Is Africa Ready for Interoperable Payments?

Africa is described as the next frontier for digital transactions and payments. The African Union (AU) and its member states aim to implement an integrated and inclusive digital society and economy in Africa to lower trade barriers by 2030. Since 2023, the African Union Commission (AUC) and AfricaNenda Foundation have been working on advancing financial inclusion across Africa by championing universal access to digital financial services (DFS). The shift towards inclusive, instant, and interoperable payments is moving rapidly, with examples and various implementations being made across the world. However, money transfers within Africa are still very expensive, with costs ranging from 12 to as high as 25 percent of the transfer amount (IFAD, 2009). The reliance on foreign currencies for intra-African settlements increases exchange rate losses and transaction fees. Despite significant growth in financial inclusion, over 400 million adults in sub-Saharan Africa are still excluded from the formal economy and rely heavily on the use of cash or informal providers for their financial management, which leaves them vulnerable to economic instability.

In Accra on 13 January 2022, the Pan-African Payment and Settlement System (PAPSS) was launched and was billed to save Africa more than 5 billion USD yearly in payment transaction costs. This new payment system, initiated by the African Export-Import Bank, allows for clearing and settling intra-African trade transactions in local currencies. This is designed to significantly reduce costs and delays by cutting out the need for third-party foreign currencies. Has that been the case?

What are Inclusive, Instant, and Interoperable Payments?

An instant payment enables businesses to transfer money quickly, usually between five and 30 seconds, although it can sometimes take a few minutes depending on system availability and the type of bank being used. Regular online bank transfers typically take at least one business day for the funds to reach the recipient’s bank account.

The Instant Payment System was developed by the European Central Bank. Transfers are processed directly between banks without intermediaries such as clearing houses or correspondent banks needing to get involved. This means that transfers can be made very quickly and securely.

EU Legislation Strengthens Instant Payment Infrastructure

Instant payments are possible in any country that is part of the European payment area known as the Single Euro Payments Area (SEPA). In addition to all EU member states, this also includes other countries in the European Economic Area, such as Switzerland and the United Kingdom.

Building on this reach, the European Union, through its legislative arm of the European Parliament, on 13 March 2024 inserted amending Regulations (EU) No 260/2012 and (EU) 2021/1230 and Directives 98/26/EC and (EU) 2015/2366 as regards instant credit transfers in euro.

The amendments for Regulation (EU) No 260/2012 were as follows:

“Instant credit transfer” means a credit transfer which is executed immediately, 24 hours a day, and on any calendar day (European Union, 2024).

Taken together, these amendments demonstrate the clear direction the European Union intends to guide the growth and innovation in the instant payment space.

To further understand requirements for interoperability, the online commentary from the European Centre for Development Policy Management identifies four foundational needs.

First, the harmonising of policy and regulatory environments in the various countries. This will greatly address regulatory barriers such as licensing regulations, regulatory compliance requirements, and data protection laws to interoperability. The next step is to implement common standards and protocols for the exchange of data and messaging formats, blockchain technologies, and to embrace open application programming interfaces (APIs). In addition, there is a need to implement a standardised Model Context Protocol MCP in the financial ecosystem that will best represent what we want to achieve. Thirdly, it is to implement interoperability incentives such as supporting payment service providers to navigate the regulatory requirements and compliance obligations, providing access to new markets that involve additional customer segments or cross-border opportunities. Lastly is the need to promote mutually beneficial partnerships among payment service providers, including but not limited to sharing infrastructure and coordinating efforts to overcome technical, regulatory, and operational challenges (Ennatu Domingo, 2024).

Opportunities and Challenges for Africa in Adapting to EU Compliance Standards

Though the need to legislate, formalise, and standardise regulations, laws, and procedures is essential for Africa, it also presents a significant challenge for harmonisation.

In 2012, Ghana enacted the Data Protection Act (Act 843), a comprehensive piece of legislation that established key principles and created an enforcement structure overseen by the Data Protection Commission of Ghana (DPC). Act 843 drew heavily from European regulations and Western multinational conventions. In the Federal Republic of Nigeria, Section 37 of the 1999 Constitution grants citizens the right to privacy. The National Information Technology Development Agency (NITDA) sought to translate this right into the realm of personal data in 2019 through the Nigeria Data Protection Regulation (NDPR), which came into effect on 25 April of that year. However, the regulation left much to be desired in terms of adopting current standards and addressing grey areas, as the ecosystem continues to evolve.

Mauritius, on the other hand, revamped its regulatory regime by repealing the Data Protection Act (DPA) 2004 —largely based on the EU’s Data Protection Directive (DPD)—and adopting the DPA 2017 following the passage of the General Data Protection Regulation (GDPR). The most significant changes between the DPA 2004 and DPA 2017 included the implementation of data protection impact assessments, mandatory notification of personal data breaches, stricter security requirements for data processing, and clearer standards for lawful processing. This represents a forward-looking approach to adopting standards and ensuring compliance.

To standardise and prepare for a more inclusive, instant, and interoperable payments environment, Africa must be ready to adopt relevant standards. However, these standards should also include unique provisions that adequately address the continent’s specific challenges. Africa is poised for a surge in transactions that could significantly boost intra-African trade and facilitate the transfer of wealth to its population. This vibrant ecosystem will serve as a catalyst for the development of new products and services that better meet the needs of its population (Bryant, 2021).

 

Inclusive, instant, and interoperable payments across Africa must be vigorously pursued to reduce costs, shorten cross-border transaction times, and strengthen oversight of payment systems. While substantial progress has been made since the introduction of instant payments in 2022, gaps remain in regulatory harmonisation, technological infrastructure, and commercial collaboration. Achieving full interoperability will require coordinated efforts among regulators, central banks, financial institutions, fintechs, and regional bodies such as the African Continental Free Trade Area (AfCFTA). Beyond infrastructure, building confidence, ensuring transparency, and investing in consumer education will be key to driving adoption and ensuring inclusivity.

The success of initiatives such as the Pan-African Payment and Settlement System (PAPSS) demonstrates that continental integration is achievable with the right governance and incentives. Ultimately, Africa’s economic integration and sustainable growth will be the greatest beneficiaries, creating shared opportunities across the continent.

 

By Godfred Oti-Boadi
SOC Analyst at Prudential Bank Ghana
Digital Frontiers Institute Alum

 

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