A new study by Duplo, a fintech company in Nigeria, titled ‘The State of Cross-border Payments in Africa and its Impact on Trade’ disclosed that Business-to-business (B2B) payments are the lifeblood of commerce, facilitating transactions that keep supply chains moving and economies growing.
Cross-border B2B Payments refer to financial transactions between businesses in different countries. Based on extrapolations from Business Insider, Africa’s B2B payment market is substantial, estimated at approximately $1.5 trillion.
This underscores B2B payments’ role as an economic growth engine in Africa, and efficient B2B payment systems can unlock economic value, foster increased trade, drive economic growth, and ultimately contribute to Africa’s prosperity.
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Despite the significance of B2B payments on the global economy, African countries face several challenges, such as:
High Transaction costs
Transaction fees for cross-border payments are high due to the lack of competition, limited financial infrastructure, and a heavy reliance on traditional banks.
Interoperability issues
A lack of interoperability between different payment systems that exist across African countries makes it more difficult for businesses to make payments across borders.
Transaction speed
Cross-border B2B payments in Nigeria take 3-5 business days or more to process due to issues with intermediaries, protocols, and paperwork. Slow transaction processing times, especially for cross-border payments, can hinder trade flows and create business cash flow challenges.
Administrative burdens
Many businesses struggle with the administrative aspects of B2B payments, including processing payables and receivables. A 2020 PYMNTS report stated that over 49 percent of business firms cite manual processes as one of the most critical pain points within their accounts receivable processes.
This challenge is being addressed by emerging digital and automated payment solutions like Duplo, but adoption is still in progress.
Lack of financial infrastructure
In many regions, particularly rural areas, limited access to banking services makes it difficult for businesses to use bank transfers as a mode of payment. Duplo said over 40 percent of the African population is unbanked, indicating limited access to digital payment systems and inadequate banking networks to facilitate seamless cross-border transactions.
Currency conversion and volatility
For cross-border transactions, currency conversion fees and exchange rate volatility can add significant costs and uncertainties to B2B payments.
According to the International Monetary Fund (IMF), most sub-Saharan African countries are facing the issue of weakened currencies against the US dollar which has created inflationary pressures across the continent as import prices surge, thus significantly slowing down growth rates.
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Regulatory complexities
Varying regulations across African countries complicate cross-border B2B payments, especially for smaller businesses without dedicated compliance resources.
“Despite these challenges, there seems to be a silver lining. Digital payment adoption is picking up across the continent, offering solutions to many of these pain points. Fintech innovations are improving transaction speeds, reducing administrative burdens, and increasing access to financial services,” Duplo added.
It said fintech companies have the potential to streamline cross-border B2B payments in Africa as these solutions continue to gain widespread adoption in facilitating increased trade and economic growth.
