Is the Time Finally Ripe for Bitcoin Remittances in Africa?

When the words Bitcoin and Africa appear in a sentence, the word remittance usually follows. When Bitcoin first hit the mainstream in 2013, its low-cost money transfer feature was hailed as the solution to the overly expensive remittance costs charged by the large money transfer operators (MTOs), Western Union and MoneyGram. This is especially true when it comes to transferring funds to Africa.

However, in the eight years since Bitcoin was first launched, bitcoin remittances in Africa have not really taken off.

Bitcoin's Challenges in Kenya

Bitcoin is an industry that regularly likes to hype itself up. This has also been the case when it comes to Bitcoin adoption in Africa. As highlighted in a recent article by VICE Motherboard , the rise of Bitcoin in Africa is largely a myth, predominantly propagated by Western enthusiasts and stakeholders. The reality is that Bitcoin adoption across the continent is growing, but at a rather slow pace.

The trend, however, is definitely positive, which can be seen by looking at trading volumes for Kenya on the peer-to-peer exchange, But overall volumes are still small compared to other parts of the world, and mainstream Bitcoin adoption is effectively non-existent.

Bitcoin users in Kenya and other parts of Africa are predominantly limited to tech-savvy freelancers who get paid in bitcoin and digital currency traders who trade in it to generate a profit. The biggest hurdle for Bitcoin in Kenya, however, is the widespread use of the mobile money service MPesa, which is owned by the country's largest telecom company, Safaricom.

While a population accustomed to mobile money may seem like the perfect breeding group for mass Bitcoin adoption, there is already a functioning mobile payment system in place. Hence, for the average citizen, there is no real need for Bitcoin. Furthermore, Safaricom has been anything but friendly toward Bitcoin as it views it as a threat to MPesa. In 2015, Safaricom cut off Bitcoin companies Kipochi and BitPesa from using its services, thereby preventing bitcoin remittances being turned into local currency mobile money on their platform.

BitPesa went to Kenya's high court to dispute Safaricom's decision. However, the high court ruled against BitPesa, and Safaricom will not be required to re-enable BitPesa's access to MPesa. Following