Pan African Review [PAR] Interview with Mike Ogbalu, CEO of Pan-African Payment and Settlement System (PAPSS)
One of the challenges Pan-Africanism has faced is translating its ethos of solidarity and African unity into practical actions that would advance to cause of the continent’s quest for integration. A crucial question in this regard has been how to deal with the hindrances to our economic development, most of which stem from the artificial, colonially inherited barriers that keep us divided and unable to work collectively in advancing our shared interests. The creation of the Pan-African Payment and Settlement System (PAPSS) is one such initiative that aims to respond to this question.
Pan-African Review recently had a chat with the CEO of PAPSS, Mike Ogbalu, an engineer by training who worked in financial services and technology with banks, but now working in payment systems.
PAR: We have read about PAPSS quite a lot. We like to hear you talk about PAPSS. How did such an idea start and how did it grow to the level of the institution that it has now become? Please, take us through the journey to where we are right now.
Mike Ogbalu: Thanks. I think going through the journey, we will have to go way back because some of our forebears, some of the founding fathers of the key Pan-African institutions, actually envisaged that at some point we will need an infrastructure that will drive payments. So from when Afrexim Bank was being conceived, they enshrined in their establishing agreements that Afrexim Bank is empowered to put in place a Pan-African payment infrastructure that will support intra-Africa trade. So, the journey started quite a while back.
But then, if you look at the continent, you are looking at 54, 55 countries to territories, and each of these countries has defined how they will trade. They have set rules for trading amongst themselves. They have an acceptable legal tender, money, that is acceptable in their markets, and therefore they are able to trade.
Now, the continent has realized that it has 1.3 billion individuals, but all these individuals are in small entities and as such it doesn’t have the power to be able to negotiate as a collective. The continent decided that we are going to put the African Continental Free Trade Agreement (AfCFTA), which has been signed and ratified by a significant number of African countries and it came into force of course when the twenty-seventh country ratified. Now, having come into place it has set standards that will guide trade on a Pan-African basis.
Of course, trading without dealing with payments doesn’t work. So, working with AfCFTA, Afrexim Bank and the AU, PAPSS was conceived. One of the benefits of this payment system is that goods and services can be paid for in local currencies. For instance, I can use Egyptian pounds to pay for goods and services, say, in Kenya, and the seller will receive the payment in Kenyan shillings. Also, those transactions can be instant, meaning the transactions will not depend on banking relationships or restrictions between countries.
Now, once we are able to deal with the subject of payments, it will have an accelerating effect on trade because, today, people spend 3, 4, 5, or 6 days trying to confirm payments. When payments can actually happen instantly, leaving businesspeople more time to focus on their business. That is what PAPSS is trying to do. You will find that innovation can actually be unleashed on the continent. People developing all manner of solutions around payments will no longer see one million people in their own countries as their market; they will begin to see 1.3 billion Africans as their potential market.
Moreover, payment will not need to travel from the African continent to somewhere like New York or the UK before coming back. Over 80% of our trade payments today on the continent have to travel somewhere outside of the continent before coming back. Of course, that results in overpriced service and these are all losses to the continent.
PAR: Who would you call the primary target audience for PAPSS?
Mike Ogbalu: Fantastic! Actually, PAPPS should support every African who does business across the many borders that divide us. For example, what we built is an ecosystem that comprises an instant payment system that has the ability to clear and settle transactions in local currencies. Then, we built in some operations, some system support, a dispute management mechanism, and some governance mechanisms that will ensure that this system continues to operate within strict governance. Because it is a financial market infrastructure, its governance is very critical.
Now, the first set of people that we will be connected to this core system is the central banks. We will connect with different central banks. Today we have connected six central banks in West Africa, which is where we started our pilots and these are Nigeria, Ghana, Gambia, Sierra Leone, Liberia, and Guinea.. So, the first beneficiaries are the central banks who are now able to connect and are now able to settle transactions on behalf of their country.
