The Trajectory Africa Distilled #04: Cross-Border Payments—Stablecoins vs. Instant Payment Systems
Instant payment systems like the Pan-African Payment and Settlement System (PAPSS) offer a state-sanctioned alternative to stablecoins, but face structural constraints that are ultimately political, not technical. Tayo Akinyemi works through the trade-offs.
Hello, Everyone.
A recurring theme across my exploration of African tech is infrastructure — the layers of physical assets, technology, policy, and norms that enable systems to work, or not.
In my previous piece, I walked through the structural constraints on productive lending: an absent consequence layer, slow-moving regulation, and policy decisions that make affordable credit nearly impossible to deliver at scale. This distill turns to cross-border payments and asks a similar question: what infrastructure gaps are we actually trying to bridge, and what happens when the tools we reach for create problems of their own?
Tayo Akinyemi
The context for cross-border payments
A useful place to start is intra-African trade. According to Oui Capital's report on Africa's cross-border payments landscape, Intra-African trade accounts for less than 20% of total trade (vs. 69% in Europe and 59% in Asia) in good part because cross-border payments are fragmented, expensive, and slow.
Yoseph Ayele, Founder and Managing Partner at LAVA, puts numbers to the problem: Africa has a $400 billion net USD outflow — more dollars exit through imports, profit repatriation, debt service, and illicit flows than enter via exports, remittances, and investment.
Further, according to Oui Capital, part of the $100B trade finance gap in Africa is attributable to high-friction, cross-border payments. The cost of these payments keeps transactions informal and cash-based, and locks out SMEs. In Nigeria, for example, 90% of USD flows in an informal, parallel market through foreign exchange bureaus, hawala networks, and informal traders.
What makes moving money across borders so costly? There are a couple of factors according to Oui Capital. First, limited trust in local currency pairs results in insufficient liquidity, so most payments involving African currencies are routed through the SWIFT/correspondent banking system and cleared in USD or Euros. Second, only 55% of African countries allow electronic KYC, which slows things down further. Taken together, the range of inefficiencies results in $5 billion in lost value annually.
What stablecoins solve
In the previous piece, I wrote about how stablecoins address one specific bottleneck: settlement. Of the three components of a payment — messaging, reconciliation, and settlement — the first two already happen in real time. It's settlement that lags, because accounts need to be prefunded with local currency to complete transactions.
As First Circle Capital's white paper explains, stablecoins bypass this by defragmenting messaging, reconciliation, and settlement: because stablecoins represent USD, they can be used to exchange currencies, which eliminates the need for local currency prefunding and allows transactions to complete instantly.
As Wiza Jalakasi of EBANX explained to me, eliminating the prefunding burden doesn't just make existing cross-border businesses more profitable; it democratizes entry. Previously, only incumbents with sufficient capital to prefund accounts could compete.
Jasiel Martin-Odoom, an Africa-focused, early-stage fintech investor, adds a useful qualifier: building cross-border payment functionality on stablecoin rails may not be differentiated enough to be competitive on its own. But developing stablecoin infrastructure that others can build on, and earning recurring revenue from it, could be a more defensible position.
Andile Masuku
More stablecoins, more problems?
Making it easier to exchange African currencies for USD has a dark side. It reinforces the dollarization of African trade and endangers the monetary sovereignty of African countries. The vast majority of stablecoins (99% of a $250 billion market), are USD-denominated, and issuers back them with US treasuries.
According to Yoseph, stablecoins hamper monetary policy by making it difficult for central banks to see and monitor outflows, and guide them via capital controls. Easing the conversion of local currencies into USD reduces demand for them, contributing to their devaluation — a vicious cycle in which people and institutions abandon weakening currencies, accelerating that weakness.
One proposed counter is local currency stablecoins issued by African central banks. As Gwera Kiwana argues in Semafor, if these institutions held 5–10% of global stablecoin float, they'd generate billions in interest income from reserves — a form of seigniorage that currently flows to issuers like Circle and Paxos. Safaricom issuing Kenya-shilling-pegged stablecoins backed by government bonds, for instance, could enable real-time settlement while keeping monetary sovereignty intact.
LAVA estimates the cost savings could be dramatic: transactions settling at $0.0016 per transaction on L2 blockchains, roughly twenty times lower than current minimums..
"Stablecoins are not just a new payment method. They are the foundation of the next generation of programmable finance."
-- Gwera Kiwana (Morse - formerly Sling Money)
Who gets to build this?
Gwera also explains that banks have the licenses and regulatory relationships that make stablecoin deployment structurally easier. Telcos have infrastructure and consumer trust — they've already built the behavioral habits that make digital value exchange feel normal through mobile money. They're largely responsible for the comfort users have with on/off ramps that move money between digital value and cash, and they prefund mobile money transactions through cash deposited in bank trust accounts. Startups, meanwhile, have speed and willingness to build on emerging rails.
What's interesting is how existing players are positioning. Flutterwave's recently announced partnership with Turnkey signals a move toward stablecoin-enabled trade payments. In a post about the deal, CEO Gbenga Agboola links the case for payments explicitly to the case for enabling trade, noting that stablecoins allow African businesses to pay global suppliers faster, receive next-day value, and earn foreign-currency revenue with less friction.
This is exactly the connection Jasiel made: there's more to cross-border payments than just payments. They're often the first stage in a series of trade-related transactions, creating downstream opportunities to finance production, warehousing, shipping, and clearing, many of which are higher-margin, recurring revenue services.
Instant payment systems (IPSs) enter the chat
Stablecoins aren't the only proposed pathway to faster, cheaper cross-border payments. Interconnected instant payment systems (IPSs) offer another route.
According to the AfricaNenda Foundation, regional instant payment systems have processed $1.2 trillion over five years (37% more transactions and 39% more value), and four regional systems are now operational.
Additionally, the Pan-African Payment and Settlement System (PAPSS), initiated by Afreximbank, is a pan-African network that commercial banks, fintechs, and payment service providers can connect to. As the AfricaNenda note suggests, if these systems became interoperable, the savings on transactions could plug the $100B trade finance gap. The key word is ʼifʼ.
Letʼs take PAPSS as an example. It offers a lot of promise, but also faces real structural constraints. Yoseph of LAVA argues that it encounters challenges as a closed-loop system. Itʼs settled through a central ledger every 24 hours, rather than continuously on a blockchain, and it lacks the speed and inclusivity of stablecoin infrastructure.
More fundamentally, as part of a fascinating LinkedIn exchange initiated by Sheena Raikundalia’s post, Nikolai Barnwell points out that PAPSS may be addressing surface-level problems while leaving deeper ones intact: divergent national monetary policies mean countries distrust each other's exchange rates and guard their currencies tightly. Official rates in many PAPSS countries can be 10–15% off the real market rate.
Marietta Gachegu put it to me well during an inspired primer on regulation— what's commonly described as regulatory fragmentation is also fundamentally an expression of disparate national priorities. Harmonizing regulations would require aligning national, financial, and economic goals, not just connecting systems.
That said, the “competition” between stablecoins and PAPSS may itself be a false choice. Kayode Odeyemi made that point in the aforementioned discussion. The two can coexist, because they address different problems. National instant payment systems can make in-country payments fast and cheap; stablecoins can do the same for cross-border transactions. The friction is ultimately political rather than technical. And part of that friction, may be a job for governments to resolve with their policy decisions rather than for startups to circumvent.
Coming up
In the next article, I'll share my final thoughts on fintech investment opportunities in Africa — where, hopefully, all of these threads start to converge.
Till the next one…