An expert, Oluseyi Akindeinde has highlighted the importance of blockchain adoption in fast-tracking the implementation and achieving the objectives of the African Continental Free Trade Area (AfCFTA) agreement.
Highlighting the advantages of blockchain for payment at Africa Tech Alliance Forum (AfriTECH2021) held in Lagos, Akindeinde, who is the chief technical officer at Digital Encode Limited, said that it reduces the risk of corruption and transaction costs.
He cited an example of Pan African Payment & Settlement System (PAPSS) as expected to facilitate the expected increased volumes in cross-border payments across the continent.
He explained that blockchain enables peer-to-peer payments without an intermediary (either a bank or a clearinghouse).
Akindeinde noted that the technology will also lead to an increase in instant payments, saying, “With it, participants will no longer need to convert local currencies into hard currencies which then entailed the funds leaving Africa to be converted before being sent back again to the beneficiary bank – adding days to the transaction time.
“In addition, compliance, legal, and sanctions checks are performed instantly within the system. Near-instant payments process within 120 seconds.”
Speaking about the current mode of payment system for financing cross-border trade, he said Africa’s central banks have to work in collaboration with the PAPSS to provide a payment and settlement service to which commercial banks, payment service providers and fintechs across the region can connect as ‘participants’.
Read also: Expert sees adoption of blockchain technology help implementation of AfCFTA
The company’s technical officer explained that trade finance; which is the financial institutions that provide credit facilities in order to guarantee the exchange of goods across borders, is the centuries’ old industry that hasn’t seen much change with the growth of global trade flows.
For instance, in 2015 alone, the trade finance market was measured at more than $10 trillion USD.
According to him, “Only about 1.7 percent of this takes place across Africa. Trade settlements are usually done in foreign currencies typically in foreign banks
“In 2015 alone, the trade finance market was measured at more than $10 trillion USD. Only about 1.7 percent of this takes place across Africa. Trade settlements are usually done in foreign currencies, typically in foreign banks.”
“At a time when cross-border trading is high on the agenda with the African Continental Free Trade Area (AfCFTA) agreement now a reality, PAPSS is expected to facilitate the expected increased volumes in cross-border payments
“With Instant payment, participants no longer need to convert local currencies into hard currencies which then entailed the funds leaving Africa to be converted before being sent back again to the beneficiary bank – adding days to the transaction time.
“In addition, compliance, legal, and sanctions checks are performed instantly within the system. Near-instant payments process within 120 seconds.
He added that the steps of the transaction include, an originator issues a payment instruction in their local currency to their bank or payment service provider.
The payment instruction is sent to PAPSS which carries out all necessary validation checks on the payment instruction. The payment instruction is forwarded to the beneficiary’s bank or payment service provider.
The beneficiary’s bank clears the funds to the beneficiary in their local currency.
