From local to global: Leveraging payment solutions for African MSB growth
As the global economy becomes more interconnected, cross-border trade continues to grow as a critical pathway for business expansion. African Money Service Businesses (MSBs) are no exception. With Africa's digital economy set to reach $180 billion by 2025 and the value of mobile money transactions in sub-Saharan Africa surpassing $836 billion in 2022, the potential for MSBs to expand across borders is immense. However, many face significant barriers, especially when it comes to the infrastructure needed for seamless cross-border payments.
The key challenges for African MSBs in cross-border payments
African MSBs are vital players in financial services, particularly in remittance markets. According to the World Bank, Africa remains the most expensive region for remittance transactions, with an average fee of 8.72% on $200 transfers, well above the global average of 6.5%. These high costs represent a major challenge, particularly for smaller MSBs that already operate on thin margins. In a competitive global market, these expenses can make it harder to stay profitable while providing affordable services.
Regulatory and compliance complexities
African MSBs also navigate a fragmented regulatory landscape. In a region where compliance frameworks vary significantly from one country to the next, staying compliant while expanding into new markets requires substantial resources. This can be a burden for MSBs looking to scale, especially when they must dedicate time and money to navigate different local regulations and licensing requirements.
Currency volatility
Another hurdle is managing the volatility of African currencies. The Nigerian naira, Ghanaian cedi, and Kenyan shilling, for instance, have all faced significant fluctuations in recent years. In such an environment, ensuring competitive and stable foreign exchange (FX) rates is essential, yet difficult. For MSBs facilitating cross-border payments, fluctuating currency values increase operational risk and add further complexity to maintaining profitability.
Limited Access to Financial Networks
Furthermore, many African MSBs face difficulties in accessing international financial networks, which limits their ability to efficiently process payments across borders. While global MSBs may leverage well-established banking partners, African firms often rely on slower, less reliable systems that don’t offer real-time transactions. This lack of infrastructure not only hampers operational efficiency but also undermines the ability of MSBs to meet the demands of increasingly mobile and digital customers.
The power of payment infrastructure in driving growth
Overcoming these challenges starts with strengthening the payment infrastructure available to African MSBs. Efficient, resilient, and scalable payment solutions allow businesses to unlock regional and global growth opportunities by removing friction in cross-border transactions.
Reducing transaction costs through innovation
The push for reducing the cost of remittances to below 3%—as outlined in the United Nations’ Sustainable Development Goals (SDGs)—is a global priority. African MSBs need access to payment systems that prioritise cost efficiency. Technologies like real-time gross settlement systems (RTGS) and blockchain-based remittance platforms are already driving down transaction costs. By leveraging these kinds of innovations, African MSBs can begin to compete on a global stage while providing affordable services to their customers.
Streamlined compliance solutions
As African MSBs look to expand, automated compliance solutions can ease the burden of navigating complex regulatory environments. Global regulatory technology (RegTech) solutions, expected to reach $55 billion by 2025, allow businesses to maintain transparency, conduct due diligence, and manage cross-border compliance in real time. The adoption of such solutions will be key for MSBs to overcome regulatory barriers and scale their operations seamlessly.
Multi-currency support and FX hedging
To mitigate currency volatility, MSBs are increasingly turning to FX hedging strategies that allow them to lock in favourable rates and protect their margins. Multi-currency wallets and payment gateways that support real-time currency conversion are also critical. These solutions empower African MSBs to handle multiple currencies without needing to maintain several bank accounts in different countries. Enabling businesses to move money in real-time ensures that MSBs can better manage liquidity, giving them the flexibility to operate in volatile markets.
Expanding market access through strategic partnerships
Collaboration and partnerships within the financial ecosystem can also play a pivotal role in facilitating cross-border growth. African MSBs that align with fintech providers and regional payment networks stand to gain enhanced access to global markets. The African Continental Free Trade Area (AfCFTA) agreement, which creates the largest free trade area in the world by the number of countries, is expected to bolster trade and investment across Africa. Such initiatives present a significant opportunity for MSBs to access new customers and scale across borders.
How Freemarket’s payment infrastructure unlocks growth
Freemarket’s payment infrastructure provides African MSBs with the tools needed to overcome these cross-border challenges. Through real-time pricing, streamlined onboarding, and access to multiple currencies, Freemarket allows businesses to efficiently navigate the complexities of cross-border transactions. With a reliable payment system in place, African MSBs are equipped to unlock new growth opportunities, ensuring they can scale both regionally and globally while maintaining competitive services for their customers.
Learn how Freemarket is connecting the African continent through seamless money transfers.
