In the bustling and diverse landscapes of West Africa, where cultures intertwine and economies thrive, a shared struggle unites its peoples; the ordeal of cross-border digital payments.
According to an ECOWAS, the total trade of the region has averaged 208.1 billion dollars with exports and imports projected at 137.3 billion and 80.4 billion dollars respectively.
For years, individuals and businesses across the region faced formidable challenges in conducting seamless transactions, grappling with exorbitant fees, prolonged processing times, and the overall inefficiency of traditional payment systems.
This predicament hindered economic growth and left many business people in a state of financial uncertainty.
Amidst these struggles, the Pan-African Payment and Settlement System (PAPSS) an initiative spearheaded by the African Union emerged as a tool for ameliorating burden and easing cross border business activities.
Inaugurated on Sept. 28, 2021 by the Afreximbank in conjunction with the African Continental Free Trade Area (AfCFTA), the system is available to be used by businesses on the continent
The PAPSS, experts observe, would alleviate the burdens placed on West Africans by the limitations of existing payment infrastructure.
In Accra, Ghana, Mr. Charles Ifeanyi found himself desperately racing to Kotoka International Airport in the early hours of one Tuesday. An urgent need for a business trip to Lagos left him with no time to book his flight in advance.
With bated breath, he arrived at the airport, hoping for a miracle. Luckily, there were still available seats on Africa World Airlines (AWA). Unfortunately, Ifeanyi only had a Naira MasterCard, while the Ghanaian airline accepted payment in Cedis.
Frantically searching for a solution, Ifeanyi’s heart sank as he watched the flight depart without him. The event he was rushing to in Nigeria slipped through his fingers.
“In the process of trying to find a way out, I missed the flight as well as the event I was going for in Nigeria,” says Ifeanyi while narrating his ordeal to the News Agency of Nigeria (NAN).
Ifeanyi’s story is not unique. Dr Ken Ashigbey found himself facing a similar challenge during his recent stay in Abuja.
Upon checking out of his hotel and returning to Accra, he received an unexpected call from a concerned receptionist. It seemed he had underpaid for his stay, and money needed to be sent to Nigeria urgently.
Realising the obstacle before him, Ashigbey had to reach out to a Nigerian friend for assistance.
Ashigbey’s case reflects the experience shared by many in Africa – the urgent need for an integrated digital payment system that can propel economic growth across the continent.
“To send money to Nigeria became a problem. When I sensed the receptionist was in trouble, I had to call a Nigerian friend, who helped me to pay the money.
“That is the situation in Africa. There’s a need for an integrated digital payment system for Africa if we are to improve on our economic growth,” Dr Ashigbey says.
It is evident that across West Africa. Both businesses and individuals face immense cross-border payment challenges. This is a major roadblock which hinders regional economic growth and collaboration.
Experts and economists point to a myriad of issues plaguing the existing system, ranging from high transaction costs and lengthy processing times to the lack of interoperability among different national payment platforms.
The intricacies of navigating multiple currencies further complicate matters thereby stifling the potential for seamless trade and financial inclusion.
Mr Edward Karanja is a business analyst; he says PAPSS would play a critical role since it integrates local banks across Africa to enable transactional settlements.
“For starters, intra-Africa trade is the biggest goal for the African free trade agreement whose aim is to reduce the tariffs and non-tariffs trade barriers.
The settlement of payments is a key infrastructure to enable this growth,” says Karanja.
The analyst said that the new payment and settlement system aims to simplify and expedite cross-border transactions.
This, he said, would in return increase the volume of trade across Africa, thus growing the African economies.
By providing a centralised and efficient payment and settlement system, PASS, according to him, will reduce transaction costs associated with cross-border payments, especially the dollar conversion rates.
He says de-dollarisation of Africa of some sorts will build a reliance on Africa’s currency as opposed to foreign currencies, hence improving currency stability by lowering the risks associated with foreign currencies fluctuations.
Ade Adefeko, an economist, further shades light into the payment obstacles experienced by African business people.
Adefeko is the chairman, Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) Export Trade Group.
He said before the PAPSS, a buyer in Nigeria who intended to buy goods from a seller in Botswana would be required to pay the seller in a third currency from outside the continent.
The currency either US dollar, the Euros or the British Pounds, he said, is paid with extra charges to have the agreed sum processed and sent to the seller in Botswana.
Notwithstanding this payment, the buyer, according to him, will still have to wait several days for transactions to clear.
“Aside from time constraints, the process of currency conversation adds to the cost of doing business and in reality, the money has to leave Africa before being sent back to Botswana.
“This has been the situation until the introduction of the PAPSS. It has been conceptualised as a tool to address this by significantly reducing the constraints being experienced in African regional trade payments.
“With the operationalisation of PAPSS, the same business would only pay in Nigerian Naira while the seller will receive Botswana Pula. The PAPSS serves as the clearing, processing and settlement agent in the transaction“, he said.
He said this means that only the deficit between the two countries would be settled using the US dollar, Euros or the British Pounds.
“Whether for shopping, transferring money, paying salaries, dealing in stocks and shares or making high-value business transactions, the PAPSS real-time infrastructure provides a reliable, cost-effective answer for instant payments.
“It enables the efficient flow of money securely across African borders, thereby minimising risk and contributing to financial integration across the regions,” says Adefeko.
To facilitate instant payments across African borders in local currency, experts say, PAPSS supports three core processes. One of these is instant digital payment.
Adefeko said that participants would no longer need to convert local currencies into hard currencies as compliance, legal and sanctions checks are performed instantly within the system within 120 seconds.
Pre-funding, he told NAN, is the second process, where PAPSS guaranteed availability of funds to complete the originator’s transaction before effecting the movement of debits and credits between participants’ accounts
He said, net settlement; whereby PAPSS determines net position in local currency for all participating central banks daily, is the third process that the innovative digital payment system also supports.
The project has been piloted successfully and lives in the six countries that make up the West African Monetary Zone (WAMZ), which are Nigeria, the Gambia, Sierra Leone, Liberia, Ghana and Guinea.
To understand the broader implications of PAPSS, financial experts and economists who have closely monitored the region’s economic landscape react.
Edward, an economist with expertise in digital financial inclusion, underscored the significance of PAPSS in fostering economic collaboration.
“PAPSS is a testament to the potential for technology to break down barriers. By providing a common platform for payments, it encourages intra-African trade and bolsters economic integration,” Karanja said.
Similarly, Dr Aisha Ibrahim, a researcher specialising in financial technology, said PAPSS could facilitate financial inclusion.
She said the system was designed to be accessible to everyone, from small businesses to individuals.
The inclusion, she said, is crucial for bridging the financial gap and empowering communities.
Beyond the individual stories of transformation, she adds, PAPSS would instil a sense of unity in the diverse tapestry of West Africa.
According to hi, countries that were once isolated by financial borders will now find common ground in a shared payment infrastructure.
“It is not just about transactions; it’s about building bridges between nations. PAPSS is fostering a sense of unity among West African countries, encouraging collaboration in ways that were previously hindered by financial barriers,” Ibrahim said.
While PAPSS has undoubtedly made strides in addressing cross-border payment challenges, experts acknowledge that there are still hurdles to overcome.
Such hurdles include regulatory issues, cyber security concerns, and adapting to rapidly evolving technologies.
“The success of PAPSS relies on continuous collaboration and adaptability. Regulatory frameworks need to evolve to support this pan-African initiative, and stakeholders must remain vigilant against emerging threats in the digital landscape,” Karanja cautions.
