The pivotal role of digital accessibility for goods and services has become abundantly clear over the past few years.

The global economy, now more than ever, relies on the seamless flow of transactions across borders, writes Arthi Narayanan, lead payments consultant at Synthesis.

Whether it involves individuals, businesses, or financial institutions spanning different countries, the realm of cross-border payments has taken center stage in our interconnected world. The surge in e-commerce businesses and marketplaces has resulted in an increased volume of cross-border payments.

As the demand for efficient, secure, and inclusive cross-border financial transactions grows, exploring the advancements and challenges in this dynamic landscape becomes increasingly essential.

Africa stands out as a focal point for cross-border payments anticipating a growth rate of 10% alongside Asia. This is supported by the growing internet penetration that is expected to reach an average of 70%. Currently, around 90% of the population is covered by mobile networks. Remittance inflows into sub-Saharan Africa amount to $47-billion and Africa’s merchandise imports grew to $706-billion in 2022 while exports grew to $724,1-billion.

Mobile money transaction volumes in Nigeria doubled to around 800-million in 2020, according to the Central Bank of Nigeria, while data from South Africa shows that online commerce grew by around 40% during lockdowns in 2020 and 2021.

Payments play a crucial role in unlocking the potential of this continental market, linking digital entities to a market comprising 1-billion people. Digital payments in Africa have achieved a notable level of adoption, justifying, and necessitating the integration of merchants into the system.

In essence, the movement of money translates to economic activity. African nations witnessing payments in their local currency experience a direct impact on both the digital economy and the broader economic landscape.

Enabling Consumers

Consumer preference is quite straightforward. Individuals and businesses would like to be enabled with cost-effective options and the ability to send money near real-time. The existing platforms do not necessarily address these challenges resulting in high costs, delays, and limited accessibility.

Correspondent banking continues to be the primary approach for large-value B2B payments, intercompany transfers, and global settlement flows. Nevertheless, both banks and technology firms are actively innovating to offer faster and more cost-effective alternatives to the conventional correspondent banking model.

Emerging technologies

The development of new technologies is key to enabling individuals and businesses to participate in cross-border consumerism.

The establishment of open banking standards and APIs is fostering interoperability among banks and technology providers. Open banking, designed to encourage competition and innovation in the banking sector, leverages technology and new business models.

The integration of cross-border payments as a product offering could be the next frontier for embedded finance solutions. For example, while shopping for international products or services, a payee could have the option to choose the best foreign exchange rate embedded in their shopping experience resulting in efficient payment.

The creation of Central Bank Digital Currencies (CBDCs) has been described as a valuable tool for promoting financial inclusion and tackling remittance challenges in Africa. The adoption of Money Transfer Operators (MTOs) and Mobile Network Operators (MNOs) have significantly increased.

Digital wallets connected to diverse payment methods such as cards, accounts, and mobile money are experiencing increased availability and adoption.

Distributed Ledger Technology (DLT) with block chain is challenging the traditional operating model of cross-border payments and has proved to be faster, more efficient, cheaper, transparent, and secure.

Future Trends

Consumers and businesses have seen the benefits of domestic real-time payments offering 24/7 year-round availability. It’s no wonder they are expecting the same experience with international payments. Therefore, it is essential to offer similar solutions that will increase interoperability. This can be achieved by:

* Linking domestic real-time payment systems;

* Aligning operating hours of RTGS systems;

* Allowing instant payment schemes to become the channel for incoming international payments; and

* Increased traceability of transactions and transparency of fees.

The implementation of the Transactions Cleared on an Immediate Basis (TCIB) scheme is gaining popularity in the Southern African Development Community (SADC) region with participation from both banks and non-banks. Successful adoption of this scheme in all countries will result in low cost and faster remittances to end-users.

Further, there are potential integration points into other African regions including the East African Community (EAC) the Common Market for Eastern and Southern Africa, and East African Community (COMESA).

To alleviate payment challenges within Africa’s intricate network of over 50 countries and around 40 different currencies, The Pan-African Payment and Settlement System (PAPSS) was developed by the African Continental Free Trade Area. This represents a potentially transformative advancement for cross-border payments.

Developments such as this will leverage the unique competitive strengths of banks, financial institutions, MNOs, MTOs, and FinTechs to build effective payment infrastructure and ecosystems through partnerships and collaborations.

Tokenisation Technology is another trend that can streamline financial processes and foster financial inclusion.

Africa’s first CBDC was issued by the Central Bank of Nigeria and South Africa and Ghana are currently running pilot projects.

Finally, effective adoption of ISO20022 messaging standards can result in improved payment exceptions and investigations, simplify regulatory reporting, enhance customer insights, build vertical value propositions, and strengthen corporate treasury activities.

These are just a few of the opportunities and trends available to improve cross-border commerce. If your business would like to take advantage of these opportunities, speak to us to find out how we can partner with you to help grow your business further.