The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has said that financial institutions under his jurisdiction will accept the Pan African Payments and Settlement System (PAPSS) and recommend it to businesses in Nigeria.
Emefiele said so in Accra, Ghana at the recent launch of PAPSS.
The CBN Governor described the PAPSS as a game-changing achievement for the continent, saying it would help facilitate trade and improve payment gateways across West Africa.
Speaking at the event, Emefiele said, “The CBN will ensure that financial institutions under its jurisdiction accept PAPSS and recommend it to businesses in Nigeria.”
According to Emefiele, the new mode of payment will contribute to the formalization of trade on the continent, as well as to households, businesses and financial institutions.
With the infrastructure provided by PAPSS, he estimates that intra-African trade will increase from 15% to 35% over the next five years.
He also mentioned that given the rapid pace of digitization of financial services, PAPSS could be a potential platform to boost e-commerce in Africa.
“Businesses can be assured of an efficient and reliable payment gateway that supports the instant flow of funds and relatively safe payment channels that are typically expensive for households and businesses.
“Before the launch of PAPSS, settlements for intra-African trade required a third currency and a non-African correspondent bank. This resulted in an estimated loss of nearly $5 billion per year and undermined trade in African countries. The launch of PAPPS offers new opportunities and aspirations for the African continent. This will simplify cross-border transactions, reduce third party currencies for intra-African transactions and remove the need for correspondent banks and ultimately greatly amplify intra-African trade,” he said.
The PAPSS was officially launched as a pan-African payment and settlement platform for commercial use on Thursday, January 13, 2022 in Ghana following the operational deployment of the platform on Tuesday, September 28, 2021.
The PAPSS Board, chaired by Nigerian CBN Governor Godwin Emefiele, and the PASS Board, chaired by Benedict Oramah, expressed optimism about the platform’s prospects for Africa.
It is a centralized payment and settlement infrastructure developed to enhance the implementation of local currency trading in African markets.
Thus, the PAPSS infrastructure enablers intend to eliminate or at best significantly reduce currency conversion costs and the high cost of settlement in Africa.
The African Continental Free Trade Area (AfCFTA) Secretariat and the African Export-Import Bank (Afreximbank) are the main organizations behind PAPSS.
The system also enjoys the support of major financial institutions on the continent. While Afreximbank is the primary settlement agent in conjunction with participating African central banks, the African Continental Free Trade Area (AfCFTA) Secretariat, with the endorsement of the African Union (AU), would facilitate the implementation of the payment infrastructure.
On how it works, experts say that those with settlement accounts with relevant central banks would issue direct credit instructions to initiate settlement on central banks’ real-time gross settlement (RTGS) systems and the PAPSS.
Then, the RTGS credits the pre-funded account of the direct participant and alerts the PAPSS platform. The PAPSS, in turn, credits the clearing account of direct participants. Indirect participants – those who do not have an RTGS account – must take advantage of the referral agreement to fund or defund their clearing accounts through the direct participants.
Due to the speed of the real-time payment process, PAPSS must ensure that funds are available to complete the originator’s transaction before moving debits and credits between participant accounts. Invariably, participants must agree to a pre-financing arrangement.
Overall, analysts from Proshare Limited said that the Pan-African Payments and Settlement System is poised to solve one of the key challenges in the implementation of the AfCFTA and intra-African trade.
The infrastructure would enable the safe and efficient flow of funds across Africa, minimizing risk and saving billions of dollars in payment and settlement fees, thereby boosting intra-African trade.