RECAP: State of cross-border payments panel at Moonshot 2024

Fifty million dollars, and counting. That is the value of funds raised this year, by three African cross-border fintechs; Waza, NALA, and Canza Finance. This influx of funding to startups in the cross-border payments space reveals an appetite for this segment, at a time when many investors are tight-pursed.

“Why is cross-border payment hard and hot? " Benjamin Dada, the moderator of the State of Cross-border Payment panel, asked on the first day of TechCabal’s Moonshot event.

The panel speakers were Guy Stiebel, Cedar Money’s VP of Product; Moyo Sodipo, Busha’s COO and Oluwaferanmi Ajetomobi, the Nigeria Country Lead for Cenoa.

Speaking on why cross-border payments are hard, Stiebel and Sodipo cited technology and regulatory obstacles. "It is a technology issue," said Guy Stiebel. He explained that moving money is often about transmitting messages and that the current system of transmitting money messages is archaic and thus, inefficient. Speed of settlement relative to fees are significant clog on the wheel of progress. This inefficient presents an opportunity for startups in the space to innovate, Guy added.

For Sodipo, having to comply with multiple regulations across countries, and jurisdictions which necessitate massive global compliance teams is where the challenge lies.

Despite the drawbacks, the opportunity size in cross-border payments is huge. Hence why startups continue to flock in. Thereby earning the space its hot status.

Remittance and international trade are two market trends driving the volume of cross-border payments. From the panel, Sodipo pointed to remittance and the increasing wave of “japa”—a Yoruba slang used for emigration—as a tailwind for cross-border payments while Guy simply narrowed down to the resilience and impact of the USD on international trade as the reason why cross-border payments remain relevant. “Cross-border payments is really about making dollar payments,” Guy said.

Remittance is a major cross-border payment focus because of its stability, material size, and consistent year-on-year growth on average.

Nigeria, which represents one-third of the remittance inflow to sub-Saharan Africa despite there being 48 other countries in the region, is an example.

Over the last decade, Nigeria has averaged $20 billion in remittance inflows. Last year, inflows to the region declined by 0.3% to $54 billion, thanks to economic slowdowns in key sender markets like the US. The impact on Nigeria was a 2.9% decline. Yet, the country still netted $19.5 billion which represents the single highest inflow to a country in SSA and accounted for 35% of the inflow to the region.

In Kenya, which saw a remittance growth of 2.6% to $4 billion, remittance inflows were larger than the country’s key exports—tourism, tea, horticulture, and coffee. In some other SSA countries, remittance inflow can make up for more than 20% of their GDP like The Gambia (23.3%).

Image shows that over the last 20-plus years, remittance has remained stable while continuing to grow compared to ODA and FDI as sources of foreign exchange.

Countries take this foreign exchange from whatever available source and use it to fund their international trade transactions. When a country receives sufficient FX, it gets into a trade surplus. Thereby making more dollars available to residents for their business activities.

According to Sodipo, this japa and remittance phenomenon was enhanced by the middle class who send and receive money abroad, frequently.

For context, the number of African migrants living outside the region has more than doubled since 1990. In 2020, the total number of African migrants was pegged at 40.6 million, according to the African Europe Foundation.

Yet these migrants have to deal with high fees when sending money back home. “Sub-Saharan Africa remains the region with the highest remittance costs,” reads an excerpt from the World Bank’s June 2024 report on migration and development.

The panellists identified intra-Africa trade as a growth area, especially with the potential for stablecoins to disrupt. Although, the World Bank, in their report, states that “Intraregional remittance costs are still very high,” Stiebel admits that on a dollar-dollar comparison basis, it might be hard to estimate just how much cost savings stablecoins are delivering to the process.

“Stablecoins guarantee speed," Stiebel said. This is because the crypto rails and middleman currency (USDT, for example) are designed to deliver and settle instantly unlike when parties send USD from one country to another via either SWIFT or other time-consuming means.

And while crypto gets a bad rap for being cryptic—hidden. Sodipo says there is no place to hide because each transaction is registered on a blockchain or distributed ledger technology. Thus, minimises the risk of centralisation of the ledger record and allows for traceability.