In a recent CFO South Africa webinar, Cornelius Coetzee, country manager of South Africa at Verto, a global financial technology firm, and Yusuf Bodiat, the head of finance and investment for African Risk Capacity, discussed the challenges and opportunities of fintech solutions for cross-border payments in Africa
Cross-border payments can be a seamless experience or a major pain point for any CFO, whether it’s dealing with regulatory compliance issues, the high cost of transactions or the implications of blockchain technology.
Speaking at the webinar, held in conjunction with Verto, Cornelius Coetzee, Verto’s country manager for South Africa, said that the three biggest pain points for cross border payments from a South African point of view are the high remittance fees, the speed of payments – which carries a two to five day minimum settlement lead time for transacting abroad – receiving money and the often perceived cumbersome exchange control processes.
All these areas directly affect businesses when you see those costs cut into your profitability, especially for businesses trading in exotic currencies, which can drastically affect your ability to negotiate preferred rates with the banks.
Yusuf Bodiat, the head of finance and investment for African Risk Capacity concurred. In addition, he said that foreign exchange (forex) fluctuations are a major challenge, whether it be political unrest, change in economic performance or changes to our central banking policies, and global market sentiments – all of which can affect our exchange rates.
“So, if you are selling in dollars it could be beneficial, but if you are buying in dollars it can be very hurtful,” he said. “The second hurdle is regulatory compliance – each jurisdiction and each country has their own anti-money laundering laws. We also have double tax agreements to make sure we’re not losing money from double tax agreements not in our favour.
“Then there are the high transaction fees and hidden costs of moving money between countries, both of which can be high and carry lengthy processing and settlement times”.
“The lengthy processing and settlement times are something that many businesses are unaware of at first, and as they manage their cashflow better, realise that once the transaction is approved on the other side, there's a window period, which could be quite long depending on the different banks you're dealing with or different jurisdictions." - Yusuf Bodiat, head of finance and investment for Africa Risk Capacity
African Risk Capacity is a Bermuda domiciled parametric insurance company and its aim is to assist African governments in times of climate disasters. If there’s a drought, cyclone or flood in African countries, the insurance company will assist the vulnerable claimants with payments.
“If you are currently paying about 17 percent on a transaction that is quite high and, in my opinion, probably exorbitant, there's something called an FX spread and there's a charge associated with a transaction. Usually the UVP of a financial services provider is there to say that they only charge you R50 per transaction, but if you look at the transaction or spread of the exchange rate it is not favourable at all. At Verto we only put a very small margin on our transaction and it will never exceed one percent and we can go down to as low as 0.4 percent," - Cornelius Coetzee, Verto's country manager for South Africa
Verto is a global financial technology firm headquartered in the United Kingdom that enables businesses of all sizes to access enterprise grade cross-border payments, forex and banking solutions. Its primary focus is on open pricing, transparency and speed. Its goal is to move funds within 24 hours compared to traditional methods and help navigate exchange control and South African Reserve Bank (SARB) approvals.
A poll of webinar attendees found that 68 percent rely entirely on traditional banks despite people using fintech in their personal lives in the form of e-wallets, and tap-to-pay on phones. So why is there a disconnect? Yusuf says some businesses still believe that banks are safer based on history or hidden costs. They also question how long the fintechs will survive and if they’ll disappear.
What is the future of cryptocurrencies?
“When we’re talking about cryptocurrencies we have to distinguish between Bitcoin and stable coins like USDC and USDT. Stable coins are designed to be more stable because they are pegged to a more stable asset like the US dollar so they don’t fluctuate as widely as something like bitcoin,” says Cornelius.
“The crypto landscape in South Africa is still in development, and regulations are not as clear cut as traditional banking, but the SARB is working on a regulatory framework for stable coins.”
Yusuf takes a more cautious approach. The first thing to consider is to check if organisations have the regulatory approval to trade in Bitcoin, he says. Then from an internal governance perspective, it’s important to check if your cash management policy allows you to trade in those types of instruments.
The webinar also showcased how Verto approaches compliance. Cornelius emphasised the importance of conducting a full Know Your Customer and Know Your Business checks, and to adhere to regulations in multiple jurisdictions. Ultimately it's about taking a proactive approach to monitoring transactions, reporting, and ticking all the boxes for security and compliance.
Advice to fintechs
“Fintech is digital payments, lending, investments, insurance. It is short for financial technology and it could be anything where we use technology to leverage finance,” said Yusuf.
Cornelius added that in order to succeed they need to be partners to traditional banks, not competitors. “Financial services providers like Verto don’t focus on being a competitor of the banks, but an alternative or partner with the bank,” he said. “We focus particularly on the B2B remittance link and it takes the pressure off banks and together we can, with our remittance purpose-built tech, focus on reducing the cost exposure, managing the settlement lead times more efficiently, championing balance of payment reporting, and taking that risk away from you.”
Both Yusuf and Cornelius advised businesses using fintechs to have a dedicated budget for compliance.
Yusuf said, “Have a compliance budget in place to work with fintechs because the risk of not doing it properly and the costs you’ll spend afterwards are going to be much more than the fee you pay upfront. I would also suggest getting a partner, because they are professionals, they’ve done the research, they have a track record and they’ve got other clients that they’ve worked with before.”
Yusuf added that, “The business should also look for a partner with a one-stop-shop solution, a reliable guide who can help you navigate this complex world and start slowly, dip your toe in with a small transaction to test the system. Have a strategy and don’t just chase the shiny new thing before you adopt the latest trend. South African banks have already integrated fintech solutions into their own offerings like e-wallets and instant payments options, and people don’t realise it's powered by fintech.”
But the same adoption is not happening in the business world: Yusuf talked about using a mobile wallet to pay for a car wash because it was the quickest and most convenient option.
“People want the easy, frictionless option, but businesses have to consider compliance, risk management and internal processes. So it's not just about downloading an application. Businesses need to find a balance between innovation, security, agility and compliance.”
Cornelius concluded: “Businesses need to shift their mindset and not view fintech as an optional extra, but see it as a core strategy for growth and efficiency. It’s about staying competitive in a world where transactions are happening at lightning speed.”
