The stakes are high for both sides of a cross-border payment. For example, a merchant in Africa awaits a sale while a buyer in Europe looks forward to receiving the product. Similarly, a business pays an Asian supplier for quick restocking, with the supplier waiting for payment to finalise the consignment. For remittance, someone in Africa needs funds from a loved one abroad to solve a basic need or start a business, while the sender in the US wants the money to arrive quickly. Freelancers and remote workers depend on timely payment for their work, and employers must fulfil these obligations. These scenarios represent critical moments affecting individuals’ quality of life and business success, highlighting the challenges in Africa’s cross-border payment landscape.
Cross-border payments continue to be expensive and slow and face insufficient transparency and accessibility. Corporate fees for international payments in Africa average around 1%, while remittances can incur fees as high as 9.4%. This means that for every USD 100 sent, only USD 90.60 arrives, making Africa the most expensive region worldwide to send money to. Trading within African corridors is also challenging due to the 41 different currencies used across 54 countries. Fincra has approached these challenges with a simple mission: to ensure the last person or business in a cross-border transaction seamlessly receives their payments.
Currently, cross-border last-mile collection for remittance is driven predominantly by local payment methods and preferences. For example, over 90% of remittances in Kenya are received via mobile money platforms, with M-PESA being the most popular.
In Nigeria, bank transfers, particularly direct bank deposits, are the most popular method for collecting remittances. Cash pickup services remain widely used in areas with limited banking infrastructure, while digital wallets and fintech solutions are gradually gaining traction. This trend also applies to North Africa.
The need for using local payment methods to deliver last-mile collection in cross-border transactions is driven by the preference for local currencies. Individuals are more likely to do business with a company that supports payments made in their local currency, especially for remittances or work payments. It’s slightly different for business payment collections. Bank transfers (SWIFT and ACH) remain the most popular method in Nigeria, especially for large transactions. However, payment providers and fintech solutions are becoming popular due to the rise in ecommerce transactions, allowing people to pay across borders via cards and bank transfers. Mobile money dominates cross-border business payment collections in Kenya, with bank transfers and fintech solutions also popular.
The most common methods for international payouts from Africa are bank transfers, digital transactions through PSPs, and remittance services. However, foreign currency liquidity issues hinder these transactions, complicating repatriation for foreign investors. A global payment network must support cross-border payments in various currencies, reaching end users in Africa via digital bank transfers, mobile money, or agent networks. Fincra addresses these challenges by building a global payment network with SWIFT, API integrations, geographic expansion, partnerships with correspondent banks, and licensing in Africa, the UK, and Canada. Upcoming initiatives include launching domestic rails in the US, UK, and China to facilitate trade.
To meet the local preference for local currencies in Africa, we leverage our diverse partners across the continent to deliver payments in various African currencies to the last mile. By sitting between partners, we enable a sender to send USD from America while the receiver seamlessly receives ZAR in South Africa, KESin Kenya, NGN in Nigeria, or UGX in Uganda. We power these payments through various methods, including cards, mobile money, and bank transfers. When technology does not reach the last mile, we utilise partnerships with agent networks for cash pickups.
Our network gives us counterparties that ensure liquidity, which helps settle cross-border transactions in record time. Liquidity allows cross-border and remittance apps and platforms to offer a more favourable exchange rate between currencies, enabling them to offer more products like virtual cards, foreign currency accounts, etc.
Our Conversion API allows real-time conversion, helping platforms deliver foreign currency exchange at a lower cost. We are also establishing horizontal payment rails to facilitate direct transfers between African countries, ensuring we enable businesses to seamlessly receive cross-border payments from within the continent in their own currency. The high cost of cross-border payments in Africa is primarily due to the lack of liquidity, competition, and players in the ecosystem. A provider with a robust global network can attract more players to innovate and build faster payment solutions. More participants and competition would help ensure that payments reach the last mile quickly and at a lower cost, effectively addressing the market’s current challenges.
This editorial piece was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2024, which is the latest comprehensive market overview and analysis focusing on the key players and products within the Embedded Finance and BaaS ecosystem.
Ayowole Ayodele leads a world-class team at Fincra, a payment technology company offering innovative solutions to businesses across Africa. Passionate about developing a better global payment system, Ayowole sees Africa as the new frontier for financial opportunities. Fincra's products include Pay-In, Pay-Out, and Conversion, facilitating payments and currency conversion seamlessly.
About Fincra
Fincra is a leading payment technology company offering innovative payment solutions to businesses across Africa. Fincra's suite of products includes Pay-In, Pay-Out and Conversion.
The Pay-In product enables businesses to collect payments through various methods, including cards, bank transfers, and mobile money, while the Pay-Out product allows businesses to make transfers through Fincra's extensive network. Conversion enables currency conversion across multiple channels with one integration.
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