By Ebenezer YALLEY
Cross-border payments have become a convenient form of service for trade facilitation, scaling traditional modes of payment. Data compiled by Statista shows that in 2023, the total value of cross-border payment was US$190.1 trillion. This is predicted to hit US$290.2 trillion by 2030, with the bulk of that growth coming from expanding consumer-initiated cross-border payments.
A recent study by Juniper Research showed that the global spend on B2B cross-border payments will exceed US$40 trillion by the end of 2024, increasing from US$37 trillion in 2022 and US$27 trillion in 2020. Additionally, according to the United Nations Economic Commission for Africa (UNECA), intra-African trade is expected to increase by US$50 billion to US$70 billion by 2040.
These key figures indicate substantial growth in the cross-border payment industry, which is likely to continue in the coming years and highlight the growing need for efficient payment solutions that can help key stakeholders like African businesses and global corporations overcome cross-border payment challenges and make reliable and easy payments within and into Africa. This clearly shows the might of cross-border payment services and its ability to ensure the flow of trade and transactions especially in Africa.
According to research conducted by Cellulant, Cross-border payments in Africa are primarily driven by individuals, micro and small businesses (MSMEs), and small to medium-sized traders. These payments cater to various purposes, including e-commerce, border trade, SMB exports, remittances, gig payments, and supply chains. Cellulant’s findings also showed that the most common types of cross-border payments are person-to-person (P2P and C2C), person-to-business (C2B), business-to-person (B2C), and business-to-business (B2B). These transactions can be both diaspora inflows and intra-African transfers.
The efficiency of formal cross-border payment systems in Africa is linked with the speed of transactions across borders and how payment is achieved through eliminating the use of foreign currency. The utilization of foreign currency is often associated with exchange rate fluctuations which often has a long-standing effect on profit margins for SMEs. There is also the issue of informal cross-border payment activities which poses a high risk for trade payment.
Banks have long dominated cross-border payments in Africa, driving transactions for businesses and consumers. However, technological advancements, increased digital adoption, and shifting consumer behaviour are transforming the ecosystem. This has necessitated the need to ideate and bring to live innovative and convenient modes of payment that does not wear the cloak of bureaucratic characteristics.
This potential of cross-border payments in Africa to bolster trade and investment for instance is an exciting development championed through the Africa Continental Free Trade Area also known as AfCFTA which was established in 2018 to promote trade and economic integration across Africa. The benefits of AfCFTA are expected to attract investment, boost trade, provide better jobs, reduce poverty, and increase shared prosperity in Africa. AfCFTA among other objectives seeks to eliminate trade barriers for the free flow of goods and services across Africa.
Clearly, the unimpeded movement of goods and services across borders has the propensity to suffer a major blow without the utilization of payment services that equally transcends borders. This also means that the fluidity or otherwise of AfCFTA’s objectives will suffer a major blow if an effective payment system is not weaved to the policy.
In response to this, Afreximbank whose vision is to transform Africa’s trade has created a cross-border payment platform called the Pan African Payment & Settlement Systems (PAPSS). Afreximbank recognised that for Africa to unlock its massive potential for internal trade, enabling the efficient flow of transactions across African borders was of paramount importance. The key is a single payment infrastructure that cuts through the existing challenges of local currency exchange and ensures instant payment of funds.
Afreximbank has been at the forefront of developing PAPSS, providing capital and resource investment. As the continent’s trade finance bank, it has mobilised broad support for the system and, in collaboration with the regions’ central banks, together they are establishing a continental financial market infrastructure for commercial banks, payment service providers, card schemes and other intermediaries.
These connections enable cross-border financial transactions to happen in real-time and in local currency as well as ensure coordinated end-of-the-day net settlement with all the participating central banks.
With Instant payment, participants no longer need to convert local currencies into hard currencies which then entailed the funds leaving Africa to be converted before being sent back again to the beneficiary bank – adding days to the transaction time. In addition, compliance, legal and sanctions checks are performed instantly within the system. Near-instant payments process within 120 seconds.
The innovative idea behind platforms such as PAPSS portends a lot of benefits for the facilitation of trade in Africa. Cross-border payment platforms help to promote near instant payments across African borders in local currency. Trade between two parties done with the use of the PAPSS platform is conducted easily through Bank settlement representing all parties in real time. This is a game changer as it eliminates dependencies and drives instant payment; ensuring that participants no longer need to convert local currencies into hard currencies for trade payment.
Today, cross-border payments have developed into a layer of models which ensures that Banks and Fintechs provide the service via their digital channels such as internet and mobile banking. This offers remote access to ensure person to person (P2P) payment is achieved with all compliance and cybersecurity comforts in place. The multiplicity of channels and the expanded stakeholder involvement also has a direct bearing on the volume of trade transactions. More payment also means access to capital and a broad trade corridor in line with AfCFTA objectives.
The sustainability and continuous improvement of cross-border payment platforms for trade in Africa means that the volume of transactions must be heightened, which will involve the concerted efforts of all stakeholders within the trade ecosystem. All countries with trade routes must be encouraged to forge a good partnership with the aim of promoting a borderless Africa where trade is conducted without inhibitions.
>>>the writer is a Transactional Banking / Payment Systems Expert with over a decade experience in the Banking and Fintech sectors across multiple institutions. He has a passion for Trade and Investment promotion and specializes in revenue assurance, marketing, product development, project management and key account management. He can be reached via [email protected]
