Payment Interoperability and Cross-Border SME Trade in Africa: The Roles of Transaction Efficiency, Regulatory Fragmentation and Transaction Costs

Deconstructing Cross-Border Payment Frictions, PAPSS Dynamics, and Institutional Governance under the AfCFTA

Abstract

The realization of regional economic integration across emerging markets depends not merely on statutory tariff reductions, but on the operational efficiency of the digital financial rails connecting cross-border enterprises. Within the African Continental Free Trade Area (AfCFTA), small and medium-sized enterprises (SMEs) face persistent financial and institutional friction. While macro-level payment innovations: such as the Pan-African Payment and Settlement System (PAPSS): have established continental financial market infrastructure, international business scholarship lacks firm-level empirical evidence on how payment interoperability translates into actual cross-border commercial engagement. Grounded in Transaction Cost Economics (TCE) and Institutional Theory, this study develops an empirical model explaining how payment interoperability influences cross-border SME transaction intensity and firm trade performance. We conceptualize payment interoperability as an intermediate technological capability that impacts trade performance through the mediating mechanism of transaction efficiency, while regulatory fragmentation acts as a critical institutional moderator. Analyzing a cross-sectional dataset of N=702 SMEs across five key African trade hubs (Ghana, Nigeria, Côte d’Ivoire, Kenya, and South Africa) using Partial Least Squares Structural Equation Modeling (PLS-SEM), the study disentangles technological capabilities from firm-level trade performance. Out-of-sample predictive assessment (PLSpredict) and Gaussian copula diagnostics evaluate structural robust predictions and endogeneity risks. The findings advance digital trade literature by establishing the boundary conditions under which digital financial infrastructure translates into practical firm-level trade performance under AfCFTA.