The second set of participants that we will go after are commercial banks. Remember that when people want to do transactions, they don’t go to their central banks; they walk into their commercial banks or their commercial banks extend services to them using channels such as mobile and internet banking, ATMs, points of sale devices, and so on. Today, we are connecting 15 of the largest banks on the continent onto this infrastructure, but of course, we need more commercial banks to join.
After that, there are other smaller payment service providers, mobile money providers, and even stock exchanges that would require to open up their markets to other countries so that there will be a free flow of capital. Those ones also can be layered on top of these participants. Then on top of that, we are hoping that different people will begin to create solutions around remittances, around invoicing, around escrow services and so on and so forth, which will sit on top participants that we have already onboarded. Eventually, it should touch the lives of all Africans, whether you are a shoemaker sitting somewhere in Aba in Nigeria and worrying about selling shoes to someone, say, in Sudan, and how that person would pay. So, PAPSS is going to be answering those questions. A local rice producer somewhere in The Gambia, a rubber producer somewhere in Malawi, begins to see now that he has a market that is able to pay him for whatever he is producing.
PAR: It’s a trickle-down kind of effect because you have the primary beneficiaries who are supposed to serve Africans at the end of the day. This begs a question about the general financial literacy of our people. For instance, someone who lives in Kenya and wants to buy a RwandAir flight ticket from Nairobi can only get the price in USD and in Kenyan shillings. That person may wonder which currency to use to make sure they don’t get to pay a lot of money. Aren’t these some of the tips we should get, the kind of information we should have? At least know that there are platforms which are supposed to help us get the most out of the transactions we make. What do you think about that?
Mike Ogbalu: It’s interesting that you mentioned the airline example. We can spend the whole day talking about so many useful cases that can be applied to the PAPSS platform. Now, the biggest challenge that the airlines have in each of the countries where they operate is actually how to get their money out. For example, while Kenya Airways sells tickets in Nigerian naira in Nigeria, they would be happy to have the money in Kenyan shillings because that is the company’s home currency. And Kenya Airways shouldn’t worry about how to get its money in Kenyan shillings because PAPSS is going to deliver the money in Kenyan shillings.
In the countries where we are present, they don’t need to worry about how to source foreign currencies to be able to do that transaction. You shouldn’t even worry about the sourcing of foreign currencies to be able to do that transaction, you should just pay in the currency that you have which is your local currency. If you are in Kenya, pay in Kenyan shillings and it will ease stress for the consumers, as well as the airlines and the central banks who now will no longer be looking for foreign currencies to support those transactions when transactions can happen in their individual local currencies.
PAPSS is actually a game-changer. People talk about a lack of silver bullets, and I see PAPSS as the silver bullet even if there are a lot of other things that need to change or that need to improve on our continent before we see the value. Still, it’s a game-changer because it will spur change in a whole lot of different areas. PAPSS is actually designed to help these payment companies to offer you service in a way that you don’t have to stress about how your value will convert from naira to dollar, dollar to this or that. We want to significantly lower any dependency on foreign or third-party currencies.
PAR: Normally, as you mentioned before, our trade payments today on the continent have to travel somewhere outside of the continent before coming back. Naturally, we would assume that this meant some profit for the institutions in some countries. If that is true, some of their revenues from African countries will significantly reduce. Do you see any political pushback against PAPSS?
Mike Ogbalu: I try not to dabble in politics. What I know is that the continent needs to be liberated. The continent needs to take steps to engender its own prosperity. Again, if you look at it from an efficiency point of view, the current systems are not efficient. A lot of African banks have been struggling with meeting compliance requirements that were not even designed for the African continent. The expectations are actually designed more to suit the American continent and the European continent rather than to suit us. So, there are so many areas where we are disadvantaged. For us, Africans, we shouldn’t be looking at what other people would think. We should focus on what is good for us.
