Six African countries have joined forces to launch a revolutionary payments and settlement system that will finally cover the whole of the continent:
A payment and settlement system that was launched recently in Ghana is expected to revolutionize the way cross-border payments are made in the whole of the African continent. Called the Pan-African Payment and Settlement System (PAPSS) and pioneered by African Export-Import Bank, or Afreximbank, the platform is meant to improve the integration of the financial systems in the whole of Africa and result in reduction in business costs. It promises to reduce the cost and time of payments, lower the level of banking liquidity required to make payments, and improve central bank oversight of payments.
Afreximbank has gone on record stating that PAPSS will serve as a continent-wide platform for the processing, clearing and settling of intra-African trade and commerce payments, leveraging a multilateral net settlement system, and its full implementation will save the continent more than US$5 billion in payment transaction costs each year and eliminate the need for more than 80% of African cross-border payments to be routed via offshore locations. PAPSS had earlier undergone successful trials in the 6-member West African Monetary Zone.
Afreximbank is now in the process of working with central banks of various African countries to guarantee settlements on the payment system and overdraft facilities.
A COMPLEMENTARY SYSTEM
According to Mike Ogbalu, CEO of PAPSS, the platform would complement, rather than replace, existing operations. It is designed to make the currencies in the continent regain value to domesticate intra-Africa payments and pave the way for African prosperity, while providing the superhighway which connects others to reach every part of this continent, he added.
The platform in effect will eliminate Africa’s financial borders, formalise and integrate Africa’s payment systems and play a major role in facilitating and accelerating the huge growth curve in intra-African trade. This growth is being pushed by the creation of African Continental Free Trade Area (AfCFTA), an entity that will facilitate wider business and economic integration in the whole of the continent. AfCFTA seeks to create a single market for goods and services facilitated by movement of persons, liberalise markets in Africa, and boost intra-African trade and economic and industrial development on the continent.
FINANCIAL MARKET INFRA
PAPSS describes itself as a continental financial market infrastructure for commercial banks, payment service providers, card schemes and other intermediaries. Using the platform, cross-border financial transactions will happen in real-time and in local currency and will carry out end-of-the-day net settlement with all the participating central banks. It will serve as a payments and settlement system for the continent which commercial banks, payment service providers, card schemes and other intermediaries will connect to.
PAPSS provides for only the central banks of Afrexim member-states to connect to it so that they can assist PAPSS with settling transactions as a national settlement agent. The central banks enter into a PAPSS Membership Agreement and Settlement Bank Agreement, and once they are connected to the system they can oversee, supervise and enforce compliance of banks, fintechs and financial institutions in their jurisdiction. They also enforce anti-money laundering and financing of terrorism laws and other local regulations. Central banks can also provide payment and settlement services using the system. Once the central banks are connected, commercial banks, payment service providers, fintechs, card schemes and other intermediaries
can connect to PAPSS as ‘Participants’ and facilitate cross border services for their clients.
INTRA-COUNTRY TRADE
It is expected that PAPSS creating a RTGS system, it will offer several benefits for intra-country trade in the continent. At present, such a trading system is absent because of several barriers in the payments systems of various countries like lack of infrastructure, regulatory requirements, etc. PAPSS will remove these barriers and facilitate smooth and faster trade. PAPSS can also result in reduction in the pricing of goods and services in foreign currencies because there will be a reduction in the demand for foreign currency, thereby reducing the pressure on central banks for foreign currency and increasing the foreign currency liquidity in various jurisdictions.
While PAPSS is now backed by only a few central banks, Afreximbank and the central banks of Guinea, Sierra Leone, Liberia, Ghana, Senegal, Gambia and the West African Monetary Zone are very much behind the platform and the platform’s final implementation will change the way African countries trade with each other and how Africa trades with the world.
