The whole process of the recently launched Pan-African Payment and Settlement System (PAPSS) is designed to take a maximum of 120 seconds. It features less usage of cash and improved liquidity position for banks. MIKE OGBALU, PAPSS CEO and JOHN SEBABI, Deputy PAPSS CEO, shared insights on the benefits and processes of PAPSS, in this interview with HOPE MOSES-ASHIKE. Excerpts:
Before the introduction of PAPSS, can you give some insight into how intra African payments were executed, the level of efficiency and challenges?
The payment landscape today and before PAPSS has been layered on the principle of correspondent banking. This means that every commercial Bank in Africa develops a correspondent banking relationship with a Bank in the USA and Europe.
They do open accounts in those Banks (Nostro account). It’s through the correspondent banking system that African Banks transfer funds not only for overseas business but also for intra-African business.
The challenges emanate from the many points that funds go through-delays come in and costs rise with more touch points involved. In addition, the correspondent banking relationship requires sourcing of hard currencies.
Transaction costs will be at the minimum in PAPSS because Afreximbank is empowered to put in place a payment system to facilitate the growth of intra-African trade
It has been said that PAPSS will eliminate up to $5 billion lost due to the old system, how exactly will this be achieved?
Afreximbank estimates that the African Market spends an estimated $5Billion through the correspondent banking system in terms of charges.
The saving is estimated in several ways; the direct charges that economic operators pay at every touch point, the instant payments that reduce the delays and the cost in soliciting for hard currency.
PAPSS does this through the instant payment system that reduces the delay, the reduced costs, and the payment in hard currency as well.
Can you tell us the processes involved in using the new payment system? In practical terms, how will this work for a business in Lagos, transacting with another in Cape Town?
i- The payee client in Lagos initiates a transaction through a payment channel provided by his/her bank in Nigeria.
ii- The sending participant Bank (A bank in Lagos) sends a message with all payment details in the PAPSS.
iii- PAPSS validates the payment message and, if the Sending Participant has sufficient liquidity, blocks the funds to be transferred from the sender’s account.
iv- The payment instruction is sent to the Receiving Participant (A Bank in Cape town) in South Africa to validate the details of the beneficiary client.
v- If the receiving Participant (a Bank in Cape Town) responds positively (their account is credited and the Sending Bank debited), PAPSS changes the status of transaction to final, and transfers the funds to the Receiving Participant’s technical account.
Vi- The sending participant (the Bank in Lagos) is notified of the outcome of the transaction.
vii- The sender participant (Bank in Lagos) informs the payer client of the outcome of the transaction.
viii- The receiving participant (Bank in Cape Town) sends a notification to the beneficiary customer of the funds credited and their availability for immediate use.
There is need to emphasize that this whole process is designed to take a maximum of 120 seconds, However, in the pilot we have managed to average less than 10 seconds.
Transaction costs have often been said to be very high in intra-African payments, with some even routed through banks outside the continent before being re-routed to their destination in Africa. What are transaction costs likely to be under PAPSS?
Transaction costs will be at the minimum in PAPSS because Afreximbank is empowered to put in place a payment system to facilitate the growth of intra-African trade.
The impact will be realized in the reduced time to receive a payment and the use of local currencies. The cost structure will maintain a focus on encouraging more transactions.
In what ways will this new payment system impact banks in different countries on the continent?
The impact to Banks will be in several ways: i- The systems will increase financial inclusion hence depositors/deposits for Banks; ii- With the increased intra-African trade, the demand for credit should also increase; iii- the efficiency and service to their customers will increase as well and lastly, we should see less usage of cash and so an improved liquidity position for Banks.
How many of the member states have so far on boarded on the new payment system?
So far, we have the six Central Banks from the West African Monetary Zone (WAMZ), one Central bank outside the WAMZ has signed-up and three are in line. We signed up close to twenty commercial Banks and four switches, MRS Africa and two switches are in line as well.
What are the challenges in countries where the system has not yet been adopted?
No challenges per se, all Central Banks have expressed interest and support the system and are working through their procedures to sign up.
There are some reports that PAPSS will de-dollarise African transactions and that the Central Banks of African countries will agree on a single currency, what currency is this likely to be and how will conversion rates be determined?
Ultimately a single currency is good for a single market that the AfCFTA is mandated to form. However, PAPSS is focused on making efficient payments across Africa using the current currencies the way they are today. As and when the African Central Banks decide on their destiny, PAPSS will follow suit.
We hear some parts of this platform could have either MasterCard or Visa, playing a role. How true is this?
No evidence of that, however, the Pan-African Payments and Settlement System is a rail that any payment service provider can use. Therefore, whether MasterCard, Visa or another, is welcome to use our infrastructure, so as to ensure instant payment and payment in local African currencies.
What challenges do you foresee in the implementation of this pan African payment system?
No system of this magnitude can be void of challenges. These could range from the legacy systems, and participants being used to them to technology. We have realized that most of the African systems are dated and could require some upgrades. However, on the whole no insurmountable challenges exist.
Five years down the line, where do you expect to see the pan African payment system?
This sends chills of excitement down my spine! Five years down the road, I expect to see all African Central Banks as settlement members of PAPSS, maybe 90 percent of commercial Banks as direct members and at least several hundreds of FinTech’s as indirect members.
In addition, I expect intra-African trade to have increased from 60 percent today. In five years, PAPSS as a company should be a unicorn and a household name in Africa.