BusinessDay

PayPal, Flutterwave partnership to ease cross-border payments in Africa

A partnership deal signed by PayPal and Nigeria’s Flutterwave on Tuesday to enable users on both platforms to accept payment easily may be the solution to the many challenges of cross-border payments on the continent.

The deal could also see Flutterwave, a newly minted unicorn (a company with a one-billion-dollar valuation), become the preferred brand for millions of merchants across Africa.

PayPal is among the largest digital payment companies in the world with 377 million customers in more than 200 countries. In 2020, the company reported a $936 billion transaction volume. The partnership with Flutterwave means merchants across 50 African countries and worldwide would be able to make and accept payments with clients from over 200 countries.

Flutterwave says it already has merchants in countries such as South Africa, Kenya, Morocco, Malawi, Senegal, Egypt, and Mozambique eager to use the service.

Before the partnership, people were unable to make payments directly to merchants abroad using PayPal because it was not available. Also, PayPal’s expansion in Africa in the past had been through individual countries which allowed merchants from selected countries to only send money.

Read also The non-dollar road to Africa’s cross-border payment challenge

The partnership, importantly, may target the biggest problem of trade within Africa – cross-border payments.

“As we build the largest payment infrastructure in Africa at Flutterwave, we also know that Africa does not exist in isolation,” we need to connect Africa to the world, when it comes to payments and we took a closer step to that today,” Olugbenga Agboola, CEO, Flutterwave said.

Despite the growing push in cashless payments by financial authorities and several moves to migrate the continent’s economic systems under one platform, there still exist myriad hurdles in making payments from one country to another or region to another. The continent, for instance, ranks highest at 9 percent in the world for the highest cost of sending $200, according to the World Bank. The world’s average is 7 percent.

A report by GSMA found that the cost of sending money to Africa reaches 12.4 percent of the face value of the transaction on average – much higher than the global average of 8.6 percent. Transaction fees can even reach 20 percent for remittances sent within Africa. The World Bank also found that the 10 most expensive remittance corridors in the world are all intra-African and estimates that if remittance fees across Africa were brought down to 5 percent (the average rate for G8 countries), $4 billion could be put back into the hands of Africans.

There are also currency problems as cross-border payments, both intra-Africa and between Africa and the rest of the world, are still skewed towards the US dollar usage and dollar clearing via North American banks. Due to the currency problem, over 70 percent of all cross-border financial flows from Africa are first routed to North America or Europe before getting to their final destination. Only 20 percent of all intra-Africa cross-border payments are settled within Africa, data from Swift showed.

Flutterwave and PayPal partnership can address these problems. Flutterwave’s reach extends to about 11 countries in Africa and it has so far processed over 140 million transactions worth $9 billion.

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