Cross-Border Payments

Cross-border payments have long been recognized as a significant barrier to international trade. In looking for solutions, emphasis has been placed on improving payment technologies and driving technical interoperability by promoting the adoption of internationally recognized technical standards.

According to statistics, in over 70 countries today domestic payments reach their destination in seconds at near-zero cost to the Sender or Recipient. This is thanks to the growing availability of instant payment systems (IPS).?Connecting these IPS to each other has the potential to enable cross-border payments from Sender to Recipient within 60 seconds.

The rise of cross-border payments because of increasing international trade and technology advances has outpaced the development of regulatory frameworks suitable for global trade-which results in inefficiencies and barriers that hinder seamless and cost-effective transactions.

The key challenges assosicated with cross border payments incude disparities in regulatory frameworks across jurisdictions, complexities in anti-money laundering/combating the financing of terrorism (AML/CFT) compliance, stringent data privacy and security regulations, and regulatory barriers to accessing payment systems and infrastructure.

The Demand for seamless, cost-effective and safe cross-border payments is growing faster than regulators’ ability to establish a globally coordinated and interoperable regulatory framework. The complex regulatory environment, characterized by high compliance costs and adherence to divergent regulations across jurisdictions, has led to prolonged processing times and increased costs for businesses and consumers.

There are? four most significant regulatory frictions and challenges for banks and non-banks payment service providers as can be seen from th chart below.

The WEF has suggested criteria for evaluating recommendations to address regulatory frictions facing cross-border payments as shown below.

Further, according to WEF, regulatory interoperability can be unlocked through improving cross border payment interoperability, strengthening regulatory cooperation of cross- border payments , modernizing regulatory frameworks? and encouraging Public Private Partnerships.

Cross-Border Payments in Africa

Cross-border payments in Africa are mostly initiated by individuals, micro- and small businesses (MSMEs), and small and medium traders. Payments are made for different purposes, such as e-commerce marketplaces, border trades/sales, SMB exports, remittances, gig payments, supply chains. These are person-to-person (P2P and C2C)), person-to-business (C2B), business-to-person (B2C) and business-to-business (B2B).

The channels for? Cross-border payments in Africa are? Bank-to-bank payments/transfers (including card payments);Mobile money; Digital wallets?;Money transfer operators (wire transfers and electronic funds transfers);Payment aggregators?;Cash payments (for border traders/sales);Informal cross-border transactions leveraging a third party, decoupled transactions, and clearing and settlement processes( where an intermediary in a third country collects and disburses funds).

Regiolex Consulting