OPINION: How fintech innovation can overcome trade barriers to unlock Africa’s SME growth

Envisioning a prosperous Africa where small and medium-sized enterprises (SMEs) are ambitious enough to consider the entire continent as their primary market is not just a dream- it’s an attainable reality that is currently underway.

The key to this transformation lies in dismantling the financial barriers that currently hinder progress.

In this foreseen future, a robust intra-African payment ecosystem would unleash unprecedented growth across various sectors, driving not only business expansion but also creating new employment opportunities and bolstering essential industries.

As one business or sector flourishes, others are positively impacted, all thriving as interconnected entities.

This synergy will generate a powerful chain reaction, leading to wealth creation and improved living standards for countless individuals. Most importantly, it will empower Africa to assert its economic autonomy and shape its own destiny.

Africa’s digital economy is projected to reach $712 billion by 2050, fuelled by rapid population growth, rising consumer spending, and increasing digital penetration. This trajectory indicates a growing market with significant consumer power.

Yet, despite these promising opportunities, many SMEs remain confined to their local regions, limiting their ability to scale across the continent. A significant barrier to this growth is the challenge of cross-border transactions.

At Verto, we have discovered that 92% of African SMEs often find themselves needing to convert their local currencies into dollars to engage in intra-African trade, incurring unnecessary costs and complexities in the process.

If Africa is to reach this envisioned goal and SMEs tap into the rapidly growing economy, it is imperative not only to identify the challenges they face but also to propose effective solutions.

One of the biggest challenges is the lack of access to efficient international payment rail systems and settlement timelines. For SMEs to make international transfers, they are often limited to traditional banks, which require extensive documentation which they often are unable to provide.

Moreover, many traditional financial institutions lack the infrastructure to facilitate international transfers to key regions like the Middle East and Asia—important trade destinations for Kenyan businesses, for example.

As a result, many SMEs turn to non-traditional methods like working with brokers or systems like Hawala, where a local broker in one country partners with another broker in the destination country to facilitate payments.

However, these informal methods are inefficient and prone to fraud, with no formal documentation or checks in place. Moreover, the costs involved in using these brokers can be extremely high—some SMEs have reported paying up to 12% in broker fees. These added costs erode profit margins and increase the overall risk of doing business.

On a macro level, this inefficiency hampers Africa’s ability to progress in international trade, creating a significant disadvantage for the continent’s economic growth.

Regulatory complexities across different jurisdictions when making cross-border payments also pose a significant challenge. SMEs often struggle to ensure they have the correct documentation required by regulators to facilitate these payments.

For example, if a Kenyan business owner were to process a payment to a vendor in West Africa, there are regulatory documents and processes to consider. Even after submitting all the necessary documents, the transfer could still take 10 to 15 days due to stringent regulatory requirements.

This delay occurs not from incorrect documents, but from the specific regulatory processes that must be followed. As a result, SMEs are left uncertain about when they can actually pay for goods and services, creating significant delays in trade. And when you juxtapose this with other regions, you would find that they differ.

In South Africa, for instance, different documents are required before a payment can be processed, while in Kenya, payments below $10,000 typically require less documentation, making the process faster. If you are to successfully engage in Intra Africa trade, you will need to understand these regulatory differences.

Another significant challenge is the lack of connectivity between banks within intra-Africa payments. As it stands, transactions often rely on the SWIFT network, which means payments must route through foreign regions like the U.S. banking system before reaching their destination in another African country.

This fractured and fragmented approach severely limits the direct payment capabilities needed for SMEs to grow their markets. Consider a flower company in Kenya that receives an order to export flowers to Senegal.

The common method by which the Senegalese importer can pay this Kenyan business is via SWIFT or traditional methods like Western Union, which can incur fees of up to 10% to 12%. While market access may exist, the settlement processes are clunky, adding unnecessary costs to the transaction.

These identified challenges faced by African SMEs in cross-border trade are not insurmountable; in fact, the solutions are already within reach. Forward-thinking fintechs are at the forefront of this transformation, introducing innovative tools that have the potential to revolutionise the way African businesses operate.

If properly leveraged, these solutions could unlock unprecedented growth opportunities, enabling business owners to fully capitalise on the rapidly expanding intra-African market.

Strategically, SMEs must prioritise partnerships with fintech providers like Verto, which have already navigated the complex regulatory environments and secured licences across multiple jurisdictions.

By aligning with such payment providers, businesses can streamline their cross-border transactions without the burden of navigating regulatory approvals on their own. This allows SMEs to redirect their focus toward scaling their operations and tapping into new markets, rather than being bogged down by compliance challenges.

Fintechs like Verto, for instance, are increasingly addressing the pressing financial challenges faced by these SMEs, providing tools that enhance operational efficiency and promote sustainable growth in a rapidly evolving market. Effective Treasury Management has emerged as a critical strategy for mitigating foreign exchange (Forex) risks.

By moving away from informal channels that often impose high fees, businesses can access formal financial networks that significantly reduce transaction costs  by more than 80%. This shift not only helps protect profit margins but also fosters greater financial stability, especially during procurement processes.

Broader fintech innovations are also paving the way for SMEs to overcome barriers in intra-African trade. For instance, solutions like Pay by Links empower businesses to simplify their payment collections.

Payment Links allow businesses to collect payments quickly and securely from clients, and keep track of all transactions in one place, bringing both security and convenience to cross-border dealings.

Intra-Africa mobile money platforms are equally transformative, enabling SMEs to make direct payments into mobile wallets across different currencies. These solutions provide flexible, seamless alternatives for handling international payments, allowing businesses to navigate the complexities of cross-border trade with greater ease and efficiency.

The potential for African commerce is staggering. By 2050, nearly a quarter of the world’s population will be African, with the continent boasting the fastest-growing and youngest demographic globally.

This signals a massive opportunity for SMEs, but realising this potential requires overcoming the hurdles that currently hinder intra-African trade. By addressing these barriers and embracing innovative, scalable solutions, we can create an environment where African SMEs not only survive but thrive, driving the continent’s economic future.

Now is the time to break down trade barriers and unlock the vast potential of Africa’s dynamic market.

Kevin Ng’ang’a is Verto’s Country Manager for Kenya.