Regulatory Harmonisation for IIPS in Africa: Challenges and Opportunities

Africa’s financial landscape is on the cusp of a revolution with the advent of Instant and Inclusive Payment Systems (IIPS), promising to enhance transaction efficiency, reduce costs, and extend financial services to the unbanked and underbanked populations. AfricaNenda’s latest publication underscores the progress towards regulatory harmonisation in cross-border retail payments, a critical step for IIPS integration. 

Challenges on the Horizon 

The journey towards a fully integrated IIPS in Africa is not without its obstacles. Regulatory divergence remains a significant barrier, with each country’s unique financial rules impeding seamless payment system integration. The Pan-African Payment and Settlement System (PAPSS) exemplifies the potential of continent-wide platforms, yet local market integration requires navigating diverse technological landscapes. 

Licensing barriers also present hurdles, as payment providers grapple with varying Customer Due Diligence (CDD) requirements across jurisdictions. Standardised cross-border licenses could unlock IIPS’s full potential, facilitating smoother operations across different regions 

• Cultural Shifts and Collaboration 

Despite digital advancements, cash dependency persists, particularly for small transactions, reflecting the broader issue of financial exclusion. Transitioning to digital platforms necessitates not only infrastructure but also a cultural shift towards cashless transactions, supported by incentives and financial education. A fragmented payment ecosystem, marked by insufficient collaboration among banks, fintechs, and other stakeholders, hinders the development of a unified IIPS framework. Enhanced collaboration is essential for creating interoperable systems that benefit all parties. 

• Investing in the Future 

The high costs associated with payment infrastructure development, alongside digital limitations, pose significant barriers, particularly in remote or underserved areas. Investments in technology and partnerships with tech providers are vital for accessible IIPS. Consumer literacy is another critical factor for IIPS success. Limited financial literacy can impede the adoption and effective use of payment platforms, necessitating targeted educational initiatives to foster trust and confidence in IIPS. 

• Inclusivity and Innovation

The involvement of nonbank financial service providers in governance structures and payment schemes is crucial for addressing the needs of all stakeholders. Inclusive policies encouraging broader participation can enhance the ecosystem. A complex regulatory environment, characterised by opacity and data protection concerns, can stifle innovation. A transparent and supportive regulatory framework, while safeguarding consumer data, is necessary to encourage innovation and inclusivity. 

Strategic Collaboration for a Unified Framework 

To overcome these challenges, African countries must collaborate strategically. Establishing a unified regulatory framework is paramount, harmonising policies and regulations to ease cross-border transactions and setting common standards for security, consumer protection, and financial inclusion. Infrastructure development is another area where countries can join forces, pooling resources to invest in the technological and physical infrastructure necessary for IIPS, thereby ensuring connectivity and accessibility. 

Capacity building through collaborative efforts can enhance the technical skills of regulators and financial service providers, ensuring the continent’s expertise in managing and innovating within the IIPS space. Consumer education and engagement are also key, with public campaigns and financial literacy programmes driving adoption and increasing trust in digital financial services. Lastly, fostering a collaborative innovation ecosystem is crucial. Partnerships between governments, financial institutions, fintech startups, and other stakeholders can lead to the development of new financial products and services, attracting investment and support from international organisations.  

Regulatory harmonisation for IIPS in Africa presents a complex yet rewarding path. Embracing a unified regulatory framework can unlock the full potential of digital financial services, driving socio-economic development and financial inclusion. The State of Inclusive Instant Payment System (SIIPS) in Africa 2023 report by AfricaNenda, in partnership with the World Bank and United Nations Economic Commission for Africa (UNECA), offers comprehensive insights into the challenges and strategies for overcoming them, serving as an essential resource for stakeholders across the continent. By working together, Africa can pave the way for a more inclusive financial future. 

 

Girum Fekadu Diriba, CDFP
DFS Risk Manager at Ethiopost
DFI Alumni, Community Member and AfricaNenda Community of Practice (ANCoP) Ambassador

 

Established in 2015, Digital Frontiers Institute is a proud brand of Digital Frontiers. Learn more about the Instant and Inclusive Payment Systems (IIPS) programme and find out how to enrol: https://iipscertification.org/