Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Nigeria Is Building an Alternative to SWIFT Payments
Transcript
- Lucas: So there's a quiet experiment happening in Nigeria right now that could reshape how emerging markets move money across borders. It's not the eNaira — that's been around for a while with limited traction. It's a private-sector initiative called AfricaNCI, and it's building a real-time gross settlement system designed to bypass SWIFT entirely. Luna: AfricaNCI — that stands for Africa Network for Cross-border Interoperability, right? Lucas: Exactly. And the key word there is 'interoperability'. The idea is to connect domestic instant payment systems across African countries directly, so a payment from Lagos to Nairobi settles in seconds, without routing through correspondent banks in New York or London. No SWIFT message, no dollar conversion, no three-day wait. Luna: That's a big deal for remittances. Nigeria alone gets about twenty billion dollars a year in inbound remittances. The average cost to send money to sub-Saharan Africa is around eight percent — way above the UN's three percent target. Lucas: And swift based corridors are a huge part of that cost. Each intermediary bank takes a cut, plus the FX spread. AfricaNCI's model caps transaction fees at half a percent. That's a tenfold reduction for someone sending two hundred dollars home from London. Luna: What's the infrastructure underneath it? Is it blockchain, or something more conventional? Lucas: It's actually a hybrid. The settlement layer uses a permissioned distributed ledger — not a public blockchain like Bitcoin. But the real innovation is the API layer that hooks into each country's existing real-time gross settlement system. In Nigeria, that's the Nigeria Inter-Bank Settlement System, which already processes about four and a half million transactions a day. Luna: So it's piggybacking on existing rails rather than building from scratch. That makes adoption faster. Lucas: Exactly. The consortium includes four Nigerian commercial banks and two mobile money operators. They've already got a pilot running with Ghana's instant payment system. Target is to expand to Kenya, South Africa, and Rwanda by the end of this year. Luna: It reminds me of India's UPI — the Unified Payments Interface. That started domestically, then they built UPI for cross-border with Singapore and the UAE. Now it's a template. Lucas: And that's the playbook. China's done something similar with CIPS — the Cross-border Interbank Payment System — though that's more central bank driven. AfricaNCI is trying to do the same thing, but privately, with central bank blessing. The Central Bank of Nigeria has been supportive, partly because they want to reduce dollar dependency. Luna: Speaking of which — if this scales, does it put pressure on the dollar's role in trade finance? Lucas: Slowly, yes. Right now, about forty percent of global trade is invoiced in dollars, but that's been declining by about one percentage point a year. Regional payment rails like AfricaNCI, CIPS, and even the euro's TIPS system create alternatives for specific corridors. For intra-African trade, which is only about fifteen percent of the continent's total trade, there's huge room to grow — and dollar intermediation is a friction. Luna: What about the governance? Who controls the ledger? That's often the sticking point with these consortia. Lucas: It's a private company — AfricaNCI Limited — owned by the founding banks and mobile operators. They've set up a board with representatives from each country's payment system. The central banks have observer status. The key rule is that settlement happens in local currencies — naira for Nigeria, cedi for Ghana, and so on — and then a net position is calculated in a basket of currencies at the end of the day. That avoids dollar conversion on every transaction. Luna: So it's not trying to create a new digital currency — it's just making existing currencies interoperable more efficiently. Lucas: Right. And that's actually more practical than a central bank digital currency for now. The eNaira has less than one percent of adults actively using it. People trust the existing banking system more than a central bank wallet. But they do trust mobile money — M-Pesa in Kenya, Paga in Nigeria. So AfricaNCI is meeting them where they are. Luna: What's the biggest risk? I mean, SWIFT has been around since the 1970s. It's deeply embedded. Lucas: The biggest risk is liquidity. If you have a payment system that settles in local currencies, each participating bank needs to hold balances in every other currency. That's expensive. The consortium is tackling that by using a central clearing house that nets positions daily, but in the early days, settlement failures could happen if a bank doesn't have enough cedis in its account, for example. Luna: And then there's the geopolitical angle. If this really takes off, it could complicate sanctions enforcement. The U.S. has relied on SWIFT as a tool. Lucas: That's a fair point. But AfricaNCI is focused on legitimate trade and remittances — not evading sanctions. Nigeria and Ghana are not sanctioned countries. That said, if the