How fintech is revolutionising remittance, trade between Africa and the world

BY MAYOWA AYODEJI OLANIYAN

In recent years, the financial landscape in Africa has transformed exponentially, fueled by the increasing growth of fintech startups.

These innovators are modernising cross-border payments, a critical function in a region characterised by varied currencies, fragmented payment systems, and an expansive diaspora community.

By addressing the inefficiencies in remittance services, fintech startups create avenues for people, enterprises, and governments across the continent to facilitate seamless transactions between African countries and the United States, Europe, and other Western nations.

CHALLENGES IN TRADITIONAL CROSS-BORDER PAYMENTS
For decades, cross-border payments involving African and Western nations have been plagued by inefficiencies, including high cost, slow transaction speeds and limited accessibility.

Traditional remittance channels, such as banks and established money transfer operators (MTOs), often charge exorbitant fees – sometimes exceeding 10 percent of the transaction value – making it expensive for individuals and businesses to send money between Africa and the rest of the world. Additionally, these transactions can take several days to complete, causing significant delays for time-sensitive trade and personal remittances.

Fragmented payment systems further compound the problem, as many African countries operate in silos with little interoperability between their financial infrastructures. This lack of integration created a reliance on intermediary banks, typically located in Western countries, which adds complexity and cost to cross-border transactions. These challenges disproportionately affect small and medium-sized enterprises (SMEs) and individuals who rely on remittances as a lifeline.

FINTECH’S DISRUPTIVE APPROACH TO REMITTANCE SERVICES

Fintech startups are leveraging technology to streamline friction in cross-border payments and address the longstanding challenges associated with traditional channels. By offering digital-first solutions, these companies are making it faster, cheaper and more convenient to send money across borders. Key innovations include:

1. Mobile money integration: Mobile money platforms have become a cornerstone of financial inclusion in Africa and fintech startups are building on this foundation to enable seamless cross-border transfers. Cross-border startups provide interoperable solutions that allow users to send and receive funds directly to and from mobile wallets, bypassing the need for traditional banking infrastructure.

2. Blockchain technology: Blockchain is playing an increasingly important role in reducing the cost and complexity of cross-border payments. Startups that leverage blockchain to facilitate real-time currency exchange and settlement, eliminating the need for multiple intermediaries and ensuring greater transparency in the process.

3. API-based platforms: Application programming interfaces (APIs) are enabling fintech to integrate with existing financial systems and create seamless cross-border payment experiences. These platforms simplify the process of sending money across different countries by providing a unified interface that supports multiple currencies and payment methods.

4. Fee transparency: Unlike traditional players, fintech startups prioritise fee transparency, ensuring users know exactly how much their transactions will cost. This approach builds trust and encourages greater adoption of digital remittance services.

ENABLING TRADE BETWEEN AFRICA AND THE WORLD 

Beyond personal remittances, fintech startups are driving the growth of cross-border trade by addressing payment bottlenecks that hinder commerce between Africa and Western countries. This includes enabling smoother transactions for exports and imports as well as empowering African businesses to access global markets.

Key contributions of fintech startups to cross-border trade include:

1. Real-time settlements: Fintech solutions enable businesses to settle cross-border transactions instantly, reducing the risk of payment delays and enhancing trust among trading partners.

2. Efficient currency exchange: At competitive exchange rates and by eliminating the need for a foreign intermediary bank, fintechs save money for businesses via currency conversion. This is particularly important on the African continent, where currency volatility may significantly dent trade margins.

3. Digital trade platforms: Fintech startups are developing comprehensive platforms integrating other trade facilitation services, such as logistics and supply chain management, with payments. This will lead to an end-to-end solution for conducting cross-border trade with reduced operational inefficiencies.

4. Empowerment of SMEs: Most of the economic activities in Africa are usually dominated by small and medium-sized enterprises, which often must surmount a lot of barriers in their quest to access traditional banking services. Financial inclusion startups offer specialized financial products that meet the unique needs of SMEs – such as micro-loans and invoice financing – that enable them to contribute more meaningfully to cross-border trade.

While fintech startups have made significant strides, it goes without saying that making cross-border payments still faces several challenges. Regulatory barriers, concerns about cybersecurity, and the generally relatively low internet penetration in some regions can hinder the scalability of fintech solutions. However, with continued innovation and collaboration of key stakeholders, the potential of fintech to transform Africa’s financial ecosystem is huge.

In conclusion, fintech startups have been at the forefront of addressing inefficiencies in remittance services that have enabled seamless cross-border trade between Africa and the rest of the world.

Innovators deploy technology to develop quicker, more affordable and accessible means of making payments; hence, not only do they contribute to economic growth, but they also foster increased financial inclusion. As Africa continues with this journey of economic integration with the rest of the world, the role of fintech in facilitating cross-border payments will remain indispensable.

Mayowa Ayodeji Olaniyan is a finance professional with a strong background in financial management, strategic planning, and risk analysis.