BD Insider: Is this the fix for Africa’s cross-border payment woes

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A solution that offers the promise of reduced cost and increased speed.

Is this the fix for Africa’s cross-border payment woes

🍔Quick Bite: Stablecoins offer a fast and cost-effective solution to Africa’s cross-border payment challenges, especially in remittances and trade. They promise efficiency but face hurdles like regulatory issues and limited tech access.

🧠 The Breakdown

As of 2020, there were 40.6 million African migrants, according to the African Europe Foundation. Cross-border payments, a lifeline for millions of Africans who depend on remittances and international trade, have long suffered from inefficiencies and high costs.

Recently, stablecoins—cryptocurrencies tied to stable assets like the US dollar—have been hailed as a promising solution to these challenges.

Broken yet booming

In 2024, African fintechs focused on cross-border payments have attracted significant funding despite a global downturn in venture capital investment. Startups like Waza, NALA, and Canza Finance raised millions of dollars this year, signalling strong investor appetite for solutions in this space. But why is cross-border payment both hard and hot?

At TechCabal’s Moonshot event, industry experts like Guy Stiebel, VP of Product at Cedar Money, and Moyo Sodipo, COO at Busha, shed light on why cross-border payments remain difficult. Stiebel attributed the inefficiency to outdated technology, pointing out that transmitting money messages—essentially the core function of payments—relies on antiquated systems. Sodipo, on the other hand, highlighted the regulatory complexities involved in operating across multiple countries and jurisdictions, which necessitates large compliance teams.

Despite these challenges, the market continues to expand, driven by remittance flows and international trade, especially as Africa’s diaspora grows and international business ties deepen.

The case for stablecoins

Stablecoins are poised to disrupt the cross-border payments space by addressing two critical issues: speed and cost. Traditional cross-border payments via systems like SWIFT are often slow, with settlement times spanning several days. They are also expensive, particularly in sub-Saharan Africa, which holds the unfortunate distinction of having the highest remittance costs globally. Per a report from the World Bank, sending money to sub-Saharan Africa costs an average of 7.8% per $200 sent, far exceeding the global average.

Stablecoins, built on blockchain technology, offer a much-needed alternative. Transactions on blockchain rails can settle almost instantly, eliminating the delays associated with traditional payment systems. Stablecoins like USDT (Tether) or USDC, which are pegged to the US dollar, provide the added benefit of price stability, a key consideration in regions where local currencies may be volatile.

As Guy Stiebel put it, “Stablecoins guarantee speed.” This advantage is especially appealing to African countries where remittance inflows are critical. In 2023, Nigeria alone received $19.5 billion in remittances, representing 35% of the total inflows to sub-Saharan Africa. Similarly, in Kenya, remittance inflows were larger than the country’s key exports—tourism, tea, and coffee—underlining the importance of efficient payment systems to these economies.

Remittances and intra-Africa trade

Remittances are a crucial lifeline for millions of Africans, especially in countries like The Gambia, where remittance inflows account for 23.3% of the country’s GDP. Yet, these funds often face high fees and long delays. Stablecoins could drastically reduce the cost of sending money home, while also speeding up transactions, making it a win-win for both senders and recipients.

Beyond remittances, stablecoins hold the potential to facilitate intra-Africa trade. The African Continental Free Trade Area (AfCFTA) promises to boost trade between African nations, but existing cross-border payment systems are cumbersome and expensive. Stablecoins, with their ability to settle instantly and transparently across borders, could streamline transactions between businesses in different African countries, fostering more trade within the continent.

Overcoming challenges: Regulation, adoption and trust

One of the key challenges facing stablecoins is the regulatory landscape. Financial regulations differ significantly across African countries, and as a form of cryptocurrency, stablecoins face increased scrutiny. Governments remain cautious due to concerns about money laundering, fraud, and the potential destabilisation of national currencies. For stablecoins to achieve widespread adoption, African regulators will need to establish clear, consistent frameworks that foster innovation while protecting consumers.

While stablecoins are gaining momentum in some markets, widespread adoption still faces obstacles. Many Africans lack access to essential technology, such as smartphones and reliable internet, which are necessary to use stablecoins. There is also a knowledge gap—many potential users are unfamiliar with cryptocurrencies, which could slow down adoption.

Despite these barriers, blockchain technology offers a degree of transparency, as every transaction is recorded on a distributed ledger. However, cryptocurrencies, including stablecoins, often carry the perception of being complex or difficult to understand. Building user trust will be essential for stablecoins to succeed. As Moyo Sodipo noted, blockchain’s transparency could actually help by making transactions traceable and reducing the risk of fraud.

Stablecoin as a catalyst for efficiency

As Africa continues to embrace digital transformation, stablecoins could well become the bridge that connects millions of people and businesses across borders, reducing the financial friction that has long hindered economic growth. Whether in remittances or intra-Africa trade, stablecoins hold the potential to unlock new levels of financial inclusion and efficiency in a continent where both are sorely needed.

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