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The Pan-African Payment and Settlement System (PAPSS), which enables instant cross-border payments in local currencies between African markets, launched last Thursday (January 13).
The platform was developed by Afreximbank, a pan-African multilateral trade finance institution, with an aim of boosting trade among African countries by providing a solution to the disconnected and fragmented nature of African payment and settlement systems.
Until now, more than 80 percent of African cross-border payment transactions originating from African banks had to be routed offshore for clearing and settlement using international banking relationships. It meant that payments from one African country to another were not only costly but took several days to complete.
For instance, a $10,000 payment sent from Sierra Leone to Nigeria took three days to be credited to the beneficiary’s account and cost an extra $165 to the business initiating the transaction, according to a United Nations article.
By enabling direct cross-border payments among African countries, PAPSS could save more than $5bn in payment transaction costs each year, Afreximbank said.
“We are eager to build upon the African Continental Free Trade Area’s creation of a single market throughout Africa”, to which PAPSS provides “the state-of-the-art financial market infrastructure”, Professor Benedict Oramah, president of Afreximbank, said.
“PAPSS will effectively eliminate Africa’s financial borders, formalise and integrate Africa’s payment systems,” he added.
The launch of PAPSS follows a successful pilot in countries of the West African monetary zone: Nigeria; the Gambia; Sierra Leone; Liberia; Ghana; and Guinea.
“This launch is a result of many months of hard work, resolve and commitment towards achieving set objectives for the growth of the continent in trade,” said Ghana President H.E Nana Addo Dankwa Akufo-Addo.
“All central banks in Africa must now join up and ensure seamless transfer of funds deploying this most practical and important African solution to an African problem,” he added.
According to the PAPSS website, the new infrastructure enables both businesses and individuals to shop, transfer money, pay salaries, deal in stocks and shares, and make high-value business transactions around the clock.
It provides near-instant cross-border payments services based on pre-funding of accounts by participants to ensure obligations can be met, helping to control risk and ensure certainty in the transaction. It is also based on a deferred net settlement model, which occurs once a day, so participants can manage this liquidity obligation.
How it works exactly
PAPSS enables commercial banks, payment service providers and fintechs to connect as participants, while Afreximbank acts as the main settlement agent in partnership with participating African central banks.
This requires participants to enter into a pre-funding arrangement that guarantees that funds are available before PAPSS transfers debits and credits between participants’ accounts. Payments are near-instantaneous, taking about two minutes to complete.
Direct participants integrate directly with PAPSS and the real-time gross settlement (RTGS) systems of their central bank account in the pre-funding process, while indirect participants, those without an RTGS account, can fund or “defund” their clearing accounts on PAPSS through partnering with a direct participant.
The platform uses the ISO 20022 messaging standard, which enables PAPSS, the participants and the RTGS to keep track of the status of every stage of the transaction.
It introduces a harmonised, comprehensive legal, regulatory and operational framework and requires its participants to comply with standardised rules, formats and governance arrangements, harmonised know your customer (KYC) and anti-money laundering (AML) procedures, payment confirmation and settlement finality.
The platform also claims its core service is supported by a secure infrastructure, which incorporates cybersecurity and payment fraud systems that rely on behavioural analytics and machine learning techniques.
