AZA Finance Country Manager, Nana Yaw Owusu Banahene, has highlighted the development of cross-border payments and other underutilised financial services as the next big step for financial technology (fintech) in Africa.

Speaking ahead of The Money Summit (TMS) 2023, which comes off on May 9 under the theme ‘Africa’s Robust Financial Sector: The Catalyst For Sustainable Economic Growth’, Mr. Banahene noted that while there are already initiatives such as the Pan-African Payment and Settlement System (PAPSS) which has an Application Programming Interface (API) that several stakeholders can access for cross-border payments, it is essential to consider other businesses’ presence in the space.

“For Africa, I think to crack the code means cross-border payments on the continent. I know there’s PAPSS, which has created an API that people can connect to. But what we have to also take into consideration and what has made several business models survive is not cutting out other people’s businesses from the space totally,” he said.

In January 2022, PAPSS was officially unveilled as a conduit for inter-country payments in Africa with the aim of bolstering the African Continental Free Trade Area (AfCFTA) – the world’s most expansive economic and trading bloc.

The platform seeks to streamline the disparate financial systems and over 40 currencies utilised across the continent – potentially saving Africa a staggering US$5billion in annual transaction costs.

While the focus has been on the platform’s partnership with banks, AZA’s Finance Country Manager believes the tailored-solutions provided by fintechs will prove indispensable – stressing the need for fintechs to enable cross-border payments for retail trade, which could significantly drive growth in the industry.

He further stated that new products and services, rather than technology, will ultimately drive fintech growth.

Untapped areas

Mr. Banahene believes that while introducing the mobile money revolution and subsequently the direct digital termination of remittances into wallets and bank accounts were game-changers that brought millions of people – especially in sub-Saharan Africa – into the financial system, they are approaching a plateau.

Consequently, he said, fintechs must focus on other financial services that have not been fully utilised, such as savings and insurance, as there is great potential in these markets beyond new technologies.

“The revolution of fintechs on the continent started properly with mobile money. Since mobile money came in, people have been able to access more financial services – savings, withdrawals and transfers. That in itself enabled millions of people, especially in sub-Saharan Africa, to come on board,” he noted.

“In the last few years we have also seen growth in direct, digital termination of remittances into wallets and bank accounts. Remittances have undoubtedly been the main source of revenue for many in Africa, even for some who do not work. We see migrants sending money back to their families, and sums such as US$50 and US$20 are able to solve many problems.

“Previously, people had to travel miles to go and make these withdrawals from banks or rely on other people to do it, and this was not always reliable. But with the development of direct termination into wallets, even those in the remotest hinterlands – and we can use Ghana as an example – are able to receive their funds with minimal hassle and have access to healthcare, school fees and other pressing needs,” Mr. Banahene explained.

This comes as recent data from the GSM Association (GSMA) show that in 2022 the West African region – led by Ghana – has surpassed market pioneers East Africa and rest of the world in terms of its share of registered mobile money accounts; with its global share increasing from 11 percent in 2021 to 33 percent at end of the year.

The 290 million registered accounts in the region accounted for US$277billion in transactions. This development was attributed, in part, to regulatory initiatives; and Mr. Banahene believes Ghana’s performance is a reflection of the proactive posture taken by the Bank of Ghana and related entities.

At the same time, remittances to sub-Saharan Africa remained strong; growing by 5.2 percent to US$53billion in 2022 and defying the effects of global headwinds.

Hand in hand

The fintech leader acknowledged that there was initially tension and concerns around regulation between banks and fintechs; but as fintechs were able to challenge the system and implement new services, banks began reaching out to them directly for foreign exchange trades and other things, and to be part of the ecosystem.

He noted that banks on the continent have traditionally thrived on deposits and loans, limiting their capacity to collaborate; but fintechs have created an opportunity for all players within the value chain to benefit.

“Generally, banks on the continent thrived on deposits and loans, and this limited their capacity to collaborate; but fintechs have created that opportunity whereby within the value chain everybody can eat a piece of the pie. Now, banks are seeing that they can partner with specific fintechs which provide specific solutions and it’s a win-win for everyone,” he added.