Strategic insights on the continent’s pioneering payment systems, the hurdles that remain, and the actionable steps needed to secure a leading role in the future of global finance.
From FTN.money’s perspective as an analyst of emerging market infrastructure, while the world debates the future of money, Africa is actively building it. The continent’s payment evolution is not merely an adaptation of existing models but a fundamental re-architecting of financial networks. This transformation, driven by necessity and ingenuity, positions Africa as a potential global leader in inclusive, efficient, and digital-first finance. However, strategic challenges must be navigated with precision to realise this potential fully.
The Inefficiency Tax: The Catalyst for Innovation
The impetus for Africa’s payment revolution is rooted in the exorbitant cost of the status quo. The reliance on correspondent banking networks anchored in SWIFT messaging has imposed a de facto “inefficiency tax” on the continent.
- Remittance Burden: The World Bank confirms the average cost of sending $200 to Sub-Saharan Africa remains at 7.4%, versus a global average of 6.2%. This strips billions annually from vital GDP contributions.
- Trade Friction: Intra-African trade accounts for a mere 15-18% of total trade, crippled by payment delays and FX costs. Afreximbank estimates these frictions add 3-5% to the cost of goods, directly undermining the African Continental Free Trade Area (AfCFTA)’s $3.4 trillion potential.
These figures are not just statistics; they represent the strategic imperative that has forced Africa to innovate beyond legacy systems.
Deconstructing the African Model: A Three-Tiered Architecture
Africa is constructing a unique, multi-layered payments architecture that bypasses traditional banking bottlenecks.
1. The Consumer Layer: Mobile Money Supremacy
Africa’s foundational advantage is its ubiquitous mobile money ecosystem, which has achieved financial inclusion at a scale unmatched elsewhere.
- Data Point: GSMA reports over 700 million mobile money accounts in Sub-Saharan Africa, processing transactions worth $1.3 trillion in 2022.
- Expert Insight: This network provides a low-cost, high-volume transactional layer that serves as the on-ramp for the digital economy. It is Africa’s answer to the legacy ACH and wire transfer systems, already built and scaled.
2. The Institutional Layer: PAPSS as the Strategic Backbone
The Pan-African Payment and Settlement System (PAPSS), led by Afreximbank, is the most significant strategic development in regional finance.
- Mechanism: PAPSS acts as a centralised quasi-Central Bank, providing real-time clearing and settlement in local currencies. It eliminates the need for transactions to be routed through offshore correspondent banks, converting first into USD or EUR.
- Progress & Impact: Live in 12 nations, PAPSS has processed over $1 billion in transactions, reducing settlement times from ~72 hours to under 120 seconds and cutting costs by 30-50%. This is not incremental improvement; it is disruptive change.
3. The Connective Layer: Fintech Agility
African fintechs are the agile integrators, building APIs that connect the mobile money layer to the formal banking sector and global commerce.
- Scale: The sector attracted over $3.5 billion in investment from 2020-2023 (McKinsey).
- Role: Companies like Flutterwave and Interswitch abstract away the complexity of the underlying fragmentation, offering businesses a single point of access to the entire African market. They are the essential glue in this new architecture.
Strategic Challenges: The Expert Assessment
espite the progress, significant headwinds require deliberate policy and investment actions.
- Regulatory Balkanisation: 54 different regulatory jurisdictions create a compliance nightmare. The lack of harmonised AML/CFT and data privacy rules stifles scalability.
- FX Liquidity Management: PAPSS solves conversion but not liquidity. Deep, liquid markets for all 40+ currencies are essential to prevent slippage and volatility at scale.
- Interoperability vs. Fragmentation: The risk is not a lack of systems, but a proliferation of them. Without enforced technical standards (e.g., ISO 20022), we could see national systems and private fintech rails that cannot communicate, recreating silos digitally.
Actionable Recommendations: A Strategic Roadmap
From my perspective, the following actions are critical for policymakers, regulators, and financial institutions:
- For AfCFTA & Regional Bodies:
- Mandate PAPSS Adoption: Make PAPSS settlement mandatory for all intra-AfCFTA trade invoices below a certain threshold. This would force adoption and create instant network effects.
- Champion Regulatory Passporting: Implement a fintech “regulatory passport” similar to Europe’s, where approval in one jurisdiction facilitates easier entry into others.
- For Central Banks:
- Pool FX Reserves for Key Corridors: Collaborate to create central bank FX liquidity pools for the most active trade corridors (e.g., Naira-Cedi), mitigating liquidity risk for commercial banks using PAPSS.
- Accelerate CBDC Collaboration: Move beyond domestic CBDC pilots to cross-border experiments, leveraging the BIS Project mBridge framework. A digital East African Shilling or West African Eco could be settled instantly on a shared ledger.
- For Private Investors & Banks:
- Invest in Interoperability: Fund ventures that build middleware and APIs specifically designed to connect different national payment systems and mobile money wallets.
- Embed Finance in Trade: Develop embedded financial products that package payments, credit, and insurance into seamless offerings for SMEs engaging in cross-border trade via AfCFTA.
Conclusion: From Leapfrogging to Leadership
Africa’s payment journey began with leapfrogging legacy infrastructure. It is now transitioning to defining leadership for the next era of global finance. The continent has successfully demonstrated that a future-proof financial system is built on digital-first inclusion, regional cooperation, and agile private-sector innovation.
The lessons from Africa—PAPSS’s institutional boldness, M-Pesa’s inclusive design, and the fintech sector’s connective ingenuity—provide a viable template for other emerging markets. The future of payments will not be a single global system but a network of interconnected, efficient regional networks. Africa is not just building its node in this network; it is providing the blueprint for how to create such a network.
References
- World Bank. (2023). Remittance Prices Worldwide. https://remittanceprices.worldbank.org/
- United Nations Conference on Trade and Development (UNCTAD). (2021). Economic Development in Africa Report. https://unctad.org/webflyer/economic-development-africa-report-2021
- African Export-Import Bank (Afreximbank). (2024). PAPSS Annual Performance Report. https://papss.com/reports/
- GSMA. (2023). The State of the Industry Report on Mobile Money. https://www.gsma.com/sotir/
- McKinsey & Company. (2023). Fintech in Africa: The end of the beginning. https://www.mckinsey.com/industries/financial-services/our-insights/fintech-in-africa-the-end-of-the-beginning
- Bank for International Settlements (BIS). (2023). Project mBridge: Connecting economies through CBDC. https://www.bis.org/about/bisih/topics/cbdc/mcbdc_bridge.htm
- SWIFT Institute. (2022). *The Future of Cross-Border Payments: A Roadmap to 2030*. https://www.swiftinstitute.org/research/the-future-of-cross-border-payments-a-roadmap-to-2030/
