This article was contributed by Robert Sargsian, Co-founder/CEO at Due, and Omotesele Esekhaigbe, Compliance and Risk Manager (MLRO) at Zone as part of the Emerging Trends in Cross-Border Payments: A Growth Guide for Stakeholders report authored by Aroghene Favour Ndulu and Paschal Okeke.
The regulatory ecosystem in Africa has many challenges, especially for cross-border payments. While the continent is experiencing rapid growth in digital financial solutions, the regulatory environment remains challenging for businesses and payment service providers.
One apparent barrier is that Africa’s regulatory environment is highly fragmented, with each country enforcing its unique compliance requirements. This fragmentation cuts across policies, licences, and anti-money laundering (AML) regulations. This lack of harmonisation complicates efforts to create unified cross-border payment solutions. For instance, what qualifies as compliant in one nation or state might fail to meet the standards of another, forcing payment providers to adapt their operations country by country, multiplying their compliance costs.
Another barrier in Africa today is a lack of a clear regulatory framework for stablecoins/digital assets. Regulatory clarity creates a much more streamlined and transparent ecosystem. We see some progress in South Africa in that direction, where the regulator and banks are open to digital assets/stablecoins use cases.
Capital controls and restrictive foreign exchange policies- Many African countries impose strict capital controls and FX regulations to manage currency volatility and protect local economies. However, these restrictions make it difficult to transfer funds across borders, particularly in hard currencies like the US dollar or Euro. This creates bottlenecks for businesses needing to make international payments or manage cross-border investments. For instance, Nigeria has historically imposed FX controls that limit foreign currency availability, affecting businesses’ ability to conduct international transactions smoothly.
Influencing policymaking
Stakeholders, including payment service providers, regulators, and regional organisations, can influence policies to streamline cross-border payments in four ways:
Advocate for harmonised regulations: Stakeholders can collaborate with regional economic blocs, such as the Economic Community of West African States (ECOWAS) and the Common Market for Eastern and Southern Africa (COMESA), to advocate for standardised payment regulations. A pertinent example is the Single Euro Payments Area (SEPA) in Europe, which harmonised payment systems across 36 countries, enabling cross-border euro transactions to be as straightforward as domestic ones.
Public-private partnerships for improved financial infrastructure: Public-private partnerships (PPPs) can help build real-time payment systems, such as Nigeria’s NIBSS Instant Payment (NIP) platform, which processes millions of transactions daily in seconds. These partnerships can also create policies that encourage cross-border trade and investment. For example, the collaboration between the World Bank and several African countries under the “Regional Payments Integration Initiative” aims to improve interoperability between national payment systems, making cross-border transactions faster and cheaper.
Engage with central banks to ease currency controls: By collaborating with central banks, stakeholders can advocate for policies that ease restrictive currency exchange rules and improve liquidity. For example, the Monetary Authority of Singapore (MAS) has partnered with industry players to develop Project Ubin. This blockchain-based cross-border payment system simplifies multi-currency payments while ensuring compliance. Similar innovations could address currency barriers in emerging markets like Africa.
Build great products: Building great products, people love and are ready to push their authorities for. For example, consider how Uber has used its user base to push politicians in San Francisco to drop the anti-ride-hailing regulations.
Challenges of multiple regulatory frameworks
Each jurisdiction’s different regulatory requirements demand substantial financial and human resources. This fragmentation increases operational complexity and escalates compliance costs. Non-compliance can lead to severe penalties. In July 2024, Nigeria fined Meta $220 million for violating its local data and consumer laws.
Another challenge is delays. Securing multiple licenses for similar activities across different regions can be time-consuming and redundant. This duplication often delays market entry, hindering a company’s ability to capitalise on growth opportunities. In emerging markets like Africa, licensing processes are further complicated by bureaucratic inefficiencies and unclear timelines, making it challenging for businesses.
Data privacy laws and cross-border payment solutions
In Nigeria, there has already been a rising need for compliance professionals in Fintechs. We’re seeing tech companies hire established compliance hires from traditional banks. This move was inspired by the attempt of central banks to derisk digital transactions. Laws like the Nigeria Data Protection Act and emerging frameworks like Kenya’s Data Protection Act demand solid compliance mechanisms. Providers operating across multiple regions must develop adaptable systems that meet these requirements without compromising efficiency.
Some jurisdictions now mandate that specific categories of data be stored within their borders. Nigeria’s data protection law emphasises data residency, while India has proposed similar requirements. These demands can increase operational costs as companies invest in localised data centres and infrastructure to comply.
Efforts to harmonise privacy laws across regions could reduce the compliance burden on payment providers. The African Continental Free Trade Area (AfCFTA) includes discussions on aligning data protection policies to facilitate smoother digital trade. Such initiatives could spur innovation and encourage more players to provide cross-border payments.
Managing FX risks in cross-border transactions
Fast settlements: The biggest unlock for FX risk management is fast settlements. If you can settle fast, then the time exposure you take the FX for can be limited. Stablecoins allow for a much faster settlement, almost instant, which is going to push down the spreads a lot in all markets.
Hedging strategies: Using instruments such as forward contracts, options, and swaps to hedge against currency fluctuations. These tools allow companies to lock in exchange rates, reducing their vulnerability to market volatility. Forward contracts can provide certainty in cash flow management by ensuring a fixed rate for future transactions.
Real-time FX monitoring: Advanced technology, such as APls, can monitor currency movements in real-time, providing valuable insights into market trends. Online FX monitoring platforms can help businesses make timely and informed decisions, minimising the impact of unfavourable exchange rate shifts.
Use derivatives: This is one strategy that is currently being underutilised. For instance perpetual, when taking FX exposure, you can simultaneously hedge it on a perps market. This is not practiced that often in stablecoins yet, but will be in the next 3-5 years.
Multi-currency pricing: Providing customers the option to pay in their local currency can improve customer experience and drive sales. Internally, businesses can manage currency conversions strategically, using favourable rates and reducing customer burden by leveraging payment solutions from providers that support multi-currency pricing.
You can read the full report here.
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Robert Sargsian is the co-founder and CEO of Due, a London-based fintech startup established in 2022. Before founding Due, He was part of the Expansion team at Bolt, a leading mobility company in Europe and Africa, where he worked on optimizing international payment processing. Subsequently, he joined Revolut’s SVP Office, contributing to special projects across various sectors, including retail and cryptocurrency.
Omotesele Esekhaigbe is the Compliance and Risk Manager (MLRO) at Zone. She is a seasoned legal and compliance professional with over 8 years of experience in regulatory compliance, risk management, and fintech advisory.