Again, the whole world is integrated. There is still room for us to collaborate with the rest of the world, but it has to be first of all with the consideration that we will do what is best for Africa. And when we have done what is best for Africa, then we can still go to the table and agree on ways to collaborate with the rest of our brothers and sisters outside of the continent.
PAR: What kind of structure do you have in place to make sure that what you want to achieve can be achieved?
Mike Ogbalu: Well, I think when we were designing PAPSS, we set a few of what we call design principles. Let me share just three out of many of these design principles. One was that it must be founded on a very solid legal basis. The second one is that it must enjoy the endorsement of key African institutions. And the third one is that there needs to be significant support for settlement finality to always take place on these transactions. Now, I have already spoken about a solid legal basis in the sense that these countries who are already members of Afrexim Bank had enshrined it in the establishing agreement of Afrexim Bank. They have signed and ratified; it is a treaty among countries.
Now for the second part, we have the support of African leaders. At the Extraordinary Assembly of Heads of State in 2019, they formally gave their endorsement to PAPSS and more or less mandated Afrexim Bank, working with the AfCTA Secretariat, to make sure that this is fast-tracked and put in place. They recommitted themselves to PAPSS in December 2020 when they met again. And, in the last 35th AU Ordinary Assembly in Addis-Ababa, they once again more or less mandated all central banks to join PAPSS.
Now, there are very few times when you find Africans speaking in so much unison to say, “Look! This is what we want. This is good for our continent.” I think once Africans realize that our own prosperity as a people is tied to how well we work together on some of these initiatives that we drive as a continent, then, the better for the continent. I think that as far as the central banks and the governments of Africa are working together, there is nothing anybody can do about it. We are acting in our own self-interest. Obviously, we have significant support from the critical institutions on the continent and, as far as we continue to enjoy this support, we will certainly succeed at putting this structure in place.
There is also significant support from Afrexim Bank, which has approved 500 million dollars to support settlement finality. When we scale to the whole of Africa, that value goes up to three billion dollars. So that kind of support is difficult to come across and it can only come from a serious conviction that this is what is important for the continent.
PAR: What is the big vision, in the event that PAPSS is working at the optimum capacity? What should we be able to see?
Mike Ogbalu: What you would see is a prosperous continent that trades more with itself than it currently does. Today, Africa trades 85% with the rest of the world and only between 15% and 18% with itself. We expect that, within the next five years, we should be heading towards 30%, This would significantly reduce trade with the rest of the world.
We also expect to see a strengthening of African currencies because we will no longer be dependent on global third-party currencies. The demand for or the hunger for them continues to strengthen those currencies while weakening ours.
We expect to see more businesses thriving in multiple countries. We expect to see more tech companies and financial services providers operating in many different countries because the burden of how transactions are settled has been lifted.
We want to see a strengthened financial system that now has developed more capacity to support businesses in multiple jurisdictions. We want to begin to see even that small trader who before now never thought of selling his wares anywhere outside of his home borders begin to see how markets are opened up for him in multiple countries.
We expect that PAPSS will actually begin to engender prosperity. Individuals, businesses, and governments don’t eat money. Nobody puts money on the plate and starts eating. They consume goods and services. And the only way goods and services are consumed is by the trigger of payments. It is only when you pay that trade happens. So, the fact of it is that we will begin to see economies of each and every country in Africa begin to get a significant boost and begin to see (a significant increase in) value, which it didn’t have before now, all because PAPSS has taken root.
PAR: Thank you so much, Mike. This is such a beautiful and well-articulated story. But also, we really note how important PAPSS is for all Africans. Thank you for your time and when we need you again, I hope you will have a few minutes to come back and tell us how far you have gone with PAPSS.
Mike Ogbalu: Thank you very much for having me. It is always an honour to discuss PAPSS, to discuss our continent. Really, our continent can be transformed, and I am hoping that we will join the voices that will help us to bring as many efficient people as possible on board to transform Africa. Once again, thank you.