This is an excerpt from the
Future of Embedded Finance in Africa 2025 report.
Africa continues to pursue new technologies and innovations to facilitate cross-border payments. Embedded finance and remittances in this arena could be the next steps to streamline the process for end-users – as well as boost financial inclusion and trade.
Country head for Binance, South Africa, Hannes Wessels, noted that “in Africa, several cross-border payment systems are making notable strides in enhancing financial connectivity across the continent. Mobile money transfer systems are particularly impactful,”
which leverage mobile phones to facilitate access to fast transactions.
Regimantas Maliauskas, strategic partnership manager at Nikulipe – a fintech that enables payment platforms to integrate local payment methods in emerging markets – to this point observed that sub-Saharan Africa is dominated by mobile money wallets developed
by major telecommunications providers.
Back in 2007, Safaricom launched the widely known mobile wallet, M-Pesa. “After the huge success, others followed suit,” said Maliauskas. “It has become an integral part of life as it not only serves the daily needs of shopping offline and online but also
acts as a bank with various services.”
For some years now, M-Pesa has been one of four key multi-national mobile money providers – the other three being MTN Mobile Money, Airtel Money and Orange Money.
However, it is perhaps less widely known that mobile wallet users can make cross-border payments too. This means the ability to shop online at international merchants and pay the balance in local currency. The same applies to remittances.
“People living in Europe and the USA can send funds to their friends and relatives in Africa,” commented Maliauskas. “These funds are directly disbursed to receivers’ personal mobile wallets, automatically, with an ability later to use these funds for shopping,
bank transfers, or just cash via a large agent network.
“The other part is that people migrate heavily inside Africa, and these people can send funds from their mobile wallet to other mobile wallets in other countries.”
Unfortunately, there remains geographic limitations to this service, which cannot be executed worldwide. These are the gaps that innovation will plug in the coming years.
Rajesh Savji Parmar, founder and CEO of impact crowdfunder, Indelible Inc., agreed with Maliauskas, pointing out that “South Africa is probably the standout on solving the issue of connecting inter-Africa mobile wallets with telecommunications providers.”
While mobile money players have a presence as telecommunications providers in multiple African markets, the fragmented ecosystem still makes cross-border payments challenging and expensive.
Wessels pointed out that “blockchain-based systems” are promising, since they “provide secure, transparent records, bolstering trust and reducing fraud in cross-border payments. Interoperable platforms enable seamless transactions between various financial
institutions and mobile networks, ensuring smooth financial flows.”
Also offering efficient and cost-effective transactions across the African Continental Free Trade Area (AfCFTA) are regional initiatives, such as the PanAfrican Payment and Settlement System (PAPSS).
Improving cross-border payments throughout Africa
Maliauskas, Parmar, Wessels, and Paula Hunter, executive director, Mojaloop Foundation, are in agreement on the key areas that would enhance efficiency, reduce costs, and increase accessibility around the continent’s cross-border experience.
“At the Mojaloop Foundation, we believe that achieving inclusive and efficient cross-border payments that serve the last mile requires a comprehensive system redesign,” said Hunter.
All proposals can be divided into 10 categories:
1. Enhanced infrastructure and development
The updating of infrastructure must encompass an expansion of broadband, internet access, and banking infrastructure, argued Parmar: “Developing physical and digital banking infrastructure in underserved regions will facilitate easier access to cross-border
payment services.
“Investing in digital payment platforms that are widely accessible and secure can facilitate quicker and more reliable transactions.”
Parmar added that leveraging blockchain for cross-border payments can increase transparency, reduce fraud, and lower transaction costs.
2. Increased accessibility
By enhancing infrastructure, accessibility is also boosted.
“Expanding the reach of mobile payment solutions, especially in rural and underserved areas,” explained Parmar, “will provide more people with access to cross-border payment services.
“Initiatives aimed at increasing financial literacy and inclusion can help more individuals and businesses participate in the formal financial system.”
3. Regulatory harmonisation
One of the factors limiting availability of flawless cross-border payments across Africa is the regulatory framework – or “lack of clarity and efficient processes towards currency exchange and access to foreign currencies,” as Maliauskas put it.
Parmar agreed, adding that the harmonisation of regulations across countries would “simplify compliance and reduce barriers to cross-border payments.” Establishing collaborative framework among African central banks and financial authorities was offered
as a recourse against fragmentation.
Maliauskas did stress, however, that central banks are at present “heavily involved into the matter and are proactively looking for ways to improve current processes.”
4. Cost reduction
The immutable truth of technological ubiquity is that nothing is more effective than fee reduction.
The case is no different when it comes to Africa’s cross-border transactions, notes Parmar: “Cost reduction can be achieved through negotiated fee structures with financial institutions and leveraging technologies that lower processing costs.” He added that
offering competitive foreign exchange rates can further reduce costs for businesses and individuals making cross-border payments.
