[The African Monetarist]

Pan-African Payment

Systems as a

Geopolitical Hedge

and Cost-Efficiency

Strategy:

Redefining Africa’s

Financial

Infrastructure.

 

 

 

 

Abstract: Africa is undergoing a significant transformation in financial infrastructure, driven by the need to reduce reliance on the U.S. dollar and increase the efficiency of cross-border payments. The emergence of systems like the Pan-African Payment and Settlement System (PAPSS) and the Arab Regional Payment System (BUNA) marks a strategic shift toward financial sovereignty and integration. This article explores the geopolitical and economic imperatives behind these innovations, their implications for investors, and the structural challenges that must be addressed to unlock their full potential.

 

1. Introduction: A Quiet Revolution in African Finance.

 

Africa’s $4 trillion economy is poised for transformative growth, yet it remains constrained by legacy financial systems ill-suited for the demands of modern, interconnected markets. Cross-border payments within Africa are still largely routed through correspondent banks in Europe or North America, creating excessive delays, costs, and exposure to extraterritorial regulations. In response, Africa is engineering its own financial infrastructure with the aim of achieving monetary sovereignty, lowering transaction costs, and supporting the African Continental Free Trade Area (AfCFTA).

 

Systems such as PAPSS and BUNA are increasingly being adopted across the continent, serving not only as tools of efficiency but also as hedges against geopolitical risk, particularly the overdependence on the U.S. dollar in international trade.

 

2. The Geopolitical Imperative: De-Dollarization and Strategic Autonomy.

 

The U.S. dollar’s role as the global reserve currency has long served as both a convenience and a constraint for African economies. On one hand, dollar-denominated trade facilitates participation in global markets. On the other, it introduces volatility, dependency, and vulnerability to external shocks and sanctions. Countries such as Nigeria, South Africa, and Kenya face not only currency mismatches but also the real threat of dollar-denominated asset freezes during geopolitical tensions.

 

PAPSS offers a compelling alternative. By enabling real-time settlement in local currencies among participating countries, it bypasses the need for dollar conversion and intermediary institutions. Operational in over 15 countries and integrated with more than 150 banks, PAPSS is projected to save African economies up to $5 billion annually in foreign exchange conversion costs. This localized payment model insulates African economies from U.S. monetary policy shifts and political sanctions, fostering resilience in an increasingly multipolar world.

 

3. Economic Efficiency: Quantifying the Gains.

 

Traditional cross-border transactions via SWIFT and legacy banks can take several days and cost anywhere from 0.5% to 10% of transaction value. In contrast, PAPSS and BUNA offer near-instant settlements at substantially lower cost.

 

For example, a $1 million business-to-business transfer between Nigeria and Kenya processed through PAPSS incurs fees of approximately $2,150, compared to over $100,000 under conventional systems. Similarly, BUNA’s integration of Arab and African banks allows Egyptian and Emirati firms to transact in local currencies, reducing intermediary costs by up to 80%.

 

These cost reductions have far-reaching implications for trade-intensive sectors such as agriculture, logistics, and manufacturing. Faster, cheaper payments enhance liquidity, reduce working capital constraints, and support the development of pan-African value chains.

 

4. Investment Implications: Capturing Structural Alpha.

 

For investors, the strategic deployment of capital into Africa’s new payment architecture represents a dual bet on efficiency and sovereignty. Opportunities span three main categories:

 

4.1 Core Infrastructure Providers:

Banks integrated with PAPSS—such as KCB Group (Kenya) and Bank of Kigali (Rwanda)—are likely to benefit from enhanced transaction volumes and fee income. KCB’s 30% year-to-date rally in 2025 reflects growing investor confidence in its regional strategy.

 

Domestic payment switches, such as Ethio-Switch (Ethiopia) and Nigeria’s NIP, are vital connectivity layers for PAPSS. These platforms may become targets for partnerships or acquisitions by global payment processors like Visa or Mastercard.

 

4.2 Regional Champions and AfCFTA Enablers:

Firms facilitating intra-African and Arab-African trade, including Emirates NBD (UAE) and Commercial International Bank (Egypt), stand to gain from the growing use of BUNA. Meanwhile, companies embedded in AfCFTA-aligned value chains—such as Tsehai Logistics or Jumia’s B2B arm—benefit from reduced friction in cross-border commerce.

 

4.3 Digital Currency Innovators:

Digital currencies such as Nigeria’s eNaira and Ghana’s e-Cedi represent a frontier for Africa’s digital payments market, currently valued at over $400 billion. If implemented effectively, they could offer a model similar to China’s digital yuan, with long-term upside for blockchain infrastructure providers and early investors.

 

5. Risks and Challenges: Navigating Fragmentation.

 

Despite the promise, several risks merit attention:

 

Regulatory Fragmentation: Ten African countries remain on the Financial Action Task Force (FATF) grey list, complicating compliance and increasing the cost of capital. Investors are advised to prioritize jurisdictions with clear, harmonized financial regulations, such as Kenya and Senegal.

 

Currency Instability: The volatility of African currencies remains a concern. PAPSS’s use of a currency basket for settlements helps mitigate individual currency risk but does not eliminate systemic shocks.

 

Legacy Infrastructure: Many smaller banks still operate on ISO 8583 messaging standards, while modern systems like PAPSS require ISO 20022 compliance. Investors should favor institutions investing in core banking modernization and API integration (e.g., MTN Mobile Money).

 

6. Conclusion: Rewriting the Global Financial Rulebook.

 

Africa’s new payment systems represent more than a cost-saving mechanism—they signal a structural realignment in global finance. By developing autonomous, interoperable financial infrastructure, the continent is reducing external vulnerabilities and paving the way for deeper regional integration.

 

For investors, the thesis is compelling: back the institutions and technologies driving this transformation. The combination of geopolitical hedging, cost efficiency, and demographic growth positions Africa’s financial ecosystem as a cornerstone of long-term emerging market exposure. With GDP expected to exceed $6.5 trillion by 2030, the payoff for early movers could be significant.

 

Keywords: Pan-African Payment Systems, PAPSS, BUNA, de-dollarization, African finance, geopolitical risk, cross-border payments, financial infrastructure, investment strategy, digital currencies, AfCFTA.

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