Africa is building regional payment systems that could make cross-border money transfers faster and cheaper, but fragmented currencies remain a problem that payment rails alone cannot solve.

The continent has more than 40 currencies, many of which are not directly convertible. As a result, banks and payment providers often have to rely on settlement banks, correspondent banking, and pre-funded accounts to move money between markets.

Cross-border payments already function despite Africa’s currency fragmentation. A payment can appear instant to the sender while banks and payment providers handle currency conversion and settlement behind the scenes. When currencies cannot be exchanged directly, those additional steps make transactions more expensive.

Sabine Mensah, deputy chief executive officer of AfricaNenda, a pan-African organisation working to expand instant and interoperable payment systems, said the answer is not necessarily a single African currency. Regional payment systems are already emerging across the East African Community (EAC), West Africa, Central Africa, and the Southern African Development Community (SADC). Connecting these systems could eventually extend interoperable payments to more than 60% of African countries.

But payment infrastructure is only part of the problem. Mensah said regulators also need to harmonise rules around payments, licencing, and settlement if Africa wants to reduce its reliance on hard currencies such as the dollar and make intra-African trade cheaper. That matters because faster payment messaging does not remove the need for settlement, and the cost of moving value across currencies still has to be handled somewhere in the system.

This interview has been edited for clarity and length.

Can interoperability succeed if African currencies remain fragmented?

Different currencies do not prevent cross-border transactions from happening. For example, someone in Kenya can send money to someone in Tanzania even though the Kenyan shilling and Tanzanian shilling are different currencies. Cross-border transactions are already taking place across Africa.

There are two levels of interoperability involved. The first is technical interoperability. This allows the payment message to move from the provider being used in Nairobi to the provider being used by the recipient in Dar es Salaam. Information and technical communication between the two systems can function even when the countries use different currencies.

The second layer is settlement. This is what happens in the background to actually move the money. If a provider in Kenya is sending money to a provider in Tanzania, a settlement bank between them can convert Kenyan shillings into Tanzanian currency.

The private sector has already taken up much of this work. Several providers are making cross-border payments and have established arrangements with commercial banks to handle settlement. Typically, these providers hold pre-funded accounts with banks in different countries and in different currencies. Those accounts allow them to settle cross-border payments.

The same principle applies at a higher level when countries and central banks are involved. Central banks can act as settlement agents for large-value transactions, while commercial banks also participate in the settlement process. Different currencies can still be settled through arrangements such as pre-funded accounts on both sides.

So it would not be accurate to say that because Africa has multiple currencies, it cannot have cross-border payments. That argument is not valid. Cross-border payments are already happening in large-value systems through banks and the correspondent banking ecosystem. They are also happening at the retail level through private-sector cross-border providers that have built hubs and connected with multiple mobile money providers.

What more than 40, or around 42, currencies do is make the process more difficult. If those currencies are not convertible with one another, providers need settlement arrangements to complete transactions. That makes cross-border transactions more expensive, which is why currency fragmentation remains a practical issue even where the payment message itself moves quickly.

Are policymakers solving the wrong problem by focusing on payment rails rather than currency markets?

Policymakers and regulators, particularly central banks, are focused on enabling cross-border payments, especially at the retail level. Systems already work at the high-value level through the correspondent banking ecosystem, so one gap is making retail cross-border payments easier.

There is significant investment in regional instant payment systems designed to enable cross-border payments at a sub-regional level. In East Africa, the East African Community has released a master plan to enable interoperability within the region, including work toward establishing a regional instant payment system for the EAC.

Similar efforts are underway elsewhere on the continent. In West Africa, the West African Economic and Monetary Union has put out a regional instant payment system connecting eight countries. In Central Africa, GIMAC Pay is connecting six countries in the Central African Economic and Monetary Community. In SADC, the Transactions Cleared on an Immediate Basis (TCIB) ecosystem aims to provide infrastructure for cross-border payments across the region’s 16 countries, with roughly six to eight countries already onboarded.

The investment is happening. More central banks are looking at how to enable instant cross-border payments. If those four systems can be connected, more than 60%, and potentially 70%, of African countries could be reached. That would create much wider interoperability. Someone in Kenya could transact with someone in Cameroon, Côte d’Ivoire, and other countries through connected systems.

AfricaNenda’s advocacy is therefore continental in scope. To fast-track seamless cross-border transactions in Africa, there needs to be regulatory harmonisation. Regulators need to come together to identify the roadblocks, particularly around payment system regulation, instant payment systems, interoperability, and the licencing of different stakeholders in different countries.

There is also an opportunity to passport licences across countries. That could help create a level playing field where, regardless of where you are in Africa, you can use one tool on your phone to send money across different African countries.

That would also have implications for the African Continental Free Trade Area (AfCFTA). AfCFTA aims to increase intra-African trade from around 15% today to roughly 50% or 60%. Making cross-border payments easier could have a significant economic impact.

Will cross-border payment systems reduce dependence on the dollar, or simply mask it?

The current system adds costs to cross-border payments, and the direction of travel is toward reducing those costs. The World Bank has estimated that sending $200 in remittances in Africa costs 8.78% of the amount being sent. On a $200 transaction, that works out to around $16 or $17.

The Sustainable Development Goals (SDGs) aim to bring that cost down to 3%. A large part of the 8.78% cost comes from foreign exchange transactions required when payments have to go back to a hard currency and then convert back into the local currency.

As part of the regulatory harmonisation process, regulators are also working on alternatives to existing settlement arrangements. They are looking at ways to enable settlement and use newer pathways through instant payment systems to find better solutions for cross-border transactions.

