Expanding into new markets can be a game-changer for ambitious ecommerce businesses, especially when venturing into the vast and diverse continent of Africa. However, one of the critical challenges they face is navigating the complex landscape of payments on the continent, particularly in countries like The Gambia.
The intricacies of African payments are unparalleled anywhere else in the world. When money is sent from one African country to another, it undergoes a series of currency conversions, adding layers of complexity and cost to the transaction.
For example, if a trader in The Gambia needs to pay for a shipment of goods to Ethiopia, the payment journey involves converting Gambian Dalasi (GMD) to US dollars (USD) or Euros (EUR) before finally converting to Ethiopian Birr (ETB). This process often requires the involvement of correspondent banks in Europe or the US, amplifying both the complexity and cost of the transaction.
According to estimates, these convoluted payment dynamics cost Africans approximately USD 5 billion annually. Despite these challenges, there are success stories that highlight the potential for growth in Africa’s digital payments market.
For instance, M-PESA, a Kenyan mobile phone-based financial service, emerged as the most successful mobile money service in the developing world. Transaction flows sent by banks have grown consistently, and mobile money payments have skyrocketed, demonstrating the potential for digital payments in Africa.
The launch of initiatives like the Africa Continental Free Trade Area (AfCFTA) and the Pan-African Payment and Settlement System (PAPSS) signifies a significant stride towards seamless cross-border payments in Africa. These initiatives aim to facilitate direct transfers between African nations, similar to traditional SWIFT networks but tailored to African currencies.
Fintech companies like Kora are at the forefront, building pan-African payment infrastructure to empower businesses to enter Africa, connect with all 54 countries, and support local enterprises in accessing global markets. However, governments, regulators, banks, microfinance institutions, and fintech companies must collaborate to fast-track the vision of seamless cross-border rails in Africa.
Exciting technological innovations, such as the cNGN token in Nigeria, are also paving the way for improved international transactions. The cNGN aims to fortify the Naira as a robust and dependable currency, enhancing its appeal and utility on the global stage. This innovation may kickstart a trend of central bank digital tokens across the continent.
While progress has been made, there is still a considerable distance to cover. By aligning their strategies, regulatory bodies, innovators, and legacy financial institutions can dismantle unfavorable payment borders, enabling international brands to set up operations in Africa and enhancing Africa’s contribution to global trade.
