By Ajong Mbapndah L
Launched recently in Accra Ghana, the Pan-African Payment and Settlement System, PAPSS, could be the game changer that Africa has been waiting for to unclog and accelerate the wheel of trade in Africa.
The fruit of a partnership between the African Union, the African Continental Free Trade Area, AfCFTA, with backing of the indispensable Afreximbank, PAPSS is a cross-border, financial market infrastructure enabling payment transactions across Africa.
Unlike other African institutions that have been all bark and no bite, Mike Ogbalu, the CEO of PAPSS believes strongly that structure will be transformative for African trade in multiple ways. Speaking in an interview with PAV, Mike Ogbalu says PAPSS has been developed to provide an alternative to current high-cost and lengthy correspondent banking relationships to facilitate trade and other economic activities among African countries through a simple, low-cost and risk-controlled payment clearing and settlement system.
“What PAPSS is coming to do is to create that standard payment structure that is seamless across all the different countries, that allows all the different traditional companies including banks, and central banks to connect on the single platform. Therefore, payment can originate from Nigeria Naira and end up in Egypt and Egyptian pounds or Uganda and Ugandan shillings.,” says Ogbalu.
Could you start by telling us what PAPSS is and its historical
Mike Ogbalu: PAPSS is a financial marketing infrastructure designed to solve the problem of settling transactions between African countries and to be able to guarantee seamless instant payment for transactions across the continent. It is an effort that is championed by Afreximbank, the AfCFTA secretariat and the African Union. It is a broad-based effort aimed at putting in place infrastructure that will allow payments across all of the borders that separate us, in each of our local currencies thereby reducing the hunger for third part currencies
How does PAPSS actually work and what has the experience been like since its launch in Ghana a few months back?
Mike Ogbalu: Ghana was such a beautiful moment; it was a proud moment for the entire continent. We had representatives from practically all the Heads of States in Accra jointly endorsing this infrastructure and knowing how it will impact the entire continent. Again, just stepping back a little, when you talk about trade, it is about the exchange of goods and services. You find out that trade does not happen unless payment takes place. Now, the more seamless payment becomes, the more it is easy to trade, and it will increase the frequency and volume. In the past, what governments have done is look at tariffs, barriers and they have now come to that realisation that we must address the subject of payments. To be able to trade, you find businesses going to look for foreign currencies to be able to initiate those trades.
PAPSS is that infrastructure that has been put in place to be able to address some of these historical issues that we have had. The biggest issue that we have is that we have been so balkanised; instead of being able to negotiate from the point of a single market, we are negotiating from the point of 54/55 countries who relatively do not have that much bargaining power compared to the big powers across the globe. What this payment is doing is helping to eliminate the borders that separate us as we can trade amongst each other in our various local currencies.
Looking At the present economic dynamics in the continent, how important is a structure like PAPSS at this point?
Mike Ogbalu: Each country sets its rules and guides how trade happens in each of those markets. In the past, you didn’t have situations that had single rules that applied across the continent; what you had were bilateral relationships, for example, Nigeria says this is how I will trade with Ghana and Kenya says this is how I will trade with Uganda, and at best we have some regional efforts which a collection of countries decided that this is how we will be able to trade with each other. The AfCFTA being something of an agreement tries to put in place a continental framework for trading amongst African countries. For the AfCFTA to work it requires a continent-wide payment infrastructure.
What AfCFTA has done is to try and create a common framework for trade across Africa and therefore it requires a payment solution which means that it can guarantee a seamless means of payment across the continent. If you are a merchant in a remote area in Seychelles, and some village in Nigeria, you should be able to say this is how your payment will be received assuming your counterpart is anywhere on the continent.
What PAPSS is coming to do is to create that standard payment structure that is seamless across all the different countries that allows all the different traditional companies including banks and central banks to connect on the single platform; therefore, payment can originate from Nigeria Naira and end up in Egypt and Egyptian pounds or Uganda and Ugandan shillings.
We have taken away the whole burden of settlement and we are now allowing different people to build solutions on top of this settlement infrastructure that we have put in place. By so doing, we can make a trade. For example, someone who buys Kende materials in Ghana can spend five to seven days confirming payments, meanwhile, to travel from Lagos to Ghana is fifty minutes and yet his payment takes three to five days.
What PAPSS is doing is to remove that burden and allow people to trade freely. The time you are using to confirm payment may be the time used to do more trade. By making it instant and in their local currency, you are allowing this guy to turn around his inventory quicker than he is doing today, and this will create a boom in the economy. PAPSS is designed to accelerate the growth of economies and accelerate the growth of intra-African trade. We are hoping that solving the payment issue will accelerate intra-African trade and boost our shared prosperity.
You mentioned earlier that PAPSS has a connection with the AfCFTA, AU and Afreximbank, can you shed light on the nexus and what roles each of these partners or bodies is playing?
Mike Ogbalu: Starting with AU, as you know it is that organ that brings together all the governments on the continent into a united force and can deal with issues that impact the continent. Afreximbank is a multinational trade finance institution. Afreximbank is set up to be able to facilitate trade on the continent. Its whole mission is looking at all the different trade value chains and seeing where it needs to intervene so that we can improve trade.
Afreximbank in driving trade now recognizes that all of the protocols that will facilitate trade have now been put together and brought under the AfCFTA. You find now that there is an alignment of what AU wants to achieve from the point of view of trade with what Afreximbank is set up to do as a foremost trade finance institution and then the work AfCFTA is to do to facilitate trade.
