In a continent as diverse and interconnected as Africa, the ability to facilitate seamless cross-border transactions is essential for economic growth.

Historically, making payments across African borders has been complex, expensive, and time-consuming. Enter the Pan-African Payment and Settlement System (PAPSS) – a transformative infrastructure designed to redefine how cross-border payments are processed across the continent. With PAPSS, the future of intra-African trade looks more promising than ever.

What is PAPSS?

The Pan-African Payment and Settlement System (PAPSS) is a financial market infrastructure developed to streamline and accelerate cross-border payments across Africa.

It connects banks, payment service providers, and financial intermediaries, enabling instant and secure transactions in local currencies. This innovation eliminates the need for intermediaries or foreign currency conversions, reducing both costs and the time required for settlement.

By simplifying the payment process, PAPSS is not just an infrastructure; it’s a catalyst for economic transformation. It opens up new possibilities for businesses, financial institutions, and governments, promoting better financial inclusion and increasing access to diverse markets across Africa.

How PAPSS Works: A Seamless Process

PAPSS operates through three core processes that ensure the smooth execution of cross-border transactions:

1. Instant Payments

One of the most transformative features of PAPSS is its instant payment capability. Previously, cross-border payments required conversion to foreign currencies, which extended the transaction timeline to several days.

PAPSS eliminates this by allowing originators to issue payment instructions in their local currencies directly. Transactions are processed within 120 seconds, ensuring near-instant payments across borders.

How It Works:

• The payment originator sends an instruction in their local currency to their financial institution.
• The transaction undergoes compliance, legal, and sanctions checks instantly.
• The beneficiary receives the payment within two minutes in their local currency.

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2. Pre-Funding

To guarantee the availability of funds, PAPSS employs a pre-funding mechanism. This ensures that participants have the necessary liquidity before initiating a transaction, reducing the risk of payment failures.

How It Works:

• Direct participants (banks with central bank accounts) issue credit instructions to the central bank’s Real-Time Gross Settlement (RTGS) system.
• Indirect participants (without RTGS accounts) access liquidity through direct participants.
• PAPSS notifies all relevant parties throughout the process via the ISO 20022 messaging standard.

3. Net Settlement

PAPSS ensures prompt settlement by conducting net settlements across participating central banks at a designated time each day (currently 11:00 UTC).

How It Works:

• PAPSS calculates the net position for each participating central bank.
• Settlement is completed through the central bank’s RTGS system.
• Notifications are provided to all stakeholders, ensuring transparency and accountability.

Key Features of PAPSS

PAPSS is not just about faster payments; it offers a comprehensive solution for modernising African financial systems:

• Instant and Irrevocable Credits: Payments are final and non-reversible once completed.
• 24/7 Availability: The system operates continuously, supporting transactions anytime, any day.
• Global Standards: Adopts the ISO 20022 messaging standard for interoperability and detailed payment data.
• Enhanced Security: Integrates advanced cybersecurity protocols and machine-learning-based fraud detection.
• Immediate Confirmation: Both originators and beneficiaries receive instant payment notifications.

Overlay Services: Enhancing Payment Options

PAPSS extends its core offerings with additional services designed to meet the diverse needs of financial institutions and their customers:

• Request to Pay (R2P): Enables real-time invoicing and collection of payments for businesses and service providers.
• Escrow Service: Provides secure holding of funds until transaction completion, ensuring safer trade.
• Remittance Service: Offers low-cost, real-time remittances across African borders.
• Proxy Addressing: Allows payments using alternative identifiers like phone numbers or email addresses.
• Sanctions Screening: Ensures compliance by screening transactions against global sanctions databases.

The Benefits of PAPSS: A Game-Changer for Africa

PAPSS brings transformative benefits to various stakeholders across Africa, including banks, businesses, governments, and individual consumers. Some key advantages include:

For Financial Institutions:

• Reduced Costs and Complexity: Eliminates the need for multiple correspondent banks.
• Faster Service: Provides real-time payment capabilities to customers.
• Innovation Platform: Supports the development of new financial products and services.

For Businesses and Consumers:

• Instant Cross-Border Payments: Facilitates real-time payments without currency conversions.
• Better Cash Flow: Accelerates transactions, improving liquidity for businesses.
• Increased Access: Enhances financial inclusion for underserved communities.

For Governments and Central Banks:

• Reduced Foreign Exchange Pressure: Minimises reliance on foreign currencies for intra-African trade.
• Greater Transparency: Improves oversight and compliance with anti-money laundering laws.
• Economic Growth: Encourages trade, investment, and cross-border commerce.

Types of PAPSS Participants

PAPSS categorises participants into two groups based on their access to central bank settlement accounts:

• Direct Participants: Banks and financial institutions with a central bank settlement account. They handle pre-funding and facilitate transactions directly.
• Indirect Participants: Institutions without direct access to central banks, requiring a partnership with a Direct Participant for liquidity.

Central banks hold a unique dual role, acting both as national settlement agents and as Direct Participants with oversight responsibilities.

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Driving Africa’s Financial Future

The introduction of PAPSS marks a pivotal step toward enhancing Africa’s financial independence and economic integration.

By simplifying and accelerating cross-border payments, PAPSS addresses long-standing challenges and unlocks new economic opportunities.

It empowers financial institutions to innovate, enables businesses to grow, and promotes stronger economic ties across African nations.

As PAPSS continues to expand, it stands as a shining example of innovation, promising a future where cross-border payments are no longer a barrier but a bridge to Africa’s collective prosperity.