By Kelechi Deca
The level of enthusiasm that welcomed the launch of Africa’s first continental card payment system in Abuja a few days ago is understandable, especially against the backdrop of the huge challenges faced with cross border payment in Africa. A little background information will suffice here. Africa. In the world of finance, it appears everything is stacked against Africa. From the cost of money itself, to the cost of moving it from one place to another, Africa holds the shorter end of the ruler.
For example, the average cost of sending money across African borders is significantly higher than the global average, often ranging from 8% to 15% of the transaction value. This is substantially more expensive than the global average and can be especially burdensome for individuals relying on remittances for basic needs. Similarly, the cost of sending money to Africa is significantly higher than the global average, with an average fee of 8.37% of the transaction value. This is compared to the global average of 6.2%.
Several factors contribute to these high costs. These range from poor infrastructure, limited competition among service providers, and reliance on foreign correspondent banks. In the same vein, the high cost of sending funds to Africa is also influenced by factors such as high transaction fees, exchange rate markups, and regulatory challenges.
This is why observers expressed a high level of optimism with the development in Abuja a few days ago with some saying that the continent has marked a significant step towards financial independence following the launch of PAPSSCARD, Africa’s first Pan-African card scheme. The new card represents a major leap in Africa’s efforts to achieve financial sovereignty by building resilient and independent payment systems, easing people travel and boosting trade integration.
PAPSSCARD, a joint-venture between the African Export-Import Bank (Afreximbank), the Pan-African Payment and Settlement System (PAPSS) and Mercury Payment Services (MPS), enables fast, secure, and affordable retail payments across African borders. Today, most African card payments are routed through global systems causing increased fees and loss of data control. By processing transactions entirely within the continent, PAPSSCARD keeps value, data, and economic benefit in Africa.
One of the major challenges the continent faced over the years was the inability to tackle the challenges posed by numerous bottlenecks militating against cross border financial transactions. Major among the factors is the high cost of sending money within Africa which the World Bank sources warn is the highest in the world. For example, sending $200 to or within Africa can cost 8% or more. The global lender estimates that over 8% of remittances to sub-Saharan Africa are lost to transaction fees.
Another challenge is the issue of currency conversions which stems from the high number of currencies across the continent. Then reliance on correspondent banks adds to the huddles because funds emanating from Africa has to be processed by banks in Europe or North America before terminating in Africa, this adds not only to the cost of transaction, but also to the time it takes to complete a transaction. Topping the list of challenges facing cross border financial transactions is inadequate digital infrastructure and limited access to technology which raises the costs.
The cost can vary widely depending on the specific countries involved in the transfer. For example, transfers from Tanzania to Kenya and Uganda have been reported to be among the most expensive in Africa, according to Making Finance Work for Africa. This finding concurs with that of other groups that say that some corridors are far more expensive to transfer funds than others, for example, the Tanzania-Kenya and Tanzania-Uganda were identified as having some of the highest remittance costs in Africa. Angola-Namibia, South Africa-Angola, and South Africa-Botswana were also cited as being among the most expensive corridors.
Over the years, several efforts made by financial services companies to tackle this have had limited impacts ending up scratching the problem. That is not to downplay the impact some of these companies have made, rather it does without saying that the challenges have been overwhelming. Companies such as Paychant’s MiniPay and Transfy have leveraged stablecoins and other technologies to offer lower-cost cross-border transfers with the aim to reduce transaction costs by using digital currencies and localized payment rails.
Also mobile money services, like M-Pesa, have played a very important role especially in East Africa where they offer more affordable options for sending money within and between countries. Add to that is the role of specialized transfer companies such as Access Bank that offers cross-border payment services, sometimes with same-day transfers.
Because of the negative impacts of high remittance costs which can significantly impact individuals and families who rely on these transfers for essential needs like healthcare, education, and food, the emergence of the PAPSSCARD at this point in time cannot be overemphasized.
The outgoing President of Afreximbank, Professor Benedict Oramah while highlighting the significance of PAPSSCARD in reclaiming Africa’s financial autonomy, lamented that
For too long, Africa’s reliance on external payment systems has impeded trade, increased costs, and compromised control over our financial data. PAPSSCARD changes that
It empowers us to move money swiftly, securely, and affordably across our borders. It is a transformative step towards strengthening intra-African trade and preserving value within the continent.”
The CEO of PAPSS, Mike Ogbalu III, described the Card as a major advancement in the continent’s financial architecture, noting that it is “more than just a payment tool, it is a powerful symbol of progress and a bold step towards financial independence.” He added that the card reflects Africa’s ability to create practical, home-grown solutions that align with how the continent trades, lives, and grows.
With the PAPSSCARD, Africans can now heave a deep sigh of relief that the first step towards achieving a continent wide seamless funds transfers has started, thanks to Afreximbank and its partner organizations and also the strategic partnerships with issuing banks such as Bank of Kigali and I&M Bank Rwanda; Rswitch, Rwanda’s national switch – Smart Cash; and Unified Payments, Nigeria. With this first step taken, African central banks and payment systems are set to spearhead the continent-wide adoption and rollout of the new PAPSSCARD. This initiative will significantly advance Afreximbank’s strategy to promote financial inclusion and boost intra-African trade under the African Continental Free Trade Area (AfCFTA), fostering a more integrated and self-sustaining African economy.
Kelechi Deca, a journalist and public affairs analyst writes from Lagos.
