Guides and tips

    September 17, 2024

    Beyond wire transfers, three unorthodox methods for cross-border payments in Africa

    Cross-border payments have become indispensable for processing international trade, remittances, and economic development, and Africa is no exception to this trend in this era of globalisation.

    However, the payment landscape in Africa has long been plagued with challenges, including high costs and limited accessibility. Both corporate entities and individuals seeking to conduct cross-border payments from Africa rely heavily on wire transfers.

    Wire transfers are commonly used for international payments because of their convenience and speed. However, they often incur high transfer fees and are susceptible to exchange rate fluctuations.

    Beyond wire transfers, other means are available for businesses and individuals conducting cross-border payments from Africa. Before we explore those means, let’s take an extensive review of the current state of cross-border payments in Africa.

    The current state of cross-border payments in Africa

    Small and medium-sized businesses in Africa rely heavily on cross-border payments to facilitate exports and imports. One persistent challenge has been processing payments overseas seamlessly.

    Business owners resort to various means, such as bank wire transfers, offshore foreign accounts, and other methods to process cross-border payments to their overseas counterparts.

    Bank wires remain the most utilised method for cross-border payments, as banks have established partnerships with correspondent banks globally to facilitate transactions. However, this traditional system is fraught with challenges, including high costs, lack of transparency, and insufficient liquidity. 

    Cross-border payments involving African currencies typically take 3-5 days to complete. This is quite challenging for businesses, especially when the demand for instant payments grows globally.

    There has been a surge in the emergence of fintech payment solutions to address the challenges of cross-border payments in Africa. These tech solutions differ from wire transfers and are available in most African countries.

    These startups leverage blockchain technology, artificial intelligence, and digital solutions to facilitate faster, cheaper, easier, and more secure payments. There has also been a trend toward integrating African payment systems with global networks to enhance interoperability, investment, and the smooth flow of international trade.

    Payment systems enabling cross-border payments from Africa

    Digital wallets: These are technology-based platforms that provide innovative payment solutions for consumers and businesses. Leading digital payment innovations, such as Klasha, simplify cross-border payment to and from Africa by enabling Africans to send and receive money globally in their local African currencies. These platforms provide seamless, low-cost solutions for businesses and consumers to send and receive payments across borders.

    Mobile money solutions: The widespread adoption of mobile money solutions, such as M-Pesa and MTN Mobile Money in Africa, has revolutionised how Africans conduct cross-border payments. With over 280 million registered accounts and $495 billion in transactions in 2020, mobile money has become a cornerstone of financial transactions on the continent. It allows users to send and receive money domestically and internationally, providing a convenient and accessible alternative to traditional banking services.

    Blockchain and cryptocurrencies: Blockchain technology and cryptocurrencies have revolutionised cross-border payments in Africa. They alleviate the friction and barriers that impede money flow across borders, unlocking numerous opportunities and benefits for individuals, businesses, and organisations involved in the transactions. In sub-Saharan Africa, the impact of cryptocurrency payments has been steadily growing. Nigeria has seen an increase in cryptocurrency transaction volumes, rising by 9% year-over-year to $56.7 billion between July 2022 and June 2023. 96% of Africa’s cryptocurrency volume is attributed to cross-border payment. Blockchain-based payment solutions provide faster, cheaper, and more secure alternatives to traditional remittance services through decentralised networks and digital currencies.

    How Klasha powers cross-border payments to and from Africa

    Klasha is a leading global cross-border payment provider dedicated to simplifying transactions to and from Africa. Offering a suite of solutions, including payment rails, APIs, Multi-currency IBANS, and virtual USD cards, Klasha is reshaping the landscape of cross-border payments in Africa.

    With Klasha, Africans can seamlessly pay suppliers and business partners overseas in their local African currencies while the recipients get the equivalent in their preferred hard currencies. Similarly, global businesses outside Africa can seamlessly accept payments in local African currencies and receive payouts in USD, EUR, CNY, and more.

    To learn more about Klasha’s cross-border payment solution and how you can adopt any of the payment solutions to your specific use case, click here or speak to our sales team.