system grows, it does create an alternative routing option that reduces dependency on the dollar-based system. The U.S. Treasury is already watching CIPS closely. They'll be watching this too. Luna: It's interesting that you mentioned India earlier. Because UPI's cross-border expansion has been gradual — they've linked with Singapore, but it took years. What's the realistic timeline for AfricaNCI to get meaningful volume? Lucas: I think we'll see pilot volumes within six months — maybe a few thousand transactions a day. But meaningful volume — say, ten percent of Nigeria's remittance flow — that's probably two to three years away. Adoption depends on user awareness, agent networks, and trust. But the cost savings are so dramatic that if even one major money transfer operator like WorldRemit or Wise integrates, it could snowball. Luna: And you mentioned the eNaira didn't take off. Do you think this private-sector approach has a better chance? Lucas: I do, because it doesn't ask end users to change their behavior. You don't need a new app or a new wallet. You just send money through your existing bank or mobile money app. The interoperability happens in the background. That's the lesson from UPI — the infrastructure should be invisible. Luna: That's a good point. And on that note — if walking through the economy with us has made something click, there's a link in the show notes. It's buy me a coffee dot com slash fexingo. No pressure. Just helps keep this ad-free. Lucas: Yeah, genuinely — if today's episode was worth the price of a coffee, that's the place. Everything stays free regardless. Luna: So back to the network — one other interesting angle is that AfricaNCI is planning to offer a stablecoin for settlement within the consortium, pegged to a basket of African currencies. That would reduce the need for bank nostro accounts. Lucas: That's the next phase, yeah. A settlement token called the 'Afri-stable' — I'm not sure that's the final name. But if they can maintain the peg, it solves the liquidity problem I mentioned. Instead of holding multiple currencies, banks just hold the stablecoin, and it's convertible at the end of each day. Luna: That feels like a big technical challenge — maintaining a peg across volatile currencies. The Nigerian naira has depreciated about forty percent against the dollar over the past two years. Lucas: It is. But the peg would be dynamic — it would adjust based on a weighted average of the member currencies. So it's not a fixed peg like the Hong Kong dollar. It's more like a unit of account that reflects the average purchasing power within the network. The risk is that weaker currencies might drag the peg down, but that's symmetric — all members share the depreciation risk. Luna: So it's almost like a mini SDR — Special Drawing Right — but for African payments. Lucas: Exactly. The IMF's SDR is a basket of five major currencies. This would be a basket of African currencies. If it works, it could become a reference rate for intra-African trade pricing, not just payments. Luna: How is this being funded? Building a real-time settlement system isn't cheap. Lucas: The initial funding came from the participating banks — about ten million dollars in seed capital. They've also secured a grant from the African Development Bank. And they're planning a Series A round later this year. The pitch to investors is that they capture a fraction of the remittance fee savings — even a tiny slice of a twenty billion dollar market is attractive. Luna: And what about regulatory hurdles? Each country's central bank has to approve the connection to its domestic payment system. Lucas: That's the slowest part. Nigeria and Ghana are already live. Kenya is in talks — the Central Bank of Kenya has been cautious. South Africa's Reserve Bank is supportive but wants to see a proof of concept first. I think Rwanda will be next — they've been very progressive on digital payments. Luna: So the path is literally country by country. But if they get a critical mass — say, Nigeria, Ghana, Kenya, and South Africa — that covers about sixty percent of sub-Saharan Africa's GDP. Lucas: Exactly. And at that point, the network effect kicks in. The more countries join, the more valuable the system becomes for everyone. It's the same dynamic that made SWIFT valuable — but SWIFT was built by banks for banks. This is built for the person sending fifty dollars to their mother. Luna: Do you think we'll see similar initiatives in other emerging market regions? Latin America? Southeast Asia? Lucas: We already are. The ASEAN countries are working on a regional payment connectivity framework. Mercosur has talked about it. But Africa is actually ahead in one sense — they're starting from a lower base of legacy infrastructure, so there's less to replace. They can leapfrog straight to mobile-first, real-time settlement. Luna: That's a good note to end on. AfricaNCI is a project to watch — not just for remittance costs, but for what it says about the future of the global payments architecture. Lucas: Exactly. It's early days, but the direction is clear: cheaper, faster, more interoperable. And that's good for everyone in the emerging markets.