Changing Global Trade Patterns Will Enhance Cross-Border B2B Payments in Africa
Changing global trade patterns and the emergence of new payment solutions will drive significant growth in cross-border B2B payments in Africa and unlock the full potential of intra- and extra-continental trade. This is according to a recently released report released report by Duplo, the leading provider of payment, spend, and vendor management solutions for African businesses.
The report, titled “The State of Cross-Border B2B Payments in Africa and its Impact on Trade,” examines a wide range of issues, including key drivers of intra- and extra-African trade, the current state of cross-border B2B payments in Africa, and the outlook for the future.
The report reveals that the value of intra-African trade reached an estimated $193 billion in 2022, accounting for 13.8 percent of total African trade. This figure, while significant, likely understates the true scale of intra-African commerce, as a significant proportion of cross-border trade is informal and underreported.
According to the report, 40 percent of cross-border trade payments between East and West African countries are made in cash, with underreporting ranging from 12 to 76 percent. At the same time, traditional banking channels still dominate large-value formal cross-border B2B payments, despite the high transaction fees and lengthy processing times. These realities the report notes underscore the critical need for B2B cross-border payment solutions that can accurately capture and efficiently facilitate these transactions.
Cross-border payments are essential for facilitating trade, remittances, and economic growth across the continent. Although new financial technologies and embedded payment systems hold much promise in fast-tracking these transactions, a number of challenges still prevail. There is a need to seamlessly integrate cross-border payments into a wide array of digital platforms. However, many obstacles stand in the way, barring these systems from working effectively in Africa.
The report by Duplo notes that Interoperability between different payment systems has become a major challenge, especially when it comes to cross-border transactions.
According to the report, out of 32 instant payment systems spread across Africa, less than half are able to work together seamlessly. This is why initiatives like the Pan-African Payment and Settlement System (PAPSS), although still in its early stages, are crucial for streamlining and formalizing trade across the continent.
When it comes to extra-African trade, Africa’s share of global trade value has remained stagnant at 3%. However, new global trends such as the emergence of various Asian countries as economic powerhouses, the new multi-polar world order fronted by the US and China, and other trends point to a shift in global trade patterns. These developments present opportunities for effective B2B cross-border payment solutions that will not only support more trade across and outside the continent but also enhance transparency, improve efficiency, reduce transaction costs, and offer other benefits.
Africa also has varied currencies, many of them quite volatile or subject to substantial fluctuations, thus complicating cross-border payments because of vastly varying exchange rates. Moreover, many African currencies are illiquid, with unsatisfactory availability for easy conversion, and hence generally add layers of complexity to the payment process.
The fluctuation of currency prices can result in considerable losses or costs for entities or persons making cross-border payments. This volatility happens more in areas with political instability or economic downturn. Lack of Convertibility: Most African currencies are poorly convertible. This means that transactions have to be channeled through third currencies, such as the U.S. dollar and the euro, involving extra costs and delays since intermediary banks or payment networks are needed.
“Africa is perhaps one of the regions that needs to catch up on payments digitalization and fast. In the era of digital currencies and mobile money, everyone is going cashless. To cater to the diverse payment needs and preferences of individuals in underbanked areas, Exness adopted mobile money. Doing so, we’ve seen a spike in client onboarding from countries like Nigeria, Ghana, and Kenya where digital payment solutions are yet to be fully integrated with the various business models within each market”, said Oluwatosin Olusanmi Financial Markets Strategist Consultant at Exness, a global multi-asset brokerage firm
Trade, remittances, and economic growth across Africa work best with cross-border payments. Although new financial technologies and embedded payment systems hold much promise in fast-tracking these transactions, a number of challenges still prevail. There is a need to to seamlessly integrate cross-border payments into a wide array of digital platforms. However, many obstacles stand in the way, barring these systems from working effectively in Africa.
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