At the time of the founding of Afreximbank, the founders made sure that Afreximbank will create a payment platform that will facilitate trade. What you call PAPSS today is a product of active collaboration between Afreximbank, and AfCFTA and the full backing and endorsement of the AU. The AU in their extraordinary assembly in 2019 and 2020 endorsed PAPSS as the payment infrastructure for the continent. They then mandated Afreximbank to work with AfCFTA to make sure that it is delivered.
Speaking about the relationship, they have alignment in terms of their purpose and mission and more importantly it’s being a collaborative effort to make this payment infrastructure to be put in place. It has been a joint effort between AfCFTA and Afreximbank with the full backing of the AU.
In terms of membership of the PAPSS system, what does it take to be part of it?
Mike Ogbalu: PAPSS’ journey would not have been possible without the Central Banks. They were part of the design of the bylaws, the design of all the participants and how people have access to it.it is important to note that PAPSS recognises that Central Banks have payments within their relics. It is not designed to take away any powers from central banks or dominate the central banks. We worked with the central banks to get to where we are in terms of the rollout of PAPSS. To be a member you must, first of all, recognise that PAPSS has bylaws, and these bylaws speak of the obligations of each of the parties, and the responsibilities and the benefits and these bylaws that were endorsed by the central banks. A member is required to fill out a participation form depending on the level of participation either as a direct or indirect participant. Once you endorse the membership agreement and provide the other documentation, you must also be a licensed entity in the jurisdiction from where you are joining. Lastly, you must provide a letter of no objection from the central bank in your primary market. Those are the three critical things; your membership agreement, being a licensed entity and being able to provide a letter of no objection from the central bank where you are operating.
The participant will also have to pass through MANSA, which uniquely identifies each entity that connects to PAPSS. Once you can scale these hurdles, there is a technical requirement because we have an IPY stack that each entity can connect to us through. You have to have the right specs of systems; you have to be able to consume or develop APS that we provide. There is also testing and training and upon satisfaction on both sides we can take the platform to the applicant and transactions can begin. Participants can extend the channels to their mobiles, to their ATM and whatever channel that is convenient for their customers.
When we went through your website, we discovered that most of your early members were from West Africa, why is it so and what outreach are you doing to get central banks from the rest of Africa on board?
Mike Ogbalu: At the onset of the rollout, it was decided that PAPSS is to demonstrate success in a region, and a region that represents the complexity that we hope to see in the rest of the African continent. We have been able to show that our system can connect into even mature and not so mature systems. Now, we have started extending into the larger African context. We have started signing MoU with some of the regional entities that exist in the continent, and we are reaching out to other central banks. We have signed new agreements with two more central banks and two more are on the way. We are hopeful that in the next one or two months we can announce that we have grown the network of up to ten central banks. We have signed an agreement with one central bank in the Southern African region; the network is expanding, and we continue to reach out to the other central banks in the continent.
It is important to note that we are not doing this for commercial benefits; the focus for us is the impact on the continent. We continue to reach out to all the key stakeholders, key markets across Africa. Now that we have been able to demonstrate that the system works in the West African region, and this is the time to connect to other central banks. We have signed an additional two that we are going to announce in due course.
Many Africans believe part of the problem the continent faces is not just about institutions, but making these institutions work. As you interact with business and political leaders across the continent do you get the feeling that they understand the critical importance of PAPSS or the need to make it work?
Mike Ogbalu: When you look at the launch of PAPSS, it is not every day that you have representatives of almost all the governments of Africa gathered in a single event to lend their support. It is not every day you have almost all central banks in the same room just to give their support on a particular initiative and it is not every day that you have almost every CEO on the continent in attendance. They have understood the central role of PAPSS, and they understand that as individual service providers they have a role to play. I will say we have enjoyed good political support; we are beginning to get much more support from the regulators and the central banks, and we see a lot of enthusiasm from the commercial banks and other payment providers. So, I will say they understand the role of PAPSS, and they understand that they need to come on board for PAPSS to work.
As we wrap this interview, any last word to banks out there which are still taking their time to come on board, and any message to ordinary Africans out there on a reason to hope in PAPSS?
Mike Ogbalu: One of the things that Africa has suffered so much from is the situation where critical decisions that affect our lives are taken on tables somewhere else outside of the continent. This is an opportunity for us to build something that we own and something that we will control. Now, payment is really at the heart of the prosperity anywhere; if you look at any country, once instant payment is launched, you begin to see its impact on the economy. Even before the advent of electronic payment, you could see the clearing of cheques take up to five days. Immediately it changed to two days you see its immediate impact in terms of the economy. When a country launches instant payments, you see the immediate impact. It is the same way payments on the continent will have a similar impact on the economy.
My message to the stakeholders is PAPSS has not been designed to cannibalise all the efforts that have been made in different parts of Africa. It is here to compliment; we are not saying throw away the systems you have but let’s bring it all together so that we can have incomparability; so that we can say to ourselves that any payment originated anywhere on the continent will arrive at anywhere on the continent in a matter of seconds.
To central banks, I am inviting you to join, PAPSS is for all of us, and our systems are governed by central banks, so as the central banks join, they will have a seat at our governing council and are able to make decisions around PAPSS.
For commercial banks, this is a big infrastructure as it will lower their cost of operations and save you for having to source effects to do transactions. To political leaders, I will say continue supporting PAPSS initiative as it is for our continent. I know they don’t always agree on everything, but ours is one of those areas that they have come together and jointly endorsed as their payment infrastructure. My message is continue to support us and drive or push us until we are able to deliver this infrastructure to the continent.