For ambitious ecommerce businesses, expanding into new markets and acquiring users globally presents a substantial opportunity. For businesses considering expansion to Africa, tackling the intricacies of payments on the continent is a pivotal aspect of their expansion efforts. Compared to anywhere else in the world, payment dynamics in Africa are unbelievably complex.
When money is sent to a neighbouring African country, it undergoes a series of currency conversions, adding layers of complexity. Consider this scenario – a trader from Gambia needs to pay for a shipment of coffee beans to another trader in Ethiopia. Due to the absence of local-to-local transfers in Africa, Trader A’s bank in Gambia engages a correspondent bank in Europe or in the US to convert Gambian Dalasi (GMD) to US dollars (USD) before a further conversion into Ethiopian Birr (ETB) for Trader B. While this correspondent bank facilitates the transaction, it amplifies both complexity and cost. The resulting intricacy of this situation incurs an annual cost of approximately USD 5 billion for Africans.
Nevertheless, amidst these challenges, it’s crucial to spotlight success stories. Take, for instance, an excerpt from the ‘Future of Fintech in Africa 2023 Report’ by Kora and Finextra, which mentions that ‘two years after the global financial crisis, M-PESA, a Kenyan payments, money transfer, and micro-financing service, emerged as the most successful mobile phone-based financial service in the developing world. Transaction flows sent by banks have grown at an average rate of 10% year-on-year over the past decade. Simultaneously, mobile money payments skyrocketed, with the monthly transaction value surging 25 times between 2010 and 2018.’
In Africa, the digital payments market has outpaced Europe’s growth. While electronic payments in France surged from 33 million in 2009 to 61.5 million in 2018, Nigeria witnessed a remarkable increase from 66 million in 2008 to over two billion in 2018.
Despite Africa’s undeniable ascent, the existing payment infrastructure, primarily geared towards outside-in transactions, leaves much to be desired. Vertical rails dominate, with minimal horizontal payment rails facilitating direct transfers between African nations. The launch of the Africa Continental Free Trade Area (AfCFTA) and the Pan-African Payment and Settlement System (PAPSS) marks a significant stride towards seamless cross-border payments akin to the traditional SWIFT networks but tailored to power interoperability between the over 42 separate currencies in Africa.
The burgeoning presence of fintech companies in Africa opens up a significant opportunity to revolutionise cross-border payments, fostering healthy competition and connecting the continent through a unified API. Kora stands at the forefront, actively building a pan- African payment infrastructure that empowers businesses to enter Africa, connect with all 54 countries, and support local enterprises in accessing global markets.
As mentioned before, governments and regulators must lead the way in fast-tracking the vision of seamless cross-border rails in Africa. One way to do this is by establishing favourable regulations, reducing bureaucratic obstacles, and bringing down unfriendly payment borders.
Banks, microfinance institutions, and fintech companies must also play our parts. The alliance between core banking infrastructure, fintech innovators, and regulators is critical in delivering a seamless payment experience.
An exciting technological innovation that the government is leading in Nigeria, for example, is the cNGN token that’s launching on major crypto exchanges like Binance, Coinbase, and Kiplin in 2024.
The cNGN is one of the Central Bank’s strategic initiatives aimed at fortifying the Naira as a robust and dependable currency, cultivating confidence among domestic and international investors. This measure seeks to position the Naira as a stable currency, thereby enhancing its appeal and utility on the global stage.
The second-order effect of a token like the cNGN and its baked-in interoperability is that it can expedite time to value for international transactions. The effect won’t stop there. Done well, the cNGN may kick a trend of central bank digital tokens across the continent.
While acknowledging the commendable efforts of pioneers such as Interswitch, Cellulant, and e-tranzact and innovations like the cNGN, it is evident that there’s still a considerable distance to cover.
With regulatory bodies, innovators, and legacy financial institutions aligning their strategies, we are committed to dismantling unfavourable payment borders. Ultimately, this enables international brands to set up operations in Africa, ensuring a seamless movement of money within and outside the continent, thus enhancing Africa’s contribution to global trade.
This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2023–2024, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
Dickson Nsofor, founder and CEO of Kora Technologies, has extensive experience in IT, business analysis, and project management. He is pioneering payment technology in Africa, helping businesses scale across the continent. Dickson’s African Founders Fund (AFF) provides funding opportunities for African talents. Since its inception, Dickson has invested in over fifteen African startups with a combined valuation of USD 2 billion.
Kora is a pan-African payment infrastructure that provides payment APIs for businesses to collect, disburse, and convert payments across Africa, enabling rapid scalability for global companies. We power businesses to accept payments, make payouts, and convert across multiple channels with one integration. Our offerings span three major blocks: omnichannel payments, supercharged payouts, and settlements.
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