PAPSS: Africa’s Fintech Revolution for Cross-Border Payments

By Dishant Shah

Here is an uncomfortable truth that rarely makes headlines: Africa hemorrhages billions of dollars annually simply moving money within its own borders. Not because the continent lacks technological capability or financial sophistication, but because of an antiquated system that routes African payments through foreign banks and settles them in dollars or euros.

The Pan-African Payment and Settlement System (PAPSS) aims to dismantle this costly arrangement – and the implications extend far beyond mere transaction fees.

The Correspondent Banking Problem

The current architecture of intra-African payments resembles a Kafkaesque detour. When a Nigerian importer pays a Kenyan exporter, that transaction frequently travels through New York or London, converting naira to dollars, then dollars to shillings, accumulating fees and foreign exchange spreads at each junction.

This isn’t an edge case – it’s standard procedure for a significant portion of Africa’s US$200 billion in annual intra-continental trade.

The inefficiency is staggering. African businesses effectively pay a premium to access their own regional market, subsidizing foreign financial institutions for the privilege of trading with their neighbors.

The African Export-Import Bank (Afreximbank) estimates this system drains over US$5 billion yearly in unnecessary fees, currency conversion costs, and settlement delays. That’s capital that could otherwise finance expansion, reduce consumer prices, or strengthen balance sheets across African small and medium enterprises.

How PAPSS Changes the Architecture

PAPSS represents a fundamental reimagining of cross-border payment infrastructure. The system enables African countries to settle transactions in local currencies with instant confirmation, while the African Export-Import Bank handles daily net settlement.

The elegance lies in its simplicity: eliminate the dollar detour, remove redundant currency conversions, and keep settlement infrastructure on the continent.

This isn’t merely incremental improvement – it’s architectural disruption. Consider analogous transformations elsewhere: India’s Unified Payments Interface revolutionized domestic transactions, processing billions of payments monthly.

China’s Cross-Border Interbank Payment System and China National Advanced Payment System now handle substantial renminbi flows independent of Western clearing houses. The European Payments Initiative seeks to unify retail payments across the European Union, reducing dependence on non-European card networks.

PAPSS aspires to similar sovereignty – but with the added complexity of facilitating trade across dozens of currencies and regulatory jurisdictions. The technical and diplomatic achievement of creating interoperability among central banks with divergent monetary policies and development priorities cannot be understated.

Why This Matters Beyond Transaction Costs

The economic case for PAPSS extends well beyond immediate fee savings, substantial though those are. Cheaper, faster settlements fundamentally alter competitive dynamics for African businesses.

When a Ghanaian manufacturer can receive payment from a Tanzanian distributor within hours rather than days – and without losing 3-5 percent to conversion spreads – working capital requirements decrease, pricing becomes more competitive, and market access improves.

Perhaps more importantly, PAPSS addresses a liquidity drainage problem that has plagued African economies for decades. Under the current system, capital continuously flows offshore as fees to correspondent banks, never returning to productive use within African markets.

PAPSS creates a mechanism for retaining this liquidity within the continental financial system, where it can be recycled into lending, investment, and economic activity.

The geopolitical implications deserve attention as well. Financial infrastructure confers strategic autonomy.

When payment systems route through foreign jurisdictions, they become subject to external regulatory decisions, sanctions regimes, and political considerations that may conflict with African interests. A continental payment backbone reduces this vulnerability.

The Implementation Challenge

Acknowledging PAPSS’s potential requires confronting its limitations. The system’s effectiveness depends on broad central bank participation and deep foreign exchange corridors between African currencies.

Currently, liquidity in many African currency pairs remains thin, potentially limiting PAPSS’s utility for certain trade routes. Building these corridors requires sustained coordination among monetary authorities with competing priorities and varying levels of financial market development.

Regulatory harmonization presents another hurdle. Cross-border payment systems require compatible anti-money laundering frameworks, know-your-customer standards, and dispute resolution mechanisms.

Africa’s 54 countries represent 54 regulatory environments, some more developed than others. Creating interoperability without compromising financial integrity demands careful calibration.

Technical infrastructure, while advancing rapidly, still varies considerably across the continent. PAPSS requires reliable internet connectivity, robust banking systems, and sufficient technological literacy among users – conditions not uniformly present across all participating jurisdictions.

The Path Forward

Despite these challenges, the trajectory appears promising. PAPSS has already onboarded multiple central banks and processed transactions across several corridors.

As network effects compound – each additional participant makes the system more valuable for existing users – adoption should accelerate.

The fundamental insight driving PAPSS is irrefutable: if Africa aspires to trade with itself at scale, it requires its own payments backbone. The continent has never possessed infrastructure approximating this ambition.

Previous attempts at African monetary integration foundered on political obstacles and technical limitations. PAPSS benefits from modern technology, demonstrated demand for intra-African trade facilitation, and institutional backing from Afreximbank.

The question isn’t whether Africa needs such a system – the US$5 billion annual savings make that case decisively. The question is whether PAPSS can navigate the coordination problems, technical challenges, and political complexities inherent in continental financial infrastructure.

Early indicators suggest cautious optimism is warranted. And this time, when African businesses trade across borders, the savings might actually stay home.

Dishant Shah is a partner at Legion Exim, a company specializing in facilitating the export of high-quality engineering products directly sourced from manufacturers in India to Africa. His areas of expertise include new business development and business management.