-Import Bank.

This is despite Africa being home to at least 576 financial technology (Fintech) companies, according to Statista.

Also, 11 of the 50 fastest growing companies in Africa in 2022, as per the Financial Times ranking, were fintech and financial services firms,

New start-ups are cropping up almost every month, all seeking to solve different problems of financial inclusion, from high costs of transactions to inaccessibility to credit and digital wallets.

These start-ups raised over $4.5 billion in funding between 2017 and September 2021, more than twice the amount raised by budding companies in any other sector in the period.

But interoperability — the ability of payment systems in different regions to exchange and make use of information — has remained a seemingly impossible riddle for these fintechs.

Why is it difficult for African fintechs to develop a solution for the interoperability problem threatening Africa’s trade integration?

“Fintech companies alone cannot solve this problem without the regulatory framework that creates an interoperable layer of payment system for them to plug into,” Robert Ochola, AfricaNenda’s CEO, told The EastAfrican.


Dr Ochola said that although Africa is making significant strides towards creating a continent-wide interoperable payment system, there are still great challenges across regions that impede these efforts.

Papps, the Pan-African Payment and Settlement System seeks to enable payment transactions in local currencies between countries across Africa, promising near instant payments for cross-border transactions without need for currency conversion and increasing transparency on cross-border trade activity.

“There are security and monetary risks involved that must be effectively mitigated. Also, there are high costs and limited human capacity and knowledge sharing that slow the process,” he said.

“Continental interoperability can only be achieved if the regional economic communities (RECs) in the continent develop functional inclusive payment systems, which will then provide a layer for fintech companies to enable cheaper cross-regional payments,” he added.

The East African Community, West African Economic and Monetary Union, South African Development Community and the Common Market for Eastern and Southern Africa are currently working on inclusive instant payment system.

According to AfricaNenda, low average GDP per capita — which means lower value of transactions — make instant payments per dollar more expensive, and is among the key threats to developing interoperable instant payment systems on the continent.

“Ideally, transaction costs should be less than one percent to make cross-border trade even easier and increase financial inclusion,” Dr Ochola said.

Other challenges are a relatively low smartphone adoption, unaffordability of data, low access to electricity and comparably smaller markets.

There is also a preference for paying for goods/services after they are received.