Cross-border payments in Africa: the key to growth

Cross-border payments in Africa are unlocking global markets, enabling top talent to get paid, and supercharging neo-banks… the next step is that regulation needs to keep up say Lexi Novitske, General Partner and Bernard Ghartey, Principal at Norrsken22

How cross-border payments are key to unlocking African economies

Unlocking cross-border payments will further enable Africa to play an even greater part in the global economy, after the continent has been historically relatively isolated, either as an accessible workforce, or as a partner for trade.

One of the biggest challenges is payment facilitations across local currencies. Typically, payments must first be converted into USD to facilitate the import of goods and services, which leads to a high demand for USD. The knock-on effect is, of course, a huge devaluation of local currencies, as individuals hold onto a lot of foreign currency in order to trade. 

With the internet, retail traders are now able to sell to a global market and there is a huge opportunity for African commerce to expand. In a digital world where consumers want things fast but cheap, these issues with transactions seriously slow down the movement of trade activity. The inability for local currencies to interact smoothly creates an artificial barrier within Africa. Until Ghanaian Cedi can be used to trade with Nigerian Naira – and vice versa – intra-African commerce will always be reliant on USD. 

Africa’s top talent needs a way to get paid

In a global economy where job opportunities are no longer dependent on location, workers are able to sell their skills to the highest bidder. Whether that’s employees of an international corporation, content creators or freelancers, this remote and global workforce can be based anywhere, so long as they have a way to get paid.

With such an untapped market, it’s exciting to see emerging technologies stepping in to make these transactions seamless and transparent. For example, Raenest (https://www.raenest.com/) is one example of a startup providing workers in Africa with a UK or US bank account into which they can be paid. This allows workers to bank across borders, including storing their value in USD and pay bills in hard currency. With inbound remittances, Africa’s top talent can compete with the world – these are not just salaries, but represent engagement with the global payment ecosystem.

Paying it back: facilitating remittance flows

We are also seeing an Africa specific trend, whereby a growing diaspora of young families are moving to the US or Canada for work, but are still engaging with the continent and still have financial ties to the region, whether that’s investments or sending money to family. These payments have a huge impact on local economies, for example, remittances from the US to Nigeria make up 1.6% of its GDP, with funds going towards supporting small businesses and education for family members. 

As payment systems are not yet in place – or indeed, because leading international money transfer platforms have high fees of 4-5%(!) – rather than going through the banking systems they will go down informal routes. For example, the biggest mover of FX transactions are in WhatsApp groups.
There is a huge opportunity for digital banks to leapfrog traditional institutions by setting up the structures which they are yet to install. They can use technology to carry out functions much cheaper and faster than any traditional bank can offer, using APIs to carry out fraud detection, AML and KYC checks. Companies like Nala (https://www.nala.com/)  offer a fast and reliable remittance method with money available in minutes.

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