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

Cross-border payments already work despite Africa’s currency fragmentation. A payment can appear instant to the sender while banks and payment providers handle currency conversion and settlement in the background. When currencies cannot be exchanged directly, those extra 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, says 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 says 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.

This interview has been edited for clarity and length. 

Can interoperability succeed if African currencies remain fragmented?

The fact that countries have different currencies does not stop cross-border transactions from happening. Take Kenya and Tanzania. 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 happening 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 various 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 I would not say that because Africa has multiple currencies, it cannot have cross-border payments. That argument is not really 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 we are saying is that having more than 40, or around 42, currencies in Africa makes the process more difficult. If those currencies aren’t convertible with one another, providers need settlement arrangements to complete transactions. This means cross-border transactions become more expensive.

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

I absolutely agree that policymakers and regulators, and 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.

We are seeing a lot of investment in regional instant payment systems that are 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.

We are seeing the same thing in other parts of 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 the infrastructure for cross-border payments across the region’s 16 countries, with roughly six to eight countries already onboarded.

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

Our advocacy is therefore at a continental level, so to fast-track the path towards 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 fast-track the process towards 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.

Think about what that could mean for the African Continental Free Trade Area. AfCFTA aims to increase intra-African trade from around 15% today to roughly 50% or 60%. If we make it easier to pay across borders, the economic impact could be significant.

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

I think that is the pathway we are moving towards because we recognise that the current system adds costs to cross-border payments. 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 you 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 the 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 issue is ultimately how to optimise settlement when you are transacting from one currency to another and dealing with multi-currency settlement across the ecosystem. That is an area where I expect to see more work.

I am looking forward to seeing more innovation in that space, as well as central banks working towards a regulatory harmonisation framework for Africa. That is really what we are advocating for at AfricaNenda. The framework should also address the settlement component of cross-border transactions.

If we can find better settlement solutions, that should lower the cost of cross-border payments as well.

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

There are already some 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 towards 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 provides another example of countries sharing a currency within a regional economic and monetary arrangement.

Then there is the SADC example. The TCIB regional payment system is using the South African rand as the settlement currency for the 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 specific 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.

So, 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 moving payment information faster and easier, but the actual settlement of the 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 cost to transactions, particularly when a hard currency has to sit between two local currencies.

That is why the regulatory work needs to look beyond the 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.

Our ambition is to see these regional systems interconnected and the 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 the African Continental Free Trade Area’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, and since we started this work, we have used an instant payment system inclusivity spectrum. We look 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, we expect to see much broader use cases. 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.

There should also be broader use cases, including 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 to consumers. The cost needs to be as low as possible for the end user.

At the mature level, we expect a digital ecosystem that gives consumers more value than cash. Whatever financial transaction you want to carry out, you should be able to do it digitally, and it should be interoperable. You should not need accounts with different providers just to complete different transactions. It should also be very low-cost and affordable. That is the win-win.

Nigeria has had a long journey to get there, and it is important to recognise that it is a journey. Getting to 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. This has facilitated electronic know-your-customer checks and helped strengthen the payment system.

Nigeria has also made significant progress on fees. The system started 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 a lot of work on how to address fraud and prevent fraud in the ecosystem. They have dashboards that allow them to follow fraud cases in real time and ensure that participants provide recourse to consumers when fraud occurs.

They have also done this work 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 we started this work in 2022, Nigeria’s system was at the basic level. It progressed over time and has now reached the mature level. We hope to support the evolution of more instant payment systems toward maturity in the years to come.

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