Oyetayo: Navigating Future of Cross-Border Payments in Africa

The Chief Executive Officer and co-founder of VertoFX, Mr. Ola Oyetayo, provides a deep dive into the dynamic evolution of cross-border payments across Africa. He discusses the innovative solutions driving this transformation and sheds light on Verto’s pivotal role in overcoming challenges encountered by African SMEs and businesses. From navigating currency liquidity issues to addressing regulatory complexities, Mr. Oyetayo offers valuable insights that highlight VertoFX’s commitment to revolutionising the continent’s financial landscape. Nosa Alekhuogie presents the excerpts:

The CBN recently issued a new circular for International Money Transfer Operators (IMTOs). Can you share your thoughts on its potential impact on the efficiency of international money transfers and cross border payments as a whole?

I believe the initiative from the CBN is a welcome development with positive implications for both efficiency and beneficiary satisfaction. The CBN has introduced a mechanism that allows them to directly participate in the foreign exchange market by purchasing foreign currency from IMTOs. This addresses a key pain point for IMTOs, who previously faced delays due to their banking partners’ limited naira liquidity to settle transactions promptly. The CBN’s role as a direct buyer of foreign currency injects much-needed liquidity into the system, streamlining the settlement process and expediting turnaround times for IMTOs.

Additionally, the directive to settle remittances in Nigerian Naira aligns with beneficiary preferences. Research indicates that people prefer receiving money in local currency due to the rise of digital remittance services and the fact that most transactions in Nigeria are conducted in Naira. In the past, receiving foreign currency meant extra costs due to conversion fees and usage limitations for beneficiaries. Overall, the CBN’s participation and focus on local currency settlement are positive developments for the efficiency and user experience of cross-border payments in Nigeria.

Trapped funds are a major challenge for multinationals operating in Africa. How can fintechs address this hurdle and encourage continued investment in the continent?

Fintech companies providing cross-border payment solutions can enable seamless, secure, and cost-effective transfers of funds between African countries and global markets, helping to release any trapped funds. They can establish robust platforms for real-time currency exchange and hedging services, reducing the risks associated with currency volatility and simplifying fund management for multinationals.

Moreover, fintechs can develop solutions to ensure compliance with local and international regulations, streamlining the process for multinationals to repatriate their earnings. By forming strategic partnerships with local banks and financial institutions, fintechs can enhance liquidity and offer localised financial services, making it easier for multinationals to access and transfer funds. Finally, fintechs can provide advanced analytics and reporting tools, offering insights into cash flow management. This helps multinationals make informed decisions about their investments and fund management in Africa.

With the African Continental Free Trade Area (AfCFTA) and Pan-African Payment & Settlement System (PAPPS) aiming to boost intra-African trade, what are some key ways fintech solutions can further enhance these initiatives?

I will say fintech solutions can create and support unified payment platforms that facilitate seamless, real-time transactions across all African countries, reducing reliance on multiple payment systems and boosting efficiency. Enhancing interoperability between various mobile money platforms and banking systems across Africa can ensure smooth intra-African trade payments. By implementing solutions that significantly reduce transaction costs for cross-border payments, fintechs can make trade more affordable for businesses of all sizes. Additionally, they can develop tools to help businesses navigate and comply with diverse regulatory requirements across African nations, simplifying the process of engaging in intra-African trade.

Informal channels remain dominant for cross-border remittances. How is this impacting the economy and what is the solution?

Informal channels for cross-border remittances, while convenient for some senders, can negatively impact the economy. These channels often operate outside regulations, making it difficult to track money flows and monitor for money laundering and other illegal activities. Additionally, the government misses out on potential tax revenue from informal remittances, which could otherwise be used for infrastructure development. Furthermore, informal channels may not offer competitive exchange rates or protection from currency fluctuations, exposing senders and recipients to potential financial losses.

Addressing the dominance of informal channels requires a multi-pronged approach. This involves tackling the factors that drive the use of these channels and making formal channels more accessible and attractive. Formal remittance services need to be more efficient, user-friendly, and affordable to compete effectively with informal options. This could include expanding access points, simplifying documentation requirements, and expediting the turnaround time for money transfer services.

Limited liquidity is a challenge for many African currencies. How does Verto FX’s approach, or broader fintech solutions, address this issue and contribute to a more robust cross-border payment ecosystem in Africa?

Verto’s multi-currency wallets enable businesses to hold and manage multiple African currencies, facilitating easier and more efficient currency exchanges and payments. We also create and manage liquidity pools that aggregate funds from various sources in particularly illiquid markets, ensuring there is sufficient liquidity for currency exchanges even in less liquid markets. Our marketplace connects businesses directly, improving liquidity by matching demand and supply more effectively.

