At a time when cross-border trading is high on the agenda with the African Continental Free Trade Area (AfCFTA) agreement in place, expert has highlighted the importance of blockchain adoption in fast-tracking the achievement of the trade agreement’s objectives.
Highlighting the advantages of the blockchain for payment at Africa Tech Alliance Forum (AfriTECH2021) held in Lagos Oluseyi Akindeinde, chief technical officer of Digital Encode Limited said that it reduces the risk of corruption and transaction costs.
The CTO of Digital Encode, an information security management, and compliance advisory company, 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 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.”
Read Also: Blockchain technology has the potential to add $29 billion to Nigeria’s GDP by 2030
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’.
The company’s technical officer explained that trade finance; that is the financial institutions that provide credit facilities in order to guarantee 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.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
