Fintechs, regulators and investors must support an expansion of the Pan African Payment and Settlement System
Two summers ago, McKinsey published a landmark report titled Fintech in Africa: The end of the beginning. Enough scene setting, the report said, readers (and indeed investors) are already hooked on the industry’s epic potential to transform the continent. What we need now is a plot, a critical challenge to overcome, to give the story structure, scale, and, importantly, returns.
The nature of the challenge is starting to become clear. Although African fintech continues to grow rapidly, spreading financial inclusion across the continent and promising vast potential, one crucial obstacle stands in the way: fragmented regulation across the continent’s 54 countries.
How did we get here? Firstly, it should be acknowledged that the blossoming of Africa’s fintech industry has been one of the continent’s major successes in recent years. Driven by a combination of rapid technological advancements and a young, mobile-enabled population, Africa is now home to approximately 1,000 fintech companies, with more than 50% founded in just the last six years, while over half of the world’s mobile money accounts are in Africa.
Yet there is still work to do. 57% of Africa’s population remain unbanked or underbanked. And with much of the industry’s growth concentrated in just four markets – South Africa, Nigeria, Kenya, and Egypt – representing 77% of the continent’s fintech companies and attracting more than 90% of funding. To move from potential to reality – from the beginning to the middle – the African fintech revolution needs to be spread more widely.
But at the moment, a fragmented regulatory landscape stands in the way. Each country operates under its own distinct set of rules, making it exceptionally difficult for fintech companies to scale across borders. High compliance costs, country-specific licensing requirements, and a lack of regulatory harmonisation act as significant barriers for startups that are often strapped for resources.
As MFS Africa Founder and CEO Dare Okoudjou said, “the regulatory barriers hampering simple [intra-Africa money transfers] are still there.” For example, it’s “relatively complicated, if not impossible, to move money mobile-to-mobile between Cameroon and Nigeria, the largest money transfer corridor on the continent with over $2.5 billion a year.” For investors, this fragmentation means focusing on the few countries where fintech ecosystems are already mature, further entrenching disparities across the continent and stifling the broader goals of financial inclusion and economic growth.
The good news is that efforts are already underway to address these challenges. The African Union is working on initiatives like the Pan African Payment and Settlement System (PAPSS), which aims to simplify cross-border payments by creating a centralised platform to provide real-time processing for African trade.
Currently, only 14 countries participate in PAPSS, including Nigeria and Kenya, but its expansion to other nations, especially more of the large markets, could significantly reduce the barriers for fintech companies looking to scale across borders, while also boosting intra-African trade and accelerating the continent’s economic integration.
Moreover, regional regulatory sandboxes are emerging as a practical solution, providing fintech companies the flexibility to test their products in a controlled environment without the burden of full regulatory compliance. A notable success story is leading Kenyan fintech Pezesha. It spent one year in Kenya’s Capital Markets Authority regulatory sandbox between 2019 and 2020, where it tested its debt-based crowdfunding platform. In only two years’ time, it expanded into Ghana and Uganda, raised $11 million in pre-Series A funding, and grew disbursements by over 2000%.
Countries like Sierra Leone, Rwanda, South Africa, Zambia, Zimbabwe, Tanzania and Ghana are all pioneering such sandboxes, but a continental effort would be even more impactful. With regulatory harmonisation, fintechs could focus on innovation and growth rather than navigating the complex web of country-specific rules.
For international investors, regulatory harmonisation presents a major opportunity. As African fintech markets become more integrated, the potential for scale will increase, making investments less risky and more rewarding. Investors should not only be prepared to take advantage of these changes but also have a voice in shaping the regulatory frameworks that will define the future of fintech in Africa.
For years, we have known that African fintech has the potential to be a gamechanger, not just for the financial industry but for the entire continent’s economic future. The challenge, now, is to realise it. Dismantling regulatory barriers by expanding the PAPSS is the next chapter in the African fintech story, and it’s everyone’s responsibility to push for it.