THE Reserve Bank of Zimbabwe (RBZ) has started implementing the Pan-African Payment and Settlement System (PAPSS) aimed at connecting all banks, non-bank financial institutions, switches, and regional systems to enhance cross-border payment across the continent.
The system, expected to save the continent US$5 billion annually in transaction costs, is being promoted by the African Export and Import Bank (Afreximbank) as the settlement bank.
“The bank is implementing the PAPSS, which is a continental Real Time Gross Settlement system with Afreximbank being the settlement bank,” said the central bank governor Dr John Mangudya said.
“The payment system is meant to complement and interoperate with the existing cross-border payment schemes currently in operation. PAPSS is aimed at connecting all banks, non-banks, switches, and regional systems in Africa to enhance cross-border payment efficiency across Africa.”
The system, commissioned in January last year, comes at a time when the continent is in the early stages of implementing the African Continental Free Trade Area (AfCFTA).
The AfCFTA creates the largest free trade area in the world measured by the number of countries participating. The trade pact connects 1,3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3,4 trillion.
It has the potential to lift 30 million people out of extreme poverty, but achieving its full potential will depend on implementing significant policy reforms and trade facilitation measures.
According to Afreximbank, PAPSS provides the solution to the disconnected and fragmented nature of payment and settlement systems that have long impeded intra-African trade.
Prior to PAPSS, over 80 percent of African cross-border payment transactions originating from African banks had to be routed offshore for clearing and settlement using international banking relationships.
That posed multiple challenges ranging from payment delays to operational inefficiencies and compliance concerns for the disparate regional payment systems.
PAPSS, which has been successfully piloted in the six countries of the West African monetary zone, delivers multiple advantages and efficiencies to intra-African trade payments, including reducing the cost, duration, and time variability of cross-border payments across Africa; decreasing the liquidity requirements of commercial banks for cross-border payments; and strengthening oversight of cross-border payment systems by central banks, Afreximbank says.
PAPSS is also set to deliver harmonisation across the continent through its comprehensive legal, regulatory, and operational framework comprising standardised rules, formats and governance arrangements, harmonised Know-Your-Customer and Anti-Money Laundering procedures, payment confirmation and settlement finality.
Afreximbank, as the main settlement agent for PAPSS, provides settlement guarantees on the payment system and overdraft facilities to all settlement agents, in partnership with Africa’s participating central banks, says Afreximbank.
PAPSS will effectively eliminate Africa’s financial borders, formalise and integrate Africa’s payment systems, and play a major role in facilitating and accelerating the huge AfCFTA-induced growth curve in intra-African trade. A precondition for participation in PAPSS is compliance with its set rules and standards.