By Chimpele Kelvin Tsamwa
Many Africans don’t have a bank account. However, for more than a decade, they’ve been moving from a cash to a digital economy thanks to the proliferation of cheap mobile phones. This has enabled them to participate in the financial market through mobile payment solutions.
And as elaborated earlier, the coronavirus (Covid-19) pandemic has had a huge impact on the digital landscape both in Africa and across the globe. It has further accelerated the adoption of mobile (and digital) payments.
For e-commerce businesses, cross-border payments are an integral part of the day to day operations and allow business owners to transfer funds across different territories most securely and efficiently possible, making real-time international payments a reality.
Primarily run by telecommunications companies, mobile payment platforms like Airtel Money, MoMo and M-Pesa have got tens of millions of users across Africa but they mainly connect people domestically which means it’s harder if not outright impossible to do cross-border payments. Imagine the possibilities if all these millions of users were connected and able to transact on one platform – using their local currencies.
Banks have also jumped into the digital payments revolution and have started offering products and services to customers who they were not able to target using traditional methods. A good example is Rapidtransfer by Ecobank – it can be used for instant-border payments across the bank’s network over 30 countries in Africa.
Imagine a trader in Nairobi being able to sell his produce to a customer in Lagos without having to worry about how much the United States Dollar is trading against any of the two local currencies. The buyer pays in Naira and the seller receives his money in Shillings. No settlement and currency exchange costs. *insert goosebumps*
One of the major drawbacks of cross border trading is the complicated process of accepting and/ or making payments. The current systems in place are both costly and lengthy. A Malawian importer is ‘forced’ to buy a third currency if he wants to pay for goods in Nigeria. If you have ever exported/ imported anything then you have the first-hand experience with this.
What complicates cross-border payments is the fact that a lot of available options lack transparency (hidden fees which eat up traders’ already slim profit margins), complex regulation, relying on third party currencies, and system inefficiencies.
If you have read ‘African Dropshipper‘ then you know how much of a headache accepting online payments is. There aren’t many African grown and tailored solutions. And this is also a major headache for those trading offline. But it seems like things are about to change.
Africa is getting its first continent-wide digital payment system to facilitate payments for goods and services in local currencies. Can we please get a standing ovation!
Called the Pan-African Payment and Settlement System (PAPSS), it was formally launched by the African Export-Import Bank (Afreximbank) at the African Union extraordinary summit in July 2019 in Niamey, Niger Republic.
In early December 2020, the interim Governing Council of PAPSS had their inaugural meeting in Cairo, Egypt, a major step towards the operationalization of the payment system. To say that I’m excited is an understatement. And so should you be!
With more and more countries ratifying the African Continental Free Trade Area (AfCFTA) agreement, the timing could not have been more perfect. By the way, Malawi recently submitted its instrument of ratification of the AfCFTA treaty, becoming the 35th member state to ratify the agreement.
(In case you live under a rock) AfCFTA is the continent’s most ambitious integration initiative, embedded in the Agenda 2063 of the African Union, whose main objective is to create a single continental market for goods and services with free movement of people and investments, thus expanding intra-African trade across the continent, enhancing competitiveness and supporting economic transformation in Africa.
Come here Africa,
Papss’ in the swing! (Sorry if you don’t get this reference, millennials)
About the author
Chimpele Kelvin Tsamwa is the Master of Lightbulb Moments at Green Thingz and author of African Dropshipper. He writes about the economy, science, technology, and innovation with a special focus on the digital economy.