How will cross border payments and settlements shape Africa’s Transport and Logistics Sector Relationships?


What are cross border payments?

Simply put, cross border payments are payments where the payee and beneficiary are based in separate countries. A typical cross border payment is a multi-player process which starts when a purchase transaction is initiated, and the merchant’s bank requests payment from the buyer’s bank. Then, the money is transferred from the buyer’s bank to its correspondence bank in the merchant’s country for final settlement into the merchant’s bank.

Nowadays, cross border payments are also facilitated via different payment methods such as credit cards, FX cards, cross border payment gateways, wire transfers, e-wallets, APIs, among others. Nonetheless, cross borders remain as a multi-player transfer process which hinders its efficiency, with a slow processing time.

Some of the most prevailing challenges of cross border transactions include:

  • Several costs, which are largely consumed by bank fees
  • Lack of global standardisation of regulations
  • Speed of transaction
  • Customer experience based on geography.


What makes Africa such a significant player for the payment landscape?

One of the most unsurprising reasons is the rapidly growing population, estimated to grow to 1.7 billion by 2030. A large population comes with a growing need to meet demand – not only with goods but also the adoption of technology.

Mobile penetration is growing the fastest in Africa, with mobile payments already grasping a market of $456 billion, with 469 million users in 2019. Sub-Saharan Africa is incredibly opportunistic, with over 60% of the adult population possessing a mobile money account. Being the second largest continent in the world, spending by Africa’s consumers and businesses is estimated at over $4 trillion annually, with a growth in the middle- and upper-class population. These factors combined will inevitably lead to an increase in demand for goods and services throughout the continent – making Africa a commercially fertile ground.

It has often been stated that intra-African trade remains a smaller portion of commercial movement in the continent’s overall trade. Arguably, the view of intra-Arica trade is misperceived because of side by side comparison of large commodity exports out of the continent. A large amount of intra-African trade has taken place informally, which is mitigated by formalised systems in pace. And thus, in more recent years considerable progress has been made with the African Continental Free Trade Agreement (AfCFTA), hastening the prospect of free movement of people, goods and services across the continent.

What hesitancy lies in cross border payments within Africa?

Within the continent, particularly that of sub-Saharan Africa, the lack of trust in online payments remains, making the implementation of quicker cross border payments more difficult. The hesitance in online payments has led to a fragmented payment system, which created the need for financial technology to connect all relevant parties in creating a seamless experience for all users within the continent. Each country varies between the use of banks, mobile wallets, local cards and cash payments – all of which need a one-stop solution to facilitate cross border payments both intra Africa and globally.

Some of the main issues which span the continent are lack of trust in online payments and limited access for African users to the service due to the limited number of people who are banked. However, the cross border payments process itself involves numerous players across differing time zones and banks which elongate the transfer, deeming it inefficient. As well as the expensive structures in place to successfully transfer funds to different countries, there is also the time delay as a result of different time zones and daily cut-off times.

Involvement of fintech and the growing digitalisation of Africa is helping to simplify the process by leveraging technology to create user-friendly, transparent, faster and convenient cross border payments. For example, technologies such as blockchain, virtual wallets as well as payment gateways are some of the ways through which fintech has simplified the complex cross border payment process while continuously improving user experience.


Cross border movement and developing relationships

The growing population which is becoming increasingly tech-savvy has positioned Africa as a continent open to businesses who offer value and eradicate the disparity issues in accessibility and payment methods. Therein lies the opportunity for fintech organisations to enter, many of which already reside in Nigeria, progressing with solutions which eliminate the issues associated to cross border payments.

New and longer-term solutions will allow countries within Africa to collaborate and pose a better commercial strategy with international movement of goods and services around the world. Currently solutions are beginning to offer interconnectivity between local regions. Nigeria Inter-Bank Settlement System (NIBSS) has been helping banks come together to create a more streamlined service with transfers and settlements from inter-bank funds, and consequently avoid the development of bottlenecks.

With the perception of a landscape within the continent that is largely untapped and can become available in coming years with the help of fintech, Africa’s payment ecosystem is on the verge of vast expansion. AfCFTA and technological adoption will bear the economic fruits of intra-African and intercontinental movement. The AfCFTA is advertised as an opportunity to tap into a $22 billion opportunity, which would inevitably build upon the $400bn payment industry which currently resides within Africa.  Benefit on relationships:

  • A more cohesive acceptance of alternative payment methods
  • Advancement in technology because of the need to move goods and services within the continent
  • Improved market access for countries within the continent who have struggled
  • Continental growth due to international cross border movement resulting in knowledge sharing between the continent
  • More accessible digital payment methods for those within the continent
  • Liberalisation of trade flows in some of the African countries to include informal cross border trade

How can this be achieved?

Trends projected to be seen from Africa are shaped by its future in digital payments. With local merchants engaging with digitally powered fintech solutions to engage locally, as well as cross border, the acceptance of alternative digital currencies (like e-Naira) will bring merchants liberalisation.

Building upon the already mobile-driven society, the movement of finances across borders is expected to be dominated through mobile money. Inevitably cash payments will continue to be a large driver, but with the progressive growth of mobile accessibility there will be a reduction in the usage of cash.

Further digital accessibility will push the need for cross border payments, as consumers relish in the accessibility of online purchases across the globe. As a hub for expansion, Africa, will be inundated with booming businesses and fintech innovators, with logistics innovators pitching latest technologies to unlock Africa’s untapped potential. Bringing new ideas and technologies will accelerate the adoption of digitalisation within the continent, making multiple payment methods accessible and encouraged – boosting the continent’s relationships globally.

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