Payments in Africa remain a complex landscape. As a merchant, navigating the diverse payment methods and regulatory environments can be challenging.
While domestic payments within key markets like Nigeria, South Africa, Kenya, and Ghana have seen significant advancements, with acceptance rates reaching 70-75% in tech-powered regions, the challenge lies in facilitating seamless cross-border transactions across the continent.
Even for neighbours like Ghana and Nigeria, the process of accepting payments across borders can be incredibly complex and time-consuming. Kweku, based in Accra, Ghana, faces numerous challenges in setting up Naira payments for his business. From burdensome regulations to the need for multiple integrations, the setup process can take months. This delay often means losing out on potential business opportunities or entering a saturated market.
You may be wondering, what are the numerous fintechs building payment networks in Africa doing? You see, it’s easy to think the problem is simple, but it’s not. Contrary to what many may think, this is not an infrastructure problem as much as it is a regulatory one. Granted, there is a sea of payment methods with diverse preferences across Africa, but the real issue preventing aggregators from offering all these methods in one go is regulation. Regulators in Africa have varying requirements, and interoperability is impracticable in such a fragmented landscape. In Europe, it is easy because there is central regulation, a central currency, and a central SEPA system that enables interoperability of the financial sector.
Africa is very different and highly fragmented. This births a rather broken system that makes payments more complex than they should be. But even if the payment infrastructure and regulatory issues are solved, there is still a big issue around FX volatility and cross-border settlements. On the FX side, merchants are unaware and may not know how to charge customers in local currencies or how to adjust the rate. Even if they can, managing about 44 currencies in Africa might be too challenging. An easy way to do this might be to manually adjust the rate daily or maintain a global currency charge. Charging customers in global currencies like USD, GBP, or EUR may reduce conversion rates because customers need to do the mental gymnastics of converting the global currencies into their local currencies and might be discouraged from proceeding with payments.
A new fintech niche: Merchant of record
However, companies are beginning to focus on a new area to enable cross-border commerce. And this new fintech niche is called merchant of record. With merchant of record solutions, companies like Startbutton, Ebanx, Dlocal, and Unlimit are making payment interoperability more seamless by stitching together the broken payment methods.
Some of these companies, like Startbutton Africa, offer not only the ability to receive payments in available local currencies across Africa but also provide dynamic currency conversion tools to ensure users can receive payments without losing money due to volatility.
Additionally, Merchant of Record solutions streamline cross-border operations by bundling essential services like payments, banking, regulations, subscriptions, funds transfers, and fraud management. This eliminates the need for merchants to integrate multiple solutions, saving them time and resources. Not only are merchants benefiting from these solutions, but global fintechs are also leveraging them to expand their payment offerings and reach new markets.
Having said all this, the question remains whether merchant of record solutions should be regulated like payment service providers (PSP). Given their merchant status, it’s unnecessary to require them to obtain a PSP license. However, countries should consider regulating them as designated non-financial institutions to ensure compliance with consumption taxes on foreign or digital goods. The future of this regulatory approach remains uncertain.
