Understand the hype around PAPSS and how it works

The dream of an integrated market in Africa seems to be coming true with the recent introduction of the Pan African Payment and Settlement System (PAPSS)

PAPSS is a game-changer for trade in Africa. A participant in one African country pays in their currency, while a seller in another country receives payment in their currency.

PAPSS is the first centralized payments market infrastructure for processing, clearing and settling intra-African trade payments. Afreximbank created it in collaboration with the West African Monetary Institute (WAMI).

After a successful pilot project in the West African Monetary Zone (WAMZ), the payment system was launched commercially. Gambia, Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone make up WAMZ, a West African economic and integration organization.

AfCFTA Secretary General, H.E. Wamkele Mene, said PAPSS would boost intra-African trade as cross-border payments would become less dependent on third-party currencies, earning the continent an average of $5 billion a year.

How governments and central banks connect to PAPSS

The PAPSS has a dual role for central banks. Through their central bank settlement membership, they act as the national settlement agent for each country, as well as a direct participant with all the benefits that PAPSS direct participants offer.

Some of the benefits for the government are:

  • Alleviation of pressure on current accounts and reduction of liquidity in foreign currencies.
  • Increased transparency bringing greater oversight of cross-border transactions, creating more trust and increasing the potential for revenue generation.
  • Improved financial inclusion and improved economic growth.

How PAPSS helps consumers

Businesses large and small, as well as individuals, whose payments and remittances are processed through PAPSS benefit from:

  • Instant/near-instant payments across African borders without conversion in different currencies.
  • Improved working capital through payment certainty and faster transactions.
  • Access to various options that facilitate payments for millions of Africans, including those who were previously underserved.

How instant payments work

Instant payment eliminates the requirement for participants to convert local currency into hard currency, which required cash to leave Africa, be converted, and then remitted to the beneficiary bank, adding days to transaction time.

Compliance, legal and sanction checks are also done quickly within the system, according to the company. The payment process is completed in less than 120 seconds.

How pre-financing works

The system must ensure that funds are available to complete the originator’s transaction before performing the transfer of debits and credits between participants’ accounts, due to the speed of the real-time payment process, we observe.

Therefore, participants must agree on a pre-financing arrangement. In the pre-funding process, direct participants integrate directly with the central bank’s PAPSS and real-time gross settlement (RTGS) systems. Indirect participants, who do not have an RTGS account, can fund or defund their clearing accounts on the system with the help of a direct participant who provides the necessary liquidity.

The ISO 20022 communication standard is used to send notifications to PAPSS, participants and RTGS on the progress of each stage of the transaction.

How the settlement works

The Pan-African payment and settlement system should provide prompt settlement within 24 hours. Net settlement between all participating central banks takes place at the same time each day, at 11:00 UTC.

Similar to the pre-funding method, notifications are transmitted through an ISO 20022 messaging system, informing PAPSS, participants and RTGS of the status of the transaction at each stage.

The main function of the system is its instant payment system, which provides real-time wholesale and retail payments as well as connectivity of banks and payment service providers as mentioned earlier.

The main features of PAPSS instant payment are: instant and irrevocable credits on customer accounts;

  • Immediate confirmation to the originator and the beneficiary;
  • Service availability 24 hours a day, 365 days a year;
  • ISO 20022 global message standard enabling interoperability,
  • Large datasets and rich data for payment and remittance information; and
  • Secure infrastructure, integrating cybersecurity and payment fraud systems backed by behavioral analysis and machine learning capabilities.

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