Instant payment systems are essential for trans-African trade


The high cost of sending and receiving payments from one region to another is proving to be one of the biggest trade challenges in Africa, even as the continent sees an increase in trade and investment from of a free trade area.

The African Continental Free Trade Area (AfCFTA) is expected to increase Africa’s export volume by 29% and intra-African trade by 81%, lift more than 60 million Africans out of extreme poverty and increase real income from the mainland by 7% to $450. billion by 2035.

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

But the high cost of cross-border transactions could undermine prospects for the continental trade deal, added to concerns over partial implementation of the terms of the same persistent non-tariff barriers.

High costs

According to AfricaNenda, a pan-African organization that campaigns for financial inclusion, the average cost of cross-border payments in Africa is around 12-18% of transaction value compared to a global average of 6-7%.


According to Benedict Oramah, President of the African Export-Import Bank, cumbersome transactions cost Africa about $5 billion in money transfer fees every year.

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

In addition, 11 of the 50 fastest growing companies in Africa in 2022, according to the Financial Times ranking, were fintech and financial services companies,

New start-ups are popping up almost every month, all looking to solve different financial inclusion issues, from high transaction costs to inaccessibility to credit and digital wallets.

These startups raised more than $4.5 billion in funding between 2017 and September 2021, more than double the amount raised by budding companies in any other industry during the period.

But interoperability – the ability of payment systems from different regions to exchange and use information – has remained a seemingly impossible conundrum for these fintechs.

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

“Fintech companies alone cannot solve this problem without the regulatory framework that creates an interoperable layer of payment system that they can connect to,” Robert Ochola, CEO of AfricaNenda, told The EastAfrican.


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

Papps, the Pan-African Payments and Settlement System, aims to enable local currency payment transactions between countries in Africa, promising near-instant payments for cross-border transactions without the need for currency conversion and increasing transparency on cross-border business activities.

“There are security and monetary risks that need to be effectively mitigated. Additionally, there are high costs and limited human capacity and knowledge sharing that slow down the process,” he said.

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

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

According to AfricaNenda, a low average GDP per capita – which means lower value of transactions – makes instant payments per dollar more expensive and is among the main threats to the development of interoperable instant payment systems on the continent.

“Ideally, transaction costs should be below 1% to make cross-border trade even easier and increase financial inclusion,” Dr Ochola said.

Other challenges are relatively low adoption of smartphones, unaffordability of data, low access to electricity and comparatively smaller markets.

There is also a preference for payment for goods/services after receipt.

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Elaine R. Knight