“Although you have two central banks, you effectively have each country having its own regulatory rules and requirements on top of that,” says Ola Oyetayo, CEO at cross-border payments fintech Verto. Each country, he adds, also tends to interpret central bank decisions and policies slightly differently. “There's just a lack of consistency with the regulatory framework for each country even though they are [under] one central bank.”
Although you have two central banks, you effectively have each country having its own regulatory rules and requirements on top of that
The currency set-up also causes problems. Both the CFA francs are pegged to the euro, but at different levels and they are not convertible. Instead, a cross-border transaction between the franc regions has to be converted into euros or dollars and then back again. The currency peg combined with a lack of sufficient reserves also causes liquidity issues. “The capacity for banks in the region to be able to facilitate transactions above €500,000 is very, very limited,” says Oyetayo. “If you're a large-scale business and you'd like to convert €2m it might take you two weeks.”
Then there are the politics and the underdeveloped digital infrastructure, which create additional headwinds for investment. A 2023 report from Agence Française de Développement (AFD) found that 21 of the 26 Francophone African countries had shut down the internet or limited online content at least once since 2017. “If I'm a business and I know that internet is almost at the mercy of the government, I'd rather go for [an investment] that the government is not keen to shut down at any point in time,” says Ifelade Ayodele, CEO of cross-border payment and remittance firm Blaaiz.
A foundation for neobanks
But this fragmentation and lack of infrastructure also creates opportunity. Mobile money is booming across West Africa. Hundreds of operators and limited core infrastructure, however, make compatibility between wallets challenging.
We see that as an opportunity to provide a platform that enables the entire region and ecosystem to grow more quickly
Ivorian fintech Hub 2 is aiming to bring much needed interoperability to the region by creating foundational payment infrastructure. “We see that as an opportunity to provide a platform that enables the entire region and ecosystem to grow more quickly,” says Eloho Omame, a partner at TLcom Capital, which has invested in Hub 2.
Fintechs and neobanks will be the first major beneficiaries of the new infrastructure. Omame notes that Ivorian mobile challenger bank Djamo is a major Hub 2 customer. “As a new bank in the region, you want to find a way to provide digital bank accounts and related products to a target customer base, but you don't want to spend your time worrying about the core payments infrastructure layer that enables you to do that,” she says.
Hub 2 has started with a focus on mobile wallets in Francophone West Africa, but will expand across geographies and clients. Omame says the plan is to build a solution agnostic API that will suit everyone from offshore remittance firms to local neo-banks.
Conservative incumbents
Other fintechs are working on their own solutions. Blaaiz is able to boost cross-border payments by routing customers’ mobile money transactions through the commercial banking networks for greater speed and efficiency. Their main customers are businesses because of the larger transaction sizes, but Blaaiz is piloting serving individual customers.
That Blaaiz can do this depends on its relationship with the local banks. “Using the strength of our credit as a company we're able to bridge that financing role for customers,” says Ayodele. He notes that some banks are keen to help or even invest in fintechs and singles out Ecobank for praise. But many of the traditional incumbent banks remain conservative and reluctant to engage in new ventures.
Using the strength of our credit as a company we're able to bridge that financing role for customers
Still, fintech players are cautiously optimistic that the region’s regulatory outlook will improve. Oyetayo is expecting an regulatory update in the Central Africa franc zone that should provide clearer guidance on how financial intermediaries - like payment fintechs - can partner with banks. The first payments company licenses in West Africa were announced in 2024 and applications are being considered.
Omame approves of the licensing developments, though emphasizes more reforms are needed to create a fintech friendly environment. “We think the next step is a clear directive on passporting,” she says, and adds that regulatory sandboxes would also help innovation thrive.
But for investors like TLcom, Francophone West Africa’s combination of market gaps and more supportive frameworks is increasingly attractive. “We've talked about all the problems like under penetration, but from a business perspective that sounds really interesting to us because it creates an opportunity,” says Omame.