PAPSS: Africa is heading towards a single payment system, how can it pull it off?

Last year, the Governor of Nigeria’s Central Bank and chairperson of the Pan-African Payment and Settlement System (PAPSS) governing council, Godwin Emefiele, lauded the possibilities of the PAPSS single payment scheme, saying it would ensure African countries reduce their reliance on foreign currency (USD majorly) for trade. This is because the platform would allow a business in Ghana to trade with another in Liberia using the Cedi and Liberian Dollar respectively. 

PAPSS also simplifies cross-border payments, meaning transactions don’t need days or weeks to settle. Additionally, transactions undertaken using PAPSS are expected to be secure, promote financial inclusion, and most importantly – unite Africa. Interestingly, the platform comes with an advantage for fintechs as it’ll help them complete cross-border transactions faster while senders won’t be burdened with high transfer fees. 

Given these impressive benefits, one would expect every country on the continent to have signed up to this single payment system since its January 2022 launch. Unfortunately, this innovative solution has received minimal adoption.

Low adoption rate threatening PAPSS existence

Currently, PAPSS’s network of participating central banks comprises the Central Banks of Nigeria, Ghana, Liberia, Guinea, Sierra Leone, The Gambia, Djibouti, Zimbabwe, and Zambia. West African nations have a higher presence on the list than other regions because they had previously participated in a trial phase.

Although some commercial banks and local payment settlement agencies like EcoBank, and Nigeria Inter-Bank Settlement System have keyed into PAPSS, the adoption rate remains low. And recently, Kenya’s president William Ruto made a call for more African countries to join the train. 

“We are all struggling to make payments for goods and services from one country to another because of differences in currencies. And in the middle of all these, we are all subjected to a dollar environment,”

William Ruto

Aside from having many currencies, Africa is heavily dependent on foreign currency due to a lack of interoperability. It has often been said that a transaction between two parties in Lagos and London is easier to complete than one between two residents in Nairobi and Ouagadougou respectively. Why? Since Kenya and Mali don’t use the same currency, the local currency has to be converted to its foreign counterpart (mostly USD), a move that attracts high fees and takes up to 14 days to finalize. 

At the launch of PAPSS, Ghana’s Vice President H.E Dr Mahamudu Bawumia revealed that payment transaction costs using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network amounted to $ 5 billion annually. Before PAPSS emerged, SWIFT was the go-to resource for banks in Africa looking to complete cross-border transactions. 

Thankfully, PAPSS is expected to save Africa that ridiculously high amount and also propel the continent towards economic growth. This brings us to the all-important question: why is PAPSS as a valid singe payment system, not used by every country on the continent? 

Read also: NIBSS demos NQR payment solution in Abuja, Kanopopular markets

Sluggish industrialization is a roadblock to widespread adoption of single payment system

Although Africa is traditionally unhurried when it comes to innovation, times are changing with instances like the continued rise of tech startups and cryptocurrency usage. Despite the fascinating news of a startup raising its first million dollars or passage of a national blockchain policy like Nigeria, many African nations are still backward when infrastructure and economic growth are concerned. 

Call it the product of myopic economic policies, a failed campaign promise, or even a curse, it remains our reality. 

At this point, it’s imperative to revisit the words of former CBN deputy governor, Kingsley Moghalu. “Capitalism has been the greatest creator of national wealth in world history, lifting billions out of poverty from Singapore to China, and from South Korea to Brazil. But Africa stands on the cusp of a lost opportunity because its leaders — and those who assess its progress in London, Paris, and Washington — are wrongly fixated on the rise and fall of GDP and foreign investment flows, mostly into resource extraction industries and modern shopping malls,” he wrote in a Financial Times op-ed piece. 

Any attempt to be seen as a frontline candidate for economic growth was defeated by the pandemic whose impact many African nations, including Nigeria, still feel. Last week, the West African country’s apex bank announced a home in rate interest, bringing the percentage to 18.5. In April, Kenya struggled to pay its public officeholders due to a lack of funds caused by a weak economy and the enormous weight of many Chinese loans. 

A diagnosis of Africa’s industrialization problem would lead a keen eye to the age-long reluctance to become a producer instead of a steady consumer. Essentially, Africa exports raw materials and then import finished products.

Consider Nigeria. According to the United Nations Conference on Trade and Development (UNCTAD), the country’s main export is energy which includes natural gas and crude oil. Ironically, its major imports are premium motor spirit (generated from crude oil distillation), gas oil, and durum wheat. Its public-owned refineries are famous for their moribund state and its wheat production as of 2021 has been disappointingly low for a decade. 

What does the lack of industrialization mean and how does it negate the switch to PAPSS? Because African nations are heavily dependent on ready-made goods imported from outside the continent, it’s unlikely that they’ll want to trade with themselves on a large scale. Although countries as a whole won’t adopt the single payment system anytime soon, PAPSS may be highly beneficial to small and medium business owners. 

Recommendations for the PAPSS management board 

PAPSS can potentially be a great opportunity for Africa to build on its inter-country trade, but policymakers must make the right decisions.  Admittedly, an indigenous payment settlement solution won’t solve common intra-Africa trade problems like political instability and unwavering corruption, but it does send the right signal that the region is ready for a positive transformation.

So, how can PAPSS gain more ground? One, the management board should invest in public knowledge. If the failure of Kenya’s unique permanent number (Hunduma Numba) and the ongoing low adoption of Nigeria’s eNaira has taught policymakers anything, it’s that adequate sensitization is a non-negotiable effort. 

Awareness creation, in this case, should take a three-layered approach. First, the country’s government should be enlightened on the benefits of adopting PAPSS. These include transparent cross-border transactions and potential economic growth. 

The next stop on the sensitization train is fintech startups. Already popular for leveraging technology in delivering last-mile financial services, a system offering “instant and irrevocable credits to customer accounts” shouldn’t be hard to sell to fintechs. 

Lastly, the advantages of PAPSS should be marketed to SMEs – the bedrock of Africa’s economy. SMEs already play a major role in job creation, so imagine how better their contributions to economic growth will be when a transaction between a store in Cape Town and a customer in Algiers takes hours, not weeks, to settle.