5. Foreign exchange rates
Tied to this is the significant challenge of FX rates. According to Hunter, the process currently often “requires two FX conversions using a vehicle currency, typically the USD, which substantially increases transaction fees and makes cross-border payments
prohibitively expensive. To address this, it is essential to reduce reliance on the USD as the vehicle currency. Ideally a solution is developed that eliminates the need for any vehicle currency or, at the very least, utilises a set of strong local currencies
such as the South African Rand (ZAR), Nigerian Naira (NGN) or even stablecoins.”
Any of these will significantly reduce costs and improve accessibility of embedded finance cross-border payments.
Hunter went on to point out that the settlement process for cross-border transactions throughout Africa is notably slow, increasing settlement risk and driving up the costs of processing.
“Delays often force individuals to subscribe to costly day loans,” she said. “Implementing faster and more efficient settlement mechanisms is crucial to mitigate these risks and reduce expenses.”
One approach would be to extend the operating hours of Real-Time Gross Settlement (RTGS) systems, enabling transactions to be settled and cleared more quickly and reducing delays,” argued Hunter. “Additionally, enhancing real-time settlement capacities by
using innovative technology like digital ledgers in a permissioned blockchain will ensure that funds move more swiftly and securely across borders.”
6. Customer experience
Hunter believes that the high costs and inefficiencies in the current crossborder payment systems are all adversely impacting customer experience. Put another way, the better the experience around the product is, the more ubiquity it can expect.
That is why Parmar pressed the importance of “user-friendly platforms,” which ensure accessibility and wide adoption across Africa. “Providing transparency in fees, exchange rates, and transaction times can also build trust and reliability in cross-border
payment systems,” he added.
Hunter agreed: “With the reduction of costs through improvements in FX, settlement, and interoperability, transaction fees can be lowered to reflect these savings. Additionally, increasing accessibility by meeting customers where they are and allowing third-party
payment service providers to initiate payments will significantly broaden access and convenience,” she noted. “This approach ensures that customers benefit from a more user-friendly and efficient payment system.”
7. Security and fraud prevention
Enhanced security protocols further add to the trust placed in a given service.
“Implementing robust security measures, including encryption and two-factor authentication, will protect against fraud and cyber threats,” argued Parmar.
He also pointed to the utility of advanced fraud detection systems that can identify and mitigate fraudulent activities in real-time, ensuring the safety of all transactions.
8. Interoperability
With greater homogeny in the landscape, payment systems may become interoperable.
This would enable “different financial institutions and platforms to work seamlessly together to streamline cross-border transactions,” argued Parmar. “Establishing regional payment networks would facilitate easier and faster transactions on the continent.”
Hunter, however, cited systems interoperability as a huge challenge: “The limited ability of domestic and regional payment systems to connect seamlessly hinders smooth payment flows,” she observed. “Significant coordination and standardisation efforts are
required to connect domestic systems with each other and with regional systems.”
Hunter pointed to the introduction of ISO 20022 as a means to “streamline the process,” but industry practitioners must work diligently to minimise domestic variances and fully leverage the data richness offered by this new data standard to reduce cost of
low value transactions.
9. Public-Private partnerships
Collaborative projects are vital too: “Public-private partnerships can drive innovation and investment,” said Parmar.
Indeed, a united effort to develop shared payment infrastructure would reduce costs, improve service quality, and drive embedded finance deeper into Africa.
10. Use of fintech innovations
Necessity, or in this case competition, is the mother of all creation. That is why more fintech startups must be encouraged to hit the market with innovative solutions that seek to tackle cross-border payments in Africa’s market.
Parmar cites artificial intelligence (AI) and machine learning (ML) as the holy grail of “transaction monitoring and predictive analysis.” These technologies promise to once again enhance the efficiency and security of cross-border transactions.
Matters of priority
Hunter was clear that by addressing these critical areas – foreign exchange, settlement, interoperability, and customer experience – a cross-border payment system can be created in Africa that is more inclusive, efficient, and userfriendly. “Such a system
will not only drive greater adoption but also promote economic integration across the continent, fostering growth and development,” she said.
Wessels was keen to underline interoperability between mobile money platforms and banks as the most critical element, which would in turn: “establish consistent regulatory frameworks; reduce transaction costs; enhance security measures; expand financial
inclusion,” and boost investment in robust digital and financial infrastructure.
In point of conclusion, Maliauskas argued for a focus on the regulation: “As the majority of Africa is already driven by mobile money apps, which are in people’s hands all the time with an ability to make various actions, it can be considered that payments
and cross-border transactions are already embedded in Africa. However, it comes down to the point of regulatory frameworks, and ability to move funds and remittances outside of the country make it scale.”
All these changes promise to streamline transactions, create an ecosystem of trust, and broaden access to financial services across the continent.
The end-goal is clear, but, in the words of Parmar, Africa still “has a long way to go.”