While traditional banks have previously dominated cross-border payments in Africa, facilitating payments for businesses and consumers,  there are transformative shifts thanks to technological advancement, increased digital adoption, and changing consumer behaviour. The result has been an increased adoption of alternative payment methods, such as mobile money and digital payments, for domestic and cross-border payments among individuals and businesses.

Further growth of Africa’s digital economy is expected, with projections showing it will reach USD 180B by 2030. This article delves into the future of cross-border payments and how fintech companies like Cellulant facilitate seamless cross-border transactions.

The Current State of Cross-Border Payments in Africa

Cross-border payments in Africa are mostly initiated by individuals, micro- and small businesses (MSMEs), and small and medium traders. Payments are made for different purposes, such as e-commerce marketplaces, border trades/sales, SMB exports, remittances, gig payments, supply chains, etc. This makes the common cross-border payment types to be between person-to-person (P2P and C2C)), person-to-business (C2B), business-to-person (B2C) and business-to-business (B2B). These payments can either be diaspora inflows or intra-Africa. 

For successful payments, businesses, traders, and individuals use different channels to make cross-border payments, which include, but are not limited to, the following:

• Bank-to-bank payments/transfers (including card payments)
• Mobile money
• Digital wallets 
• Money transfer operators (wire transfers and electronic funds transfers)
• Payment aggregators 
• Cash payments (for border traders/sales)
• Informal cross-border transactions leveraging a third party, decoupled transactions, and clearing and settlement processes. This is where an intermediary in a third country collects and disburses funds. 

In recent years, Africa has witnessed a transformative shift from traditional payment methods to increased adoption of alternative payment methods for domestic and cross-border payments for individuals and businesses. We can attribute the increased demand for cross-border payments to a variety of factors, including:

• Changes within the regional and global regulatory landscape and payments and open banking initiatives, such as the Pan-African Payment and Settlement System (PAPSS) that support regulations and compliances for cross-border payments.
• Increased remittances. In 2022, about 40 million Africans living outside their country of origin made about USD$100.1bn in cross-border remittances. USD$ 19.4 billion was sent intra-Africa, while remittances to sub-Saharan Africa were USD$53 billion.
• Technological innovation in the payments space, including mobile money payments and digital and mobile wallets.
• Payment security innovations that protect customer/merchant data while safeguarding payments from fraud and other security risks.
• Increased inter and intra-African trade due to globalisation,  regional and global supply chains and the emergence of cross-border marketplaces.
• An increased demand from consumers for fast, convenient and transparent cross-border payments with competitive foreign exchange rates.
• Opportunities for merchants to expand into new markets and increase revenue by establishing customer bases in different counties and regions.

Players in the financial industry, including banks and fintechs, have been making strides and innovating to reduce friction in cross-border payments and improve the sector for consumers and businesses. Fintech companies, in particular, have developed key solutions like real-time payments, reduced processing times and fees, payment security and fraud prevention, improved payment infrastructure, improved interoperability between different financial systems, and reduced forex costs.   

These improvements allow consumers and businesses to enjoy an improved cross-border payment ecosystem. For example, businesses can benefit from improved FX while expanding to other regions to increase their customer base and growth, while consumers get many payment opinions to choose from while fulfilling their cross-border payment needs.

The Future of Cross-Border Payments

With these initial strides, some of the trends we’re likely to see reshaping Africa’s cross-border payments sector, leading to more trade growth are: 

1. Increased cross-border payment channels

Traditionally, bank payments and international money transfer organisations dominated the cross-border payments landscape. Now, however, in a bid to meet the growing demands for money transfer across borders in a continent where many consumers and small businesses do not have access to these traditional channels, alternative payment methods such as mobile money wallets by MNOs and digital wallets by fintech companies are taking centre stage. 

For enterprises and fast-growing businesses looking to operate in Africa, these payment methods offer increased market penetration, reduced administrative costs and ease of payee settlement when accessed through a single API platform. 

Cellulant’s Payout solution hosted on its unified payment platform, Tingg, for example, enables businesses and money transfer companies to send funds to personal or business accounts with multi-currency transactions availability and real-time payments while enabling payees to receive funds in the payment method of their choice in a secure, affordable and timely manner. 

2. Improved Trade and Money Transfer Regulations and Compliance

In addition to improving the stability of their country’s financial systems, many African regulators are taking action to level the playing field and create an enabling environment for financial inclusion, per African Development Bank 2023 figures. Some actions go as far as trying to reduce cash usage. Regulators in several countries have introduced detailed data protection guidelines in the last five years, and some countries have set up regulatory sandboxes to accelerate innovation. In some cases, challenges like lengthy licensing timelines, insufficient industry-wide data, and stringent banking regulation limit the pace of innovation, but many African countries are taking major strides to improve that. An example is the Pan-African Payment and Settlement System, which seeks to streamline these policies and support collections and settlements. Also, regulators remain influential in the payment ecosystem and may have an opportunity to shape the industry’s growth in the following ways:

• Collaborate inta-African across borders to enhance cross-border payments.
• Modernising know-your-customer (KYC) requirements, digital payment solutions, and open-banking regulations.
• Streamline regulation across jurisdictions to accelerate the pace of innovation.

3. Increasing trade with emerging markets

As their share of international transactions increases, another major trend within cross-border payments is the growing focus on emerging African markets. African cross-border trade growth is being stimulated by initiatives like the African Continental Free Trade Area and China’s Belt and Road Initiative. We will likely see more intra-Africa trade in emerging markets that coincide with the growing digital economy, where SMEs and other businesses will take advantage of the improved trade policies, multi-currency transactions, and consumer base growth in several African countries.

4. Improved payment infrastructure to boost integration of payment solutions

Payment infrastructure developments are helping to accelerate digital payments domestically and across the borders of many African countries. For example, several African countries – Kenya, Ghana, South Africa, Nigeria, Morocco, Zambia, and more- are experi­enc­ing an increase in real-time payment infrastructure enabling instant account-to-account transactions. A few others are investing in new rails or upgrading their existing ones with modern technology. For example, Egypt recently approved regulations to enable instant payments, with Tanzania and other countries following suit. Cellulant’s payment gateway, Tingg, is improving this ecosystem through a single API integration that allows businesses to integrate their payment systems with payment platforms. 

5. Reducing Payment Costs

One of the key challenges of cross-border payments in Africa has been increased costs related to multi currency transactions and FX (forex exchanges). With innovation and improved transfer architecture, cross-border payments benefit from multi-currency transactions that reduce payment costs. For example, while the cost of  USD$200 transaction costs an average of $8-$10, the ability to choose your transaction methods in payment platforms like Cellulant’s Tingg reduces that cost due to reduced FX points. Direct payment service transfers reduce the cost of cross-border transactions, making finances more frictionless. 

Leveraging Cellulant for Cross-Border Payments

With new players emerging in the cross-border payments landscape and rapidly changing regulations, innovations, security, and infrastructure, we will likely see more cross-border transactions in Africa.

Cellulant’s impact on facilitating cross-border payments goes beyond improving efficiency; it makes payments as frictionless as possible for individuals and businesses. This is enabled through a single API platform that enables businesses to improve their financial systems to accept payments across borders. With this cross-border payment landscape is becoming increasingly attainable. 

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