As businesses seek to expand across African borders, cashless payment solutions offer a safer method of transferring money. One offering, prepaid debit cards, provides security while mitigating many infrastructure and regulatory challenges, writes Amber Thetford, chief product officer: card issuing and processing at Onafriq.
As the African Continental Free Trade Area Agreement (AfCTA) increasingly moves into the operational phase, it is becoming clearer that part of its success lies in ensuring that entrepreneurs and small businesses can effectively trade and receive payments across borders.
As the African Union has noted, the trade area will be the biggest since the World Trade Organization was formed in 1995. Africa’s population is currently 1,2-billion people, a figure that is expected to reach 2,5-billion by 2050.
South Africa took its first step in making AfCTA a reality, when the now-former Minister of Trade, Industry, and Competition, then Ebrahim Patel, launched the implementation of the start of preferential trade this year. The South African Revenue Service also certified two consignments to Ghana and Kenya.
Yet, with trade expected to grow among members from the current between 15% and 18%, a safe way of moving money is required given the risk that cash presents. Some nine-tenths of transactions in sub-Saharan Africa are, based on World Bank information, in cash.
The large amounts of cash involved in trade are also cumbersome and difficult to physically transport between markets. Card payments, part of the digital ecosystem, can enable efficient, secure, and transparent transactions that are essential for facilitating trade.
Card payments can eliminate the need for manual intervention and reconciliation when it comes to banking and bookkeeping. This, the World Bank states, makes them, on average, three times more cost-effective than conventional purchase order costs.
While mobile money payments have greatly improved Africa’s ability to make cross-border payments, they do not meet the full scope of needs of individuals or businesses. As the United Nations points out, there are regulatory bottlenecks, while a lack of interconnectivity among mobile transactions in some countries means that people cannot transfer money across borders.
Moreover, limitations of infrastructure, accessibility, and interoperability make it difficult for their users to access the global digital economy. As a result, this type of cross-border payment can be limited.
There are solutions to these dilemmas. Prepaid cards can enable businesses and individuals to transact with global institutions and marketplaces without the need to own a bank account. This option removes a pain point for a business that would otherwise need to accept local alternative payment methods or cash.
Navigating challenges like high fees, currency shocks and a lack of access to traditional banks can be simplified through prepaid cards. This makes them a pivotal instrument that enhances Africa’s connection to the global economy.
For example, one of our customers provides payroll solutions for seafarers and cruise ships, which frequently travel to different countries. Once the card is loaded, it is very convenient for a sailor to use it as one would a normal debit card and swipe to pay for purchases or transmit money across borders. The beauty of this option is that whoever is loading the card with money, can be based anywhere in the world, with the same also being true of the person holding the card.
Prepaid cards can also be used to manage expenses because they can be provided to managers of, for example, a bookstore, who can then make independent decisions about business-related purchases, but only up to a certain amount. This has the added advantage of speeding up operations as there are no lengthy delays across the company when it comes to acquiring stock, while it also goes some way towards eliminating fraud as the card has a set limit.
Larger companies with staff who travel extensively can also provide gratuities for their employees, who can then cover incidental expenses without having to dip into their own pockets or bring back paperwork to be reimbursed.
A platform that simplifies a user’s ability to transfer money to cards brings the AfCTA dream closer to reality. The versatile power of prepaid cards can be used to promote free trade between countries and unite Africa’s fragmented payment landscape.
Prepaid solutions can aid businesses seeking to operate in other African countries to thrive – making AfCTA’s aim a reality and boosting economic growth for all.