Unpacking PAPSS: Mike Ogbalu on risks, regulation & future growth

In a bid to revolutionize cross-border payments and enhance trade within the African continent, The Pan African Payment and Settlement System (PAPSS) was launched three years ago. This innovative technology aims to streamline transactions, eliminate third-party platforms, reduce time delays, and boost trade under the African Continental Free Trade Agreement (AfCFTA). CNBC Africa had the opportunity to sit down with CEO Mike Ogbalu to delve into the intricacies of PAPSS, including its reliance on pre-funded models, risk management strategies, regulatory challenges, and the potential expansion beyond business-to-business (B2B) transactions. One of the key features of PAPSS is its ability to reduce liquidity requirements for cross-border transactions by utilizing a multilateral net settlement model. This model allows transactions to originate and terminate in local currencies, eliminating the need for third-party global currencies. By settling transactions locally, PAPSS significantly reduces dependence on external currencies, thus reducing the liquidity required to facilitate trade across the continent. Furthermore, the multilateral net settlement model adopted by PAPSS mitigates the risk of imbalances resulting from currency volatility and exchange rate fluctuations. By considering all relationships across the continent, not just bilateral ones, PAPSS is able to reduce net imbalances and provide countries with a realistic position that factors in multiple trade flows. This approach enhances economic stability and strengthens trade relationships between African nations. In terms of regulatory and compliance mechanisms, PAPSS has implemented stringent measures to ensure adherence to global standards for Anti-Money Laundering (AML), sanctions screening, and fraud management. By working closely with regulators and central banks across Africa, PAPSS has established a robust framework that aligns with international best practices while accommodating local regulations. The collaboration with 15 central bank governors on the governing council underscores PAPSS's commitment to regulatory oversight and transparency. Despite the potential financial shifts resulting from PAPSS's streamlined payment system, CEO Mike Ogbalu remains optimistic about the positive impact on Africa's markets. By reducing transaction costs, increasing participation, and enhancing trust among stakeholders, PAPSS aims to unlock Africa's trade potential and facilitate greater interaction with global markets. Ogbalu emphasizes that a prosperous Africa benefits the global economy and encourages collaboration between African entities and international partners. Looking ahead, PAPSS envisions a future where the model extends beyond B2B transactions to include person-to-person payments. By serving as a 'toll gate' for payment highways across borders, PAPSS seeks to enable both large-scale trade transactions and retail payments. The system's integration with commercial banks, fintechs, and remittance companies paves the way for expanding its reach to retail customers, offering a seamless and efficient payment experience for individuals. Overall, PAPSS represents a significant step towards unlocking the full potential of African trade and fostering economic growth on the continent. As the technology continues to evolve and adapt to changing market dynamics, the prospect of seamless cross-border payments and increased financial inclusion for all Africans looms on the horizon.