Are you a fintech? Things are changing very fast in Africa. From all the elements I have seen as the African Continental Free Trade Area (ACFTA) ramps up, the selling point of most fintechs will collapse on the day ACFTA begins operations. Simply, some ACFTA’s payment framework will disintermediate what most fintechs do, and eliminate the core necessity of their existence within the nexus of intra-African trade. If you check, most startups, at the continental level, are built on the premise that they can reduce frictions on cross-national transfer and payments, within Africa. Of course, I have maintained that none has done just that in this video.

What that video explains will be done but fintechs may not be the entities that will do it: ACFTA has some vehicles to do it, and one of those vehicles will be the Pan African Payment and Settlement Platform (PAPSP). Sure, any authorized entity can connect into a payment settlement system but if the settlement system is very efficient, the original friction will be significantly reduced. When you reduce the core friction, companies created to solve the friction will have lesser value to be created. Simply, your bank app can offer many great features that the idea of going to a fintech may not even be necessary.

In order to  solve the paralysis in intra African trade, the African Export Import Bank (AFREXIM) has launched a Pan African Payment and Settlement Platform (PAPSP) at the African Union Extraordinary Summit in Niamey, Niger.

This initiative is part of the African Continental Free Trade Area (ACFTA) which is designed to bring 1.3 billion Africans and create a $3.4 trillion single economic market. The initiative has the following operational instruments: Rules Of Origin Portal, Tariff Concession Portals, Portal On Monitoring and Elimination of Non Tariff Barriers, Digital Payments and Clearing System, and African Trade Observatory Dashboard.

See it this way: if Nigerian Naira and Ghanaian Cedi are settled and exchanged by PAPSP, directly, without going through London (Pounds) or New York (Dollars), transaction costs will go down. If that cost is very low even when efficient, there may not be a justification for many to look for fintechs when banks are just there with something very good. I do think banks will be strengthened as some critical infrastructures are built at continental level, eliminating any weak point they may have.

This does not mean that fintechs will not add value; it simply means they have to find new selling points at the continental level. The intra-African payment is about going soon.

By Nnamdi Odumody

In order to  solve the paralysis in intra African trade, the African Export Import Bank (AFREXIM) has launched a Pan African Payment and Settlement Platform (PAPSP) at the African Union Extraordinary Summit in Niamey, Niger.

This initiative is part of the African Continental Free Trade Area (ACFTA) which is designed to bring 1.3 billion Africans and create a $3.4 trillion single economic market. The initiative has the following operational instruments: Rules Of Origin Portal, Tariff Concession Portals, Portal On Monitoring and Elimination of Non Tariff Barriers, Digital Payments and Clearing System, and African Trade Observatory Dashboard.

This is why the African Development Bank has supported similar initiatives across the continent, including the East African Payment System and the West African Monetary Zone’s project to link payment systems. Likewise, in support of the CFTA, Afreximbank is working on establishing a Pan-African Payment and Settlement Platform (PAPSP), which will not only lower transaction costs but also facilitate informal cross-border trade, currently estimated at $93 billion.

Another interesting trend is the rise of African multinationals investing into other African countries. At the forefront are African financial institutions. Today, Ecobank has a footprint in 24 countries while Moroccan banks are now present in 16 countries, up from just three in 2005. This is welcome news. Indeed, banks support about one-third of total intra- African trade.

According to Dr Benedict Oramah, President of Afreximbank, the PAPSP which will be available on mobile devices will facilitate the clearing and settlement of intra African trade transactions in African currencies and significantly reduce dependence on global currencies in settlements for regional trade.

The African Export Import Bank has partnered with the West African Monetary Institute to launch a pilot in six West African countries before the end of the year as the West African Monetary Zone is Africa’s only economic community which doesn’t have a settlement platform, hence the decision to pilot the initiative in the region.

PAPSP is one of the initiatives implemented by AFREXIMBank to facilitate greater volume of intra-African trade and formalize the continent’s volume of informal trade estimated at $40 billion.

Considering the fact that Africa has multiple local currencies, cross border payments has traditionally involved the use of a third currency like the US dollar, Euro, British Pound or Chinese Renminbi resulting in high cost  of intra-African payments which, PAPSP is a timely intervention to fix the friction.