Why PAPSS dovetails neatly with MFS Africa’s vision
When you’ve lived with an unnecessarily complicated system your entire life, it’s difficult to see what it’s costing you.
Take the generally accepted method of moving money across borders in Africa. If I’m a fashion designer sending my Nigerian nairas to a fabric supplier in Accra, they would obviously want their payment in the equivalent value of Ghanaian cedi.
But instead of the money being directly converted from nairas to cedi, the “system” was reliant on intermediary currencies such as dollars, euros or pounds. To facilitate a transaction like the example above the “system” would typically route the money offshore for clearing and settlement using international banking relationships.
This would cause delays in processing the purchase, while the Ghanaian fabric supplier waited to receive the money. Multiply that transaction across the continent and you can imagine how trade volumes as a whole were affected, and business slowed down.
It’s crazy to think that more than 80% of African cross-border payment transactions originating from African banks had to be done this way.
And that’s before we even talk about the financial implications: the currency conversions cost Africa as much as $5 billion a year, according to the secretary-general of the African Continental Free Trade Area (AfCFTA), Wamkele Mene.
But all this is changing thanks to a long overdue system we’re thrilled to be joining: the Pan-African Payment and Settlement System, or PAPSS, which launched in January this year. It marks a key milestone in realising AfCFTA’s dream of a common African market.
PAPSS CEO Mike Ogbalu offers a great analogy to describe what the system will actually do: if money is the lifeblood of an economy, he said in a recent op-ed, a well-implemented payment infrastructure is its circulatory system.
At MFS Africa we know this full well. That’s why we have made it our mission to create the interoperability that will allow that life-giving flow to go wherever it’s needed.
It’s also the reason we’re wholeheartedly joining PAPSS.
Ultimately, as Ogbalu puts it, PAPSS is not designed to compete with or replace existing payment systems.
It can’t. What it will do is bring all payment systems together into one grand network that is truly interoperable — across mobile money and traditional banking.
The payment system is aimed at anyone sitting in the middle of trade flows. Banks are the traditional target but, as the largest digital network of payment networks, MFS Africa can and intends to play a crucial role in its success.
As I noted in my recent interview with The Banker, although banks talk about the need to drive financial inclusion, there’s been very little innovation and drive to really push the envelope — with the notable exception of Nigerian banks that have had a headstart over telcos.
With more than 320 mobile money wallets connected to our MFS Africa Hub in nearly 40 countries, we are in a pole position to deliver on the promise of PAPSS to last-mile users including small and medium businesses; those online, but also the vast majority that are “offline” but are acting as financial services agents, such as Baxi Agents in Nigeria.
Through our partnership with PAPSS we are doubling down on our commitment to providing access to Africans and African businesses, regardless of where they find themselves, as part of our commitment to making borders matter less.
The partnership will also benefit the continent as a whole: informal small-scale cross-border trade is an important component of economic activity but one that is often hidden. Thus policymakers and investors chronically underestimate the region’s potential, robbing us of further investment and opportunities. By plugging these SMEs into one, grand system, MFS Africa will help resolve this issue.
In short, by harmonising the legal and regulatory environment for payment across the continent, PAPSS neatly aligns with our vision and mandate: eliminating Africa’s borders when it comes to payment — the way we did it years ago with communication.
Of course it will take us some time to truly achieve that vision. One paradox of the system’s current pilot in the West African Monetary Zone is that the inter-bank settlement will be in USD, according to a circular by the Central Bank of Nigeria. But it still cuts out a lot of the red tape that previously dogged intra-African transactions.
That’s why we are thrilled to partner with PAPSS. We look forward to working with them to make the promise of borderless transactions a reality in every corner of the continent we call home.
