Stablecoins could reshape Africa’s cross-border payments, but integration is key

For much of the past decade, stablecoins have been associated with cryptocurrency speculation. However, they are now being recognized as a practical solution for borderless money transfers, liquidity management, and payment efficiency. The ideal scenario is not to pick between traditional finance and digital assets, but rather to create an integrated financial system where both can coexist and enhance efficiency, financial access, and economic connectivity across the continent.

Despite progress in financial inclusion and digital payments, sending money across African borders is still an arduous task. Businesses encounter difficulties in making cross-border payments due to fragmented payment networks, numerous intermediaries, and lengthy settlement times, which increase costs and lead to operational inefficiencies.

Remittance providers, who play a pivotal role in helping millions of Africans send money home, face similar challenges. These providers, crucial for millions of Africans, handle remittance inflows equivalent to at least 4% of their GDP in 19 African countries. Yet, Africa remains the most expensive region for sending money globally.

These issues stem not from remittance providers, but from the fragmented banking and settlement infrastructure that underpins international money movement. Financial institutions must manage liquidity across multiple disconnected currency markets, relying on complex correspondent banking networks and clearing systems. This results in higher costs, delayed settlements, and funds that are unnecessarily tied up.

Stablecoins offer immediate opportunities in improving cross-border settlements. For instance, a Kenyan business importing goods from South Africa often has to navigate multiple correspondent banking relationships, foreign exchange conversions, and face days of waiting for funds to reach the recipient. Stablecoin-enabled settlement systems could streamline this process, enabling value to move more efficiently between financial institutions across markets.

This leads to shorter settlement times, greater transparency, and improved predictability for businesses operating internationally. The benefits extend beyond businesses. Millions of Africans working abroad rely on remittances for their daily needs, such as paying school fees, healthcare costs, and living expenses. Sending money home typically involves navigating a chain of money transfer operators, correspondent banks, and local payout partners, with each step adding costs and delays.

Stablecoins can simplify the backend movement of funds between institutional participants, reducing settlement costs and improving operational efficiency. For end-users, the advantage is simplicity. Recipients receive money through familiar channels like local bank accounts or mobile money wallets, faster and at a lower cost. Beyond payments, stablecoins tackle another significant but less visible challenge in cross-border finance - liquidity management.

Financial institutions operating across multiple markets need to constantly ensure they have sufficient funds in the correct currency, jurisdiction, and timing. Today, this often requires pre-funding accounts across multiple countries, a costly practice that locks away large amounts of capital and limits financial flexibility. Stablecoins introduce a new real-time value transfer model, allowing institutions to manage liquidity dynamically as demand arises.

This reduces the need for large pre-funded balances, enhances treasury efficiency, and frees up capital that can be deployed more effectively. Ultimately, these efficiencies can lead to faster settlements, reduced costs, and better services for businesses and consumers. However, the full potential of stablecoins will rely on their integration with existing financial systems.

Their long-term impact depends on how well they can integrate with banks, mobile money platforms, payment service providers, and other payment infrastructure. Interoperability will be vital to ensure smooth payment flows between systems, markets, and currencies. The goal should be to strengthen and modernize today's payment ecosystem, not replace it.

Recent developments from card networks indicate a shift towards investing in stablecoin infrastructure. Mastercard's reported acquisition of BVNK, valued at up to $1.8 billion, shows confidence in settlement layers connecting stablecoin rails with traditional banking. Visa's expansion of stablecoin-backed cards through Stripe's Bridge to over 100 countries reflects a complementary approach.

Leveraging its global network as the final distribution layer for stablecoin-funded payments, Visa recognizes the potential for stablecoins to complement existing mobile money ecosystems on the continent. These developments suggest a broader shift. Card payment networks are moving from merely observing the stablecoin conversation to investing in the infrastructure that supports it.

For Africa, this means stablecoins may not replace existing payment methods but could operate alongside them, potentially enhancing the continent's financial infrastructure.