CBN urges financial institutions to accept, recommend PAPSS to businesses in Nigeria

The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has said that the financial institutions under its jurisdiction will accept the Pan-African Payment and Settlement System (PAPSS) and recommend it to businesses across Nigeria.

Emefiele said this in Accra, Ghana, during the recent launch of PAPSS.

The CBN governor described PAPSS as a breakthrough achievement for the continent, saying it would help facilitate trade and enhance payment gateways across West Africa.

Speaking at the event, Emefiele said, “CBN will ensure the financial institutions under its jurisdiction accept PAPSS and recommend it to businesses across Nigeria.”

According to Emefiele, the new payment method will aid in the formalisation of trade on the continent, as well as benefit households, businesses, and financial institutions.

With the infrastructure supplied by PAPSS, he estimates that intra-African trade will expand to 35 per cent from 15 per cent in the next five years.

He also mentioned that, given the rapid rate of digitalisation in financial services, the PAPSS could be a potential platform for boosting e-commerce in Africa.

“Businesses can be assured of an efficient and reliable payment gateway that supports the instant flow of funds and relatively the use of safe payment channels that usually comes at a high cost to households and businesses.

“Prior to the launch of PAPSS, settlements for Intra-Africa trade required a third currency and a non-African correspondent bank. This resulted in an estimated loss of close to $5bn annually and undermined trade in African countries. The launch of PAPPS gives fresh opportunities and aspirations for the African continent. It will simplify cross-border transactions, reduce third currencies for intra-African transactions and remove the need for correspondent banks and ultimately amplify Intra trade significantly,” he said.

The PAPSS was officially launched as a pan-African payment and settlement platform for commercial use on Thursday, January 13, 2022 in Ghana following the operational roll-out of the platform on Tuesday, September 28, 2021.

The PAPSS Governing Council chaired by Nigeria’s CBN Governor, Godwin Emefiele, and the PASS Management Board chaired by Benedict Oramah, have expressed optimism on the prospects of the platform for Africa.

It is a centralised payment and settlement infrastructure developed to bolster the implementation of trading in local currencies within the African markets.

Thus, facilitators of the PAPSS infrastructure intend to eliminate or at best significantly reduce the costs of currency conversion and the high settlement cost in Africa.

The African Continental Free Trade Area (AfCFTA) secretariat and the African Export-Import Bank (Afreximbank) are the main organisations behind the PAPSS.

The system also garners support from leading financial institutions in the continent. While Afreximbank is the main settlement agent in collaboration with participating Central Banks in Africa, the African Continental Free Trade Area (AfCFTA) secretariat, with the endorsement of the African Union (AU), would facilitate the implementation of the payment infrastructure.

On how it works, experts say those who have settlement accounts with relevant central banks would issue direct credit instruction to initiate settlement on the real-time gross settlement (RTGS) systems of the central banks and the PAPSS.

Then, the RTGS credits the pre-funded account of the direct participant and alerts the PAPSS platform. The PAPSS, in turn, credits the clearing account of the direct participants. Indirect participants -those without RTGS account- must leverage sponsorship agreement to fund or defund their clearing accounts through the direct participants.

Owing to the high speed of the real-time payment process, PAPSS must guarantee that funds are available to complete the originator’s transaction before effecting the movement of debits and credits between participants’ accounts. Invariably, the participants must agree to a pre-funding arrangement.

Overall, analysts at Proshare Limited said the Pan-African Payment and Settlement System is set to resolve one of the main challenges in the implementation of the AfCFTA and intra-African trade.

The infrastructure would enable effective and efficient flow of funds securely across Africa, minimising risk, and saving multi-billion dollars in payment and settlement charges, thereby boosting intra-Africa trade.