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A question whether African-based clearing and settlement service providers are fully prepared to compete throughout Africa, let alone globally. Here’s a breakdown of their current state and the challenges and opportunities they face:
Current State and Capabilities:
* Regional Efforts: Several regional initiatives aim to improve clearing and settlement within Africa. Examples include:
* PAPSS (Pan-African Payment and Settlement System): This system, spearheaded by Afreximbank and the African Union, aims to facilitate cross-border payments in local African currencies, reducing reliance on correspondent banks and lowering transaction costs. It has connected several central banks and commercial banks across the continent.
* SADC-RTGS (Southern African Development Community – Real Time Gross Settlement System): This system facilitates cross-border payments among SADC countries.
* Regional Payment Platforms: Other regional platforms like STAR-UEMOA (West Africa) and SYGMA (Central Africa) exist to facilitate payments within specific economic communities.
* National Infrastructure: Many African countries have established their own national payment systems and central securities depositories (CSDs). Some of these, like South Africa’s STRATE, have relatively advanced technological infrastructure.
* Growing Intra-African Trade: The increasing focus on intra-African trade, particularly with the implementation of the African Continental Free Trade Area (AfCFTA), is driving the need for more efficient cross-border payment and settlement solutions.
Challenges to Competitiveness:
* Fragmentation and Lack of Interoperability: A major challenge is the fragmentation of payment systems and the limited interoperability between them across different African countries. This increases the cost and complexity of cross-border transactions.
* Infrastructure Deficiencies: Inconsistent infrastructure, particularly in electricity and telecommunications, can hinder the development and reliability of electronic payment and settlement systems in some regions.
* Regulatory Divergence: Differing regulatory frameworks across African nations create complexities for cross-border operations and the establishment of continent-wide clearing and settlement solutions.
* Technological Gaps: While some providers are adopting new technologies, others may lag in terms of technological infrastructure and the capacity to implement advanced solutions like DLT or AI.
* Cost and Efficiency: The cost of cross-border payments within Africa remains high compared to other regions, partly due to the reliance on correspondent banking and the inefficiencies of fragmented systems.
* Financial Inclusion and Digital Penetration: Lower levels of financial inclusion and digital penetration in some African countries can limit the scale and reach of electronic payment and settlement solutions.
* Cybersecurity Risks: As digital payment systems grow, ensuring robust cybersecurity frameworks is crucial, and this remains a challenge for some providers.
* Competition from Global Players: Global payment and settlement providers often have greater resources, established networks, and more advanced technologies, posing a competitive challenge.
Opportunities for Improvement and Growth:
* Leveraging PAPSS and Regional Initiatives: The successful implementation and wider adoption of PAPSS and other regional payment systems can significantly enhance intra-African competitiveness.
* Embracing Technological Advancements: Adopting modern technologies like mobile payments, digital banking platforms, and exploring the potential of blockchain can improve efficiency and reach.
* Harmonizing Regulations: Efforts to harmonize regulatory frameworks across the continent would facilitate cross-border operations and encourage the development of integrated solutions.
* Focusing on Interoperability: Initiatives aimed at improving the interoperability of existing payment systems are crucial for reducing costs and improving efficiency.
* Building Capacity and Expertise: Investing in human capital and developing expertise in areas like fintech, cybersecurity, and regulatory compliance is essential.
* Addressing Financial Inclusion: Expanding financial inclusion will create a larger base for digital payment and settlement services.
Global Competitiveness:
In terms of competing globally, African-based clearing and settlement providers currently face significant hurdles. The focus is primarily on building robust and efficient systems within Africa and facilitating intra-African trade. To compete globally, they would need to:
* Achieve international standards in terms of technology, security, and regulatory compliance.
* Develop extensive global networks and partnerships.
* Offer specialized services that can compete with established global players in terms of cost, efficiency, and innovation.
Conclusion:
African-based clearing and settlement service providers are making strides in improving domestic and regional payment infrastructure. Initiatives like PAPSS hold significant promise for enhancing intra-African trade and reducing reliance on external intermediaries. However, they face considerable challenges related to fragmentation, infrastructure, regulation, and technological gaps.
While they may not be fully prepared to compete globally in the immediate future, the ongoing efforts to build a more integrated and efficient African financial infrastructure are crucial steps towards greater competitiveness both within the continent and, eventually, on the global stage. The focus for now is largely on strengthening the foundations within Africa.

Video courtesy of StockInvestorDaily

Video courtesy of StockInvestorDaily