Cross-border payments serve as the financial backbone of trade and remittances in Africa, yet they remain fraught with high costs, slow processing times, and regulatory complexities.
By Mladen Čolić, sales vice-president: fintech Africa at TransUnion
As Africa cements its place as a hub of economic growth and innovation, reimagining cross-border payments is imperative for financial inclusion and economic integration.
Africa’s fragmented financial landscape presents a major hurdle to seamless cross-border transactions. With 54 countries, multiple currencies, and diverse regulatory frameworks, payments across borders remain costly and inefficient.
Africa is the most expensive region in the world to send money to, with an average cost of 8,4% to send $200 in Q1 2024. In 2023, remittance inflows totalled an estimated $90,2-billion accounting for 5,2% of Africa’s total GDP, according to RemitScope Africa.
Beyond costs, the continent’s reliance on traditional banking networks settlement times has played a part in limiting financial accessibility. Many African businesses, particularly small and medium enterprises, face liquidity constraints due to sluggish transaction processing and the complexities of foreign currency availability.
The inability to facilitate real-time settlement continues to hinder economic participation and growth. Despite these challenges, Africa is at the forefront of financial innovation, and FinTech solutions such as mobile money and blockchain are reshaping the cross-border payment landscape.
Mobile wallets are providing a faster and more cost-effective alternative to traditional banking channels, allowing consumers to send and receive funds with minimal friction. As financial technology advances, these mobile money platforms are bridging the gap for individuals and businesses that lack access to conventional banking services, enabling a more inclusive financial ecosystem.
Blockchain technology and cryptocurrencies, while still facing volatility and regulatory concerns, present an exciting opportunity for transforming cross-border transactions. Stablecoins[1] offer a promising alternative by reducing transaction costs and enhancing settlement speed.
Nigeria, Ethiopia, and South Africa are already seeing substantial adoption, with Ghana introducing the E-Cedi, a central bank digital currency (CBDC), as a stable and regulated option for digital transactions.
At a broader level, regional payment systems are demonstrating the potential for streamlined and cost-efficient transactions. The Pan-African Payment and Settlement System (PAPSS) and initiatives like BankservAfrica’s Rapid Payments Programme (PayShap) in South Africa are pioneering efforts to create unified payment rails, enhancing efficiency and reducing friction and more importantly cost, across the continent’s financial networks.
The Role of Credit Bureaus
While technological advancements are reshaping cross-border transactions, the role of credit bureaus cannot be overlooked. Credit bureaus serve as critical enablers of financial inclusion, helping lenders gain valuable insights into individuals and businesses credit performance and histories.
However, in the evolving digital finance landscape, they must adapt and expand their reach beyond traditional credit data.
TransUnion is at the forefront of this transformation, providing innovative solutions for remittance providers. TransUnion is automating previously manual processes. This automation reduces the drop-off rate, ensuring fewer recipients have their money returned, thereby driving further financial inclusion.
Additionally, TransUnion’s fraud and AML (Anti-Money Laundering) and KYC (Know Your Customer) solutions help remittance providers comply with regulations and curb illicit flows of funds, enhancing the security and reliability of cross-border transactions.
Beyond conventional credit metrics, alternative data sources present an opportunity to bridge the financial gap for the unbanked and underbanked populations. Remittance flows, mobile money transactions, and digital payment histories can serve as credible indicators of financial behaviour. Similarly, cross-border payments can also become a measurable attribute for individuals to build creditworthiness.
Imagine, for instance, that a remittance received consistently from a relative abroad can be leveraged as proof of income, enabling access to credit in the recipient’s country. Similarly, frequent mobile wallet transactions can indicate financial responsibility, creating pathways to formal financial services.
Financial institutions, in collaboration with credit bureaus, can develop models that use such data to assess creditworthiness, expanding financial access to millions.
With greater reliance on digital transactions and data-driven credit scoring, ensuring consumer trust and robust data protection and regulatory compliance is of great importance. New technologies such as privacy-preserving platforms, tokenisation and cryptographic techniques, are finding their ways to mainstream adoption ensuring compliance with evolving regulatory frameworks.
Additionally, a seamless flow of financial data across borders could enhance risk assessment and fraud detection, reducing default rates and improving financial transparency. By working closely with fintechs, regulators, and financial institutions, credit bureaus can help create a more integrated, inclusive, and secure cross-border financial ecosystem.
Empowering consumers with financial knowledge is equally critical. Many consumers in Africa remain unaware of how credit systems function and how behaviour such as making consistent payments can improve their credit profile to make it possible to access loans.
By integrating financial literacy programmes into digital platforms, including gamified learning tools and AI-driven credit coaching, credit bureaus can play a vital role in equipping individuals with the knowledge they need to navigate the evolving financial landscape.
The evolution of cross-border payments in Africa hinges on innovation, regulatory cohesion, and inclusive financial infrastructure. While FinTech advancements are accelerating accessibility and affordability, credit bureaus can play a vital part in formalizing a valuable source of alternative data into its credit scoring that could prove to be a powerful enabler in driving financial inclusion on the Africa continent.
[1] Cryptocurrencies whose value is pegged, or tied, to that of another currency, commodity, or financial instrument. Stablecoins aim to provide an alternative to the high volatility of the most popular cryptocurrencies, including Bitcoin (BTC), which has made crypto investments less suitable for everyday transactions.