The Pan-African Payments and Settlements System (PAPSS), implemented in 2022, has the potential to revolutionize the financial sector in the continent due to the minimized need for foreign currency in processing cross-border transactions.
Tunde Macaulay, the head of business and commercial banking for Africa and offshore regions at Standard Bank Group, notes that PAPSS could scale up informal trade with $50 billion in Africa and cut current inefficiencies in payment systems by estimating $5 billion in total annual processing costs. This advancement is helpful for the African Continental Free Trade Area (AfCFTA) in boosting intra-African exports and making African economies more effective.
PAPSS enables faster, more affordable transactions across African countries by utilizing local currencies, thus minimizing dependency on clearing transactions through US or European banks. Over 80% of cross-border African payments are routed offshore, leading to processing delays and additional fees.
With PAPSS, this dependency on foreign financial networks can be reduced, resulting in significant cost savings and improved efficiency for businesses across the continent. Macaulay, who has been involved with African markets for many years, has expressed positivity about the system and how it could help drive financial inclusion for individuals and small businesses.
PAPSS is expected to support developing local economies and improve access to affordable payment solutions for small—and medium-sized enterprises (SMEs). It also seeks to support the value of national currencies, further integrating the continent into a cohesive market.
Despite positive reception from African governments, PAPSS faces challenges in establishing a widespread "network effect" necessary for scalability. Although the system has backing from 115 commercial banks, 13 central banks, and 10 switching-service providers, achieving widespread adoption across the continent remains to be determined. Macaulay suggests a phased integration approach, emphasizing trade facilitation through removing non-tariff barriers and promoting tariff cuts.
Geopolitical factors may also pose obstacles. Former US President Donald Trump has warned against countries attempting to reduce reliance on the dollar, with potential repercussions including tariffs, export controls, and currency manipulation charges. These pressures could impact Africa's de-dollarization efforts and influence PAPSS's future.
The PAPSS initiative is central to AfCFTA's vision of a single African market. The AfCFTA, ratified by 47 countries, represents a $3.4 trillion economic zone and, when fully operational, could become the world's largest free-trade area by landmass. The African Union supports the integration efforts through a $1 billion Adjustment Fund to help member states manage revenue losses from tariff reductions, aiming to expand the fund to $10 billion by 2033.