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

The payment space in Africa has become one of the busiest in the emerging world driven by demand from growing mobile subscribers. Out of the $510 million startups in Africa have raised from 113 investors between January and August 2019, fintech companies including payment firms have accounted for 32 percent of it. 


The proliferation of payment innovations have created viable alternatives to traditional banks and made it easy for Africans living and trading outside the continent to send money back to their dependents, buy and sell things back home and in so doing sustain the economies of many of these countries. Nigeria for instance have seen diaspora remittances move from $22.3 billion in 2017 to $24.3 billion in 2018, according to data from the World Bank’s “Migration and Development Brief.” Immigrants from sub-Saharan Africa sent $46 billion to their home countries in 2017.


Price water house Coopers (PwC) estimates that remittances to Nigeria could grow to $25.5 billion, $29.8 billion and $34.8 billion in 2019, 2021 and 2023 respectively. 


It is important to note that while the overseas payment scene may be booming, Africans living and trading within the continent find it very difficult to facilitate payment within Africa using the existing platforms. 


Many merchants traversing between African countries have different sad tales to tell in trying to facilitate card payments in their host African nations. 


Toyosi Gregory-Jonah, a content creator and entrepreneur recalls traveling to Ghana recently and attempting to use seven of her Nigerian bank cards to pay for a Yellow Fever card but was unable to carry out the transaction successfully. 


“I didn’t know when I started tearing up,” she tweeted from her handle @TgJonah. “I had to approach another lady who I saw paying with cash to allow me transfer naira to her in exchange for dollars and she agreed. She saved me.”


Moe Odele, founder of Scale My Hustle and an investor, also shared her experiences in receiving payments from within Africa. 


“Such a shame that in 2019 there’s no reliable payment platform to collect money from across Africa,” she tweeted from her handle @Moechivous, “It’s been a hassle today trying to receive payments from Zambia, Ghana, Sierra Leone, South Africa and Gambia.” As a result of the frustration her company is making the decision to sell their products in dollars. 


Her decision is actually the prevailing practice; many merchants currently prefer to sell their products to clients across Africa in dollars rather than do so in local currencies. This is mostly for the universality of the currency. Dollar being a universally acceptable currency, makes the process of funds transfer less tedious. Dollar card payments especially means money transfer operators and banks get to collect high fees for every transaction. 


Ultimately, since facilitating payments within Africa does not guarantee big rewards for providers there is a huge disincentive to address the problem. Sub-Saharan Africa has the most expensive remittance structure with an 8.97 percent average cost. 


Problems around currency conversion and monetary policies of most African nations also contribute to its being unattractive to facilitate payment in local currencies.


Additionally, Cross-border payment in Africa faces stiff competition from a pervasive cash culture. In sub-Saharan Africa, more than 80 percent of all transactions are still carried out with cash, thus while mobile money and digital banking, consumers still prefer paying for goods with cash. Hence, rather than invest in digital banking tools, banks prefer to build physical branches to enable their customers have access to more cash.


Unlike developed markets where card acceptance is ubiquitous, card penetration in Africa is less than 5 percent. Even at that, the payment landscape on the continent is fragmented largely riding on more than 277 mobile wallets, more than 500 banks, and several card networks in 55 networks. As a result of the fragmentation, merchants are compelled to work with multiple payment platforms to carry out their business. 


Apart from merchants not being able to facilitate smooth transactions with clients in other African countries, traditional business to business cross-border payments also tend to be slow and opaque. This affects the business and cost structure of remittance service providers, including Money Transfer Operators (MTOs) which handle most personal remittances transactions. 


A World Bank report observed that moving funds through the current corridors requires transferal through the relevant domestic payment systems, which often have different operating hours and are located in different time zones. For certain corridors, the funds must be routed through several banks and intermediaries before they reach their destination, leading to higher fees and slower payment settlement.


“Ecobank already has a platform for all of Africa to trade,” Victor Asemota tweeted from his handle @asemota. “I can send money to 33 countries using Ecobank’s banking app. For some weird reason, nobody is building on this.”


Ecobank’s Rapid Transfer is a mobile application built by the pan-African bank to enhance remittances within Africa and in so doing reduce the cost of payment. The platform also claims to be addressing the long, burdensome and inefficient processes people face in sending money across the continent. 


Although the Rapid Transfer is touted as a game changer, it will need many collaborators including banks, fintech firms, merchants and regulators work efficiently. This however has not been the case as Asemota also alluded to in his tweets. 


In a statement on their website, Cellulant a fintech firm with operations across Africa, said there is a “Need to make it easier for merchants to digitally pay and get paid. This means providing a one-stop shop where merchants can integrate securely and access checkout options across Africa. Consumers can then pay for goods and services in their local currency using mobile wallets, credit and debit cards, and bank accounts.”


Finding that “one-stop shop” has proven to be more difficult as many African banks have unilaterally launched massive African expansion campaigns with promises of disrupting payments across the continent. Many experts now hope that the coming of the African Continental Free Trade Agreement (AfCFTA) and its full implementation will address the problem. What could help, they say, is African leaders facilitating a single currency system across the continent.

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