Image source: Openway Group

According to the African Development Bank (AfDB), cross-border banking has emerged as a critical feature within Africa’s financial landscape. It not only facilitates transactions across regions for individuals but also plays a pivotal role in expanding markets and nurturing innovation for businesses.

In Africa, Small and Medium Enterprises (SMEs) sell to and depend on imports from suppliers in other countries to meet their local production, sales or reexport goals. Sub-Saharan Africa also, saw diaspora remittances grow by an estimated 5.2% ( $53 billion) in 2022, compared with $24.3 billion in 2018. This significant trade flow between African countries and between Africa’s top trading partners globally present promising opportunities for business payment facilitation. 

However, for African businesses, navigating the cross-border payment landscape has proven to be a costly and complex endeavor. For instance, in 2017, Nigeria’s central bank opened a special facility to provide up to $20,000 per quarter for small and medium businesses who struggled to access the forex they needed to finance imports. Similarly, last year, small-scale importers in Kenya were hit hard by a scarcity of forex that forced banks to impose $1500 to $2000 daily limits. 

Currency exchange expenses, inadequate payment infrastructure, compliance costs, and limited access to financial services are major barriers to seamless payment operations for African businesses. Also, high transaction costs continue to impede progress, rendering cross-border payments expensive and inefficient.

The volatility of exchange rates makes it difficult for businesses to plan ahead and hedge against inflation and this causes losses for many businesses who are reliant on cross broder transactions. More than anything else, it is now important for businesses to pay attention to getting revenue from outside their local environment as a way to gain foreign currency to facilitate foreign transactions for their businesses

“Navigating cross-border payments requires a nuanced understanding of the African user base,” said Lucia Okafor, senior manager of payments & financial services strategy at Deloitte during a recent edition of TechCabal Live that gathered industry leaders to discuss the intricacies of cross-border payments in Africa and shed light on the challenges, opportunities, and future trend. The event was delivered in partnership with AZA Finance.  

She also advised the need for companies to reevaluate the sourcing strategy and pay attention to getting local sources for their supplies.

Elizabeth Rossiello, CEO and founder of B2B fintech company, AZA Finance also emphasized the need for cross-border payment platforms that intimately understand the nuances of the African market. Her insight underscored the complexities and costliness arising from the involvement of multiple intermediaries, bank charges, and the intricacies of currency conversions, which collectively create hurdles for African businesses engaged in cross-border transactions.

International trade expert Dare Fadeji believes that policies targeted at addressing the regulatory fragmentation on the continent are critical in reducing fluctuating exchange rates and streamlining international trade. This will facilitate innovations that seek to eliminate intermediaries and expedite transaction speeds for a smoother cross-border payment landscape.

The private sector plays an indispensable role in shaping effective cross-border payment solutions according to Nana Yaw Owusu Banahene, regional head of Africa partnerships at AZA Finance. He advocated for governments to empower the private sector to spearhead these initiatives, thereby driving progress in the cross-border payment landscape. Drawing from her expertise, Okafor believes that ultimately, collaboration is important in driving financial inclusion in Africa and widening access to cross-border payment services. 

While high transaction costs and regulatory complexities remain hurdles, the future of cross-border payments is one of tremendous growth and opportunity. As the continent’s payments ecosystem evolves, cross-border payments continue to hold the key to economic growth and innovation across Africa. 

This edition of TechCabal Live, ‘How can businesses reduce the cost of making payments across African borders’ was brought to you by TechCabal in partnership with AZA Finance.

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Victoria Olaonipekun Junior Projects/Events Associate

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