The dream of an integrated market in Africa seems to be coming to reality with the recent introduction of the Pan-African Payment and Settlement System (PAPSS)
PAPSS is a game-changer when it comes to trade in Africa. A participant in one African country pays in their currency, while a seller in another country receives payment in their currency.
PAPSS is the first centralized payment market infrastructure for intra-African trade and commerce payments processing, clearing, and settlement. The Afreximbank established it in collaboration with the West African Monetary Institute (WAMI).
After a successful pilot in the West African Monetary Zone (WAMZ), the payment system was launched commercially. Gambia, Gambia, Ghana, Guinea, Liberia, Nigeria, and Sierra Leone make up the WAMZ, a West African economic and integration organization.
Secretary-General of AfCFTA, H.E Wamkele Mene said that PAPSS would boost intra-Africa trade as cross-border payments will become less reliant on third currencies, earning the continent an average of $5 billion annually.
How Governments and central banks are connecting with PAPSS
PAPSS has a dual role for central banks. Through their Central Bank Settlement Membership, they operate as the national settlement agent for each country, as well as a Direct participant with all of the benefits that Direct Participants in PAPSS provides.
Some of the benefits to the government are :
- Easing the pressure on current accounts and decreased foreign exchange liquidity.
- Increased transparency bringing greater oversight of cross-border transactions, creating more confidence and increasing potential to generate revenue.
- Enhanced financial inclusion and improved economic growth.
How PAPSS helps consumers
Businesses large and small, as well as individuals, whose payments and remittances are being processed through PAPSS benefit from:
- Instant/near instant payments across African borders without converting to different currencies.
- Improved working capital through payment certainty and faster transactions.
- Access to various payment facilitating options for millions of Africans including those previously underserved.
How instant payments work
Instant payment eliminates the requirement for participants to convert local currencies into hard currencies, which required cash to leave Africa, be converted, and then remitted back to the beneficiary bank, adding days to the transaction time.
Compliance, legal, and sanctions checks are also performed quickly within the system, according to the company. The payment process is completed in less than 120 seconds.
How pre-funding works
The system must ensure that funds are available to complete the originator’s transaction before effecting the transfer of debits and credits between participants’ accounts, due to the rapidity of the real-time payment process, it is observed.
As a result, participants must agree to a pre-funding arrangement. In the pre-funding process, direct participants integrate directly with PAPSS and central bank real-time gross settlement (RTGS) systems. Indirect participants, who do not have an RTGS account, can fund or defund their clearing accounts on the system with the help of a direct participant who provides the requisite liquidity.
The ISO 20022 communications standard is used to send notifications to PAPSS, the participants, and RTGS about the progress of each stage of the transaction.
How settlement works
The Pan-African Payments and Settlement System must deliver speedy settlement within 24 hours. Net settlement between all participating central banks occurs at the same time every day, at 11.00 UTC.
Similar to the pre-funding method, notifications are transmitted over an ISO 20022 messaging system, informing PAPSS, the participants, and RTGS of the transaction’s status at each stage.
The system’s primary function is its instant payment system, which provides wholesale and retail real-time payments as well as bank and payment service provider connectivity, as previously indicated.
Key features of PAPSS instant payment are: instant and irrevocable credits to customer accounts;
- Immediate confirmation to both originator and beneficiary;
- Service availability 24/7, 365 days a year;
- ISO 20022 global message standard allowing interoperability,
- Large data sets and rich data for payment and remittance information; and
- Secure infrastructure, incorporating cyber-security and payment fraud systems underpinned by behavioral analytics and machine learning capabilities.