Pan‑African Payment and Settlement System: Catalyst for AfCFTA & Intra‑African Trade

The Pan‑African Payment and Settlement System (PAPSS) is the first continent‑wide, multi‑currency payment infrastructure for Africa. Officially launched by the African Export–Import Bank (Afreximbank) and the African Union in December 2022, PAPSS was designed to eliminate the need for U.S. dollar–based correspondent banking in intra‑African trade and realize the full potential of the African Continental Free Trade Area (AfCFTA) . By enabling real‑time gross settlement in local currencies, PAPSS reduces payment costs by up to 70 percent and cuts settlement times from days to seconds . This system addresses long‑standing barriers—currency risk, high fees, and slow transfers—that have hampered African businesses.

PAPSS aligns directly with AfCFTA’s core objective: create a single market for goods, services, persons, and capital across 54 African nations. Under AfCFTA, intra‑African trade is projected to increase by 33 percent, adding $70 billion in exports annually by 2035. However, legacy payment mechanisms risk derailing these gains. PAPSS offers the technical and regulatory foundation to undergird a truly integrated African economy.

Pan‑African Payment and Settlement System & AfCFTA Objectives

The African Continental Free Trade Area, operational since January 1, 2021, seeks to boost intra‑African trade from the current 17 percent of total African trade to at least 50 percent by 2040 . By eliminating tariffs on 90 percent of goods and harmonizing non‑tariff measures, AfCFTA aims to foster industrialization, economic diversification, and sustainable development across member states .

Pre‑Pan‑African Payment and Settlement System Payment Challenges

Before PAPSS, cross‑border payments in Africa depended heavily on correspondent banks often based outside the continent. This model imposes:

• High transaction costs: Average fees range from 5 percent to 12 percent of the transaction value .
• Long settlement times: Transfers can take 3–5 business days, delaying working‑capital cycles for SMEs .
• Currency risk: Fluctuating exchange rates and limited liquidity in African currencies increase unpredictability for traders and banks .

These frictions suppress trade volumes and inflate the cost of goods. Small and medium enterprises, the backbone of African economies, bear the brunt, with many unable to access affordable cross‑border payment channels.

How Pan‑African Payment and Settlement System Works

Technical Architecture

PAPSS operates as a two‑pillar system: a clearing platform and a settlement platform. The clearing platform nets payment orders across participant banks, calculating multilateral net positions. The settlement platform, overseen by the Pan‑African Payments and Settlements Oversight Board, finalizes these net positions in central‑bank money .

Role of Central and Commercial Banks

Central banks in participating countries hold accounts with PAPSS. When a commercial bank initiates a cross‑border transfer, PAPSS debits the sender’s local‑currency account at its central bank and credits the recipient’s local‑currency account at the beneficiary central bank—eliminating correspondent‑bank intermediaries . Commercial banks can join PAPSS directly or via sponsored access arrangements, widening outreach to SMEs and corporates.

Currency Convertibility Mechanism

PAPSS incorporates a built‑in foreign‑exchange matching engine. It aggregates buy and sell orders for various local currencies, continuously matches them, and executes trades at transparent rates. This on‑platform FX mechanism enhances liquidity in less‑traded African currencies and shields users from volatile off‑market rates .

Security and Compliance

PAPSS uses ISO 20022 messaging standards, advanced encryption, and multi‑factor authentication. A real‑time monitoring dashboard tracks suspicious activities, ensuring compliance with Anti‑Money Laundering (AML) and Counter‑Terrorist Financing (CTF) regulations across jurisdictions .

Benefits of Pan‑African Payment and Settlement System for AfCFTA

Reduced Transaction Costs

By cutting out correspondent banks, PAPSS lowers fees by up to 70 percent. For a $10,000 transfer, savings can exceed $700. Funds that SMEs can reinvest in operations, inventory, or workforce development .

Faster Settlement Times

PAPSS settles payments in real time, typically within seconds. This acceleration transforms working‑capital cycles, enabling traders to fulfill orders faster, negotiate better terms, and manage cash flows more efficiently .

Enhanced Transparency and Risk Mitigation

All transactions on PAPSS are fully auditable, with end‑to‑end traceability. The integrated FX engine provides transparent exchange rates determined by market forces, reducing the hidden costs and risks associated with opaque, off‑platform FX transactions .

Financial Inclusion

PAPSS’s sponsored access model allows smaller banks and fintechs to plug into the system, extending cross‑border payment capabilities to underbanked SMEs and individuals. This democratization of trade finance fosters broader participation in AfCFTA’s single market .

Impact of Pan‑African Payment and Settlement System on Intra‑African Trade

Early Pilot Results

Since its December 2022 pilot, PAPSS has processed over $50 million in transactions across five corridors, including Nigeria‑Ghana, Kenya‑Uganda, and South Africa‑Botswana . Average daily volume has grown by 15 percent month‑on‑month, indicating strong uptake among corporates and banks.

Case Study: Nigeria–Ghana Corridor

On the Nigeria–Ghana corridor, transaction costs fell from an average of 8 percent to 2 percent. Trade volumes in agricultural exports (cocoa, cashew) grew by 12 percent within six months of PAPSS adoption, according to Afreximbank data .

Broader Trade Growth

Econometric models project that full PAPSS deployment could boost intra‑African trade by an additional $20 billion annually by 2027, supporting AfCFTA’s target of $90 billion in new trade flows by 2030 .

Pan‑African Payment and Settlement System Challenges & Future Outlook

Regulatory Harmonization

Differences in national payment regulations, capital controls, and FX regimes pose a hurdle. Coordinated policy action through the African Union and regional economic communities is needed to standardize rules and ensure mutual recognition of payments .

Technology Adoption Barriers

Some smaller banks and fintechs lack the technical capacity or capital to integrate with PAPSS. Capacity‑building programs and public–private partnerships can bridge this gap, ensuring broad‑based participation .

Roadmap for Continental Rollout

Over the next two years, PAPSS plans to onboard all AfCFTA member states, expand the FX matching engine to cover all 54 currencies, and integrate with major pan‑African and global fintech platforms. Strategic partnerships with SWIFT and regional payment schemes will further enhance interoperability .

In conclusion, the Pan‑African Payment and Settlement System is a game‑changer for AfCFTA and intra‑African trade. By slashing costs, accelerating settlements, and enhancing transparency, it lays the financial infrastructure for a truly integrated African market. Policymakers must harmonize regulations, and banks must embrace the technology to unlock PAPSS’s full potential. Businesses and SMEs should explore sponsored access to seize new opportunities in cross‑border trade. As PAPSS scales across the continent, it will help realize Africa’s long‑held dream of seamless economic integration and shared prosperity.