Cross-border payments are essential for facilitating trade, remittances, and financial inclusion in Africa, a continent with diverse and dynamic economies. However, moving money across borders in Africa is often costly, slow, and complex, posing significant challenges for consumers and businesses alike.
According to the World Bank, the average cost of sending $200 to sub-Saharan Africa was 8.2% in the first quarter of 2021, well above the global average of 6.5% and far from the Sustainable Development Goal target of 3% by 2030. Moreover, cross-border payments in Africa often suffer from low transparency, limited interoperability, and regulatory barriers that hinder competition and innovation.
Fintech companies are emerging as key players in addressing these challenges and transforming the cross-border payments landscape in Africa. Leveraging digital technologies such as mobile money, blockchain, and artificial intelligence, fintechs are offering faster, cheaper, and more convenient solutions for cross-border payments that cater to the specific needs of African consumers and businesses.
Some of the ways that fintechs are redefining cross-border payments in Africa include:
– Enabling direct transfers to mobile wallets and bank accounts, reducing the reliance on cash and agents. For example, Remitly allows African migrants to send remittances to mobile money accounts and wallets in over 20 countries across Africa, including MTN, M-Pesa, Airtel, Vodafone, and Tigo.
– Providing access to multiple currencies and exchange rates through online platforms and virtual wallets, minimizing foreign exchange volatility and transaction costs. For example, VertoFX is a B2B currency exchange marketplace and multicurrency wallet product that allows SMB clients to convert money from one currency to any of the other 30-plus currencies on its platform and hold the new currency in their wallet until they are ready to make a payment.
– Leveraging blockchain technology to enable fast, secure, and low-cost cross-border payments that bypass intermediaries and traditional payment rails. For example, BitPesa is a digital foreign exchange and payment platform that uses blockchain-based settlement to lower costs and increase the speed of business payments to and from frontier markets.
– Partnering with banks, regulators, payment networks, and other stakeholders to enhance interoperability, compliance, and customer protection. For example, Ukheshe Technologies is a pan-African fintech enablement partner that provides end-to-end payment solutions for banks, telcos, fintechs, and governments.
Fintechs are set to play a vital role in shaping the future of payments in Africa, as they bring new innovations, entrepreneurs, and capital to the fast-growing electronic payments market. However, they also face significant challenges such as regulatory uncertainty, infrastructure gaps, cyber risks, and customer trust. To overcome these hurdles and unlock the full potential of cross-border payments in Africa, fintechs need to collaborate with each other and with other ecosystem players to create inclusive, interoperable, and sustainable solutions that benefit all stakeholders.
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