The introduction of PAPSS (Pan African Payment Settlement System) has sparked discussions across the continent about its credibility and effectiveness. The harsh reality is that Africa is missing out on the advantages of continental trade, and implementing payment systems could help alleviate the incurred losses.
PAPSS is a financial market infrastructure that enables instant, cross-border payments in local currencies between African markets. It is designed to revolutionize cross-border payments, making them faster, cheaper, and more secure than ever before.
The Pan-African Payment Settlement System (PAPSS) is a centralised payment and settlement platform for intra-African trade and commerce payments which was created through a partnership between the West Africa Monetary Institute (WAMI), the African Export-Import Bank, and Afreximbank.
PAPSS makes payments easier for you and formalizes informal cross-border trade, while supporting the Africa Continental Free Trade Area agreement (AfCFTA). This is aimed at boosting trade and payments among corporates and retail customers.
The partnership with Access Bank and the Pan-African Payment and Settlement System will address the challenges and facilitate intra-African trade by providing an alternative to the current expensive and lengthy correspondent banking relationships, through a simple, low-cost and risk controlled instant payment clearing and settlement system.
PAPSS is currently live in the West African states Monetary Zone (WAMZ)in the following countries: Nigeria, Gambia, Sierra Leone, Liberia, Ghana, and Guinea.
Afreximbank estimates that more than 80 per cent of intra-African payments currently pass through either European or U.S. channels, incurring costs of up to $5 billion in fees and compliance expenses.
The Africa Export-Import Bank has incorporated 11 African central banks into its leading Pan-African Payment and Settlement System (PAPSS) and anticipates that the remaining central banks will join by next year, marking a significant milestone in their efforts to reduce expenses and streamline trade within the region.
PAPSS, a collaboration with the African Union, offers an alternative in which participants can conduct transactions in their currencies, eliminating the necessity for a third-party currency such as the U.S. dollar.“Trade goes well where payments can be made easily, and this is why we can only see trade pick up if we see improvement in efficient payments,” John Bosco Sebabi, PAPSS deputy CEO stated in an interview with CNBC.
The primary participants in the PAPSS’ system are central banks, which will serve as regulators and clearance agents, commercial banks, fintech companies, payment service providers, and their customers, including businesses operating throughout the region.
“The issue here is not the exclusion of the U.S dollar but to be able to ease this. For those in Zimbabwe or Rwanda, for example, PAPSS will debit their accounts in Zim dollars, credit their accounts in Rwanda francs and then the central banks work it out in any currency convenient to them,” Sebabi said.
The AfCFTA, which unites the 55 members of the African Union (AU) and eight Regional Economic Communities (RECs), is the largest free trade area in the world. It has an overarching goal of establishing a single continental market with a combined GDP of around US$3.4 trillion and a population of over 1.3 billion.
However, the region currently experiences the world’s lowest intra-regional trade volumes, standing at 18 per cent, in stark contrast to Europe’s 70 per cent and Asia’s 59 per cent. Sebabi expects that PAPSS will rapidly gain momentum to address this disparity.
“This will rollout very, very quickly. We have got 81 commercial banks on board, mostly from the West African monetary zone,” he said.Southern African participants in the system include Standard Bank, the largest bank on the continent in terms of assets.
According to Sebabi, transactions can be completed within a remarkably short time frame, ranging from as little as 7 to 10 seconds, with a maximum processing time of 120 seconds. This payment system has the potential to significantly enhance intra-African trade relationships.