Also, Verto’s dynamic pricing helps businesses manage currency risk and volatility, making cross-border transactions more predictable and stable. We have partnerships with local banks and financial institutions to enhance liquidity by tapping into their local currency reserves and networks.

In addition, we offer rapid settlement services to reduce the time funds are held in transit, increasing the overall efficiency and liquidity of cross-border transactions. Furthermore, we have advanced compliance and risk management solutions that ensure transactions adhere to regulatory requirements, reducing the risk associated with currency conversions and cross-border payments.

Limited liquidity often hinders traditional banks in facilitating cross-border transactions. How does Verto FX’s approach differ from traditional banks in addressing these liquidity challenges?

Our marketplace product enables businesses to connect directly for cross-border transactions. For instance, we serve customers with a large supply of G10 currencies looking to exchange for African currencies, such as remittance providers. Simultaneously, we cater to local African businesses seeking to exchange their African currencies for G10 currencies.

What sets Verto apart from traditional banks is the technological sophistication of our payments platform. Our product and technology suite allows businesses to make cross-border payments rapidly. By sourcing liquidity from our clients and leveraging our advanced platform and robust infrastructure, we facilitate efficient cross-border transactions.

Small and medium-sixed enterprises (SMEs) are the backbone of Africa’s economy, but cross-border payments remain a significant barrier to their growth. Can you elaborate on the main challenges that make intra-continental payments so difficult for SMEs?

African SMEs are the driving force behind the continent’s economic growth, but their success depends on seamless cross-border payments. Unfortunately, these transactions often face numerous challenges that hinder SME potential. Limited liquidity in many African currencies makes it difficult to find buyers and sellers, resulting in high transaction costs. Currency fluctuations further complicate matters, making it hard for SMEs to predict the final costs of international business. Delays in cross-border settlements, which can take days through traditional channels, tie up essential working capital. Additionally, regulatory hurdles add complexity, as navigating the diverse foreign exchange regulations across Africa is challenging for SMEs, especially those operating in multiple markets. Complex documentation requirements also exclude many SMEs, particularly those in the informal sector, from the formal cross-border payment system.

The good news is that solutions exist. Platforms like ours, which focus on emerging market currencies and have access to a broad pool of liquidity providers, can offer SMEs competitive rates and improved trade execution.

Does your company see a role for cryptocurrency in the future of African business payments?

Yes, absolutely. This is already the case as we see cryptocurrencies being increasingly used for payments across businesses, stablecoins in particular are turning out to be quite a popular means of payments for more digitally savvy business owners .

Looking ahead to the next five years, what are the key trends or developments that you see driving the most significant growth in African payment solutions?

Africa’s digital payment landscape is poised for a dynamic future, with several key trends expected to drive significant growth over the next five years. One of the most prominent trends is the ongoing mobile money revolution. Given the high mobile phone penetration across the continent, mobile money is expected to continue its dominance, extending its reach beyond basic transactions. Fintechs are set to become even more influential. They will keep challenging traditional institutions while also collaborating with them to expand their reach. This will create a healthy competitive landscape, offering more choices and features for users.

With increasing innovation, we can also anticipate a rise in regtech solutions. These solutions will streamline compliance for fintechs and help authorities effectively manage the evolving landscape, fostering trust and stability in the African payments space. It is important to remember that Africa is a diverse continent, so the pace of innovation will vary depending on the unique circumstances of each market, including infrastructure, regulations, and user preferences.

Are there projects you are currently working on to further make cross-border payment solutions accessible to all?

Absolutely. At Verto, we are constantly innovating to make cross-border payments not only efficient but accessible to everyone. One of our latest initiatives is the Verto Marketplace. We recognize the long-standing challenges faced by business owners engaging in international money transfers, including limited control over exchange rates, high upfront costs, lack of transparency, and inefficient processes. These issues not only create frustration but also significantly impact profitability and operational efficiency.

This is particularly true when dealing with illiquid and emerging market currencies like the Nigerian Naira (NGN), South African Rand (ZAR), Central African CFA Franc (XAF), West African CFA Franc (XOF), and Kenyan Shilling (KES). The global market for these currencies is projected to grow significantly in the coming years. However, only a small percentage of forex market participants currently trade these currencies, exacerbating liquidity issues and increasing costs.

Verto Marketplace addresses these challenges. It is a secure and user-friendly platform that provides a much-needed solution for businesses and institutions dealing in these currencies. On this platform, individuals and businesses can connect directly with a network of vetted counterparties, compare rates, and choose the best option for their specific transfer. This transparency and ease of access empower users, especially those unfamiliar with traditional remittance channels. We leverage our technology to simplify the entire process and provide real-time tracking of transfers, reducing friction and ensuring a faster, smoother experience for everyone involved.