The key issue is how to optimise settlement when transacting from one currency to another and dealing with multi-currency settlement across the ecosystem. That is an area where more work is expected.

AfricaNenda is advocating for more innovation in that space, as well as central banks working toward a regulatory harmonisation framework for Africa. That framework should also address the settlement component of cross-border transactions.

If better settlement solutions are found, the cost of cross-border payments should fall as well.

Which currencies are becoming regional settlement currencies, and which risk being left behind?

There are already examples of regional currency arrangements, although they are at different stages.

In the East African Community, countries have had an agreement for many years to create a common currency. That has not yet materialised, but it remains part of the EAC protocol and the broader journey toward regulatory harmonisation and regional integration.

In West Africa and Central Africa, economic and monetary unions already exist. The Central Bank of West African States and the Central African Central Bank operate within those monetary arrangements.

In West Africa, the CFA franc is the shared currency for the eight countries in the West African Economic and Monetary Union, meaning those countries can use it for cross-border transactions within the union.

In Central Africa, the CFA franc is also used across the six countries in the monetary union. That is another example of countries sharing a currency within a regional economic and monetary arrangement.

In SADC, the TCIB regional payment system is using the South African rand as the settlement currency for countries that have already been onboarded and are transacting through the system. Around six countries have already joined and are using the system.

These are examples of what can happen at a sub-regional level. In some cases, because countries are part of an economic and monetary union, they already share a currency. In the TCIB case, the rand is being used as the settlement currency for countries that have joined the regional payment system.

African currencies are already being used beyond their domestic markets for regional settlement. The question is how these arrangements can develop alongside the wider push for payment interoperability.

Could currency constraints become the next major barrier to AfCFTA-driven trade?

Currency settlement is one issue that needs to be addressed as Africa works toward deeper cross-border trade. Connecting payment systems can make the movement of payment information faster and easier, but the actual settlement of money still has to happen.

Where currencies are not directly convertible, payment providers need settlement arrangements to move money between countries. Those arrangements can add costs to transactions, particularly when a hard currency has to sit between two local currencies.

That is why the regulatory work needs to go beyond technical payment infrastructure. Regulators need to work on the rules governing payment systems, interoperability, licencing, and settlement so that these systems can operate more easily across borders.

The ambition is to see regional systems interconnected and regulatory barriers reduced. The longer-term goal is that, regardless of where you are in Africa, you can use one tool on your phone to send money across different countries.

If that happens, it can support AfCFTA’s ambition to increase intra-African trade. Making it cheaper and easier for people and businesses to pay across borders is one part of creating the conditions for that trade to grow.

What did Nigeria do to reach the mature level in instant payments?

Through the State of Instant and Inclusive Payment report, AfricaNenda has used an instant payment system inclusivity spectrum. It looks at the journey from a basic system through a progressed level and eventually to a mature system.

At the basic level, a system has two main use cases. It supports person-to-person and person-to-business transactions, and enables mobile access. From there, a system can move to a progressed level of inclusivity. At that stage, banks and non-banks are interoperable, and the central bank is involved in system governance.

At the mature stage, much broader use cases are expected. It is no longer just about individuals paying businesses. Businesses should be able to pay other businesses through B2B transactions. Individuals should be able to receive funds from the government through G2P transactions and make payments to the government through P2G transactions.

Broader use cases should also include cross-border transactions. A mature system also needs standards and monitoring systems for consumer recourse. Consumers need to be protected, and supervision is needed to ensure consumer protection requirements are met.

The system also has to be affordable. Costs need to be as low as possible for the end user.

At the mature level, AfricaNenda expects a digital ecosystem that gives consumers more value than cash. Whatever financial transaction a person wants to carry out should be possible digitally, and it should be interoperable. People should not need accounts with different providers just to complete different transactions. It should also be low-cost and affordable.

Nigeria has had a long journey to that point, and it is important to recognise that it is a journey. Reaching maturity takes investment in time, technology, and infrastructure.

Nigeria has one of the oldest instant payment systems in Africa. It has invested significantly in its infrastructure to ensure the system is strong, sustainable over time, and performs well. It has done this through a phased development approach, building different use cases as the system has evolved.

Nigeria now has person-to-person, person-to-business, and B2B transactions. It also has cross-border capabilities through the Nigeria Instant Payment System, NIPS.

Another important part of Nigeria’s progress has been its digital identity infrastructure. It has leveraged the Bank Verification Number, or BVN, and linked the payment ecosystem to digital identity. That has facilitated electronic know-your-customer checks and helped strengthen the payment system.

Nigeria has also made significant progress on fees. The system began with higher fees, but those have been brought down to a very low level. Fees in the ecosystem are transparent, which is important for consumers. At the SIPS event last year, the CEO even advocated for the system to move toward a zero-fee level in Nigeria.

The system also ensures broad participation across the ecosystem. Banks, non-banks, microfinance institutions, and mobile network operators participate. It has the largest number of participants in the ecosystem.

Consumer recourse has been another major part of Nigeria’s development. There has been substantial work on addressing fraud and preventing fraud in the ecosystem. Dashboards allow participants to track fraud cases in real time and ensure that consumers receive recourse when fraud occurs.

That work has also been done in collaboration with the Central Bank of Nigeria (CBN). The infrastructure enables the instant payment ecosystem, while the broader system has been developed to support the widest possible range of use cases.

Nigeria has worked to enable the broadest range of use cases, strengthen consumer recourse with the central bank, and bring costs to consumers down to a very low point. That combination has helped it move to the mature stage.

When AfricaNenda started this work in 2022, Nigeria’s system was at the basic level. It progressed over time and has now reached the mature level. The organisation hopes to support the evolution of more instant payment systems toward maturity in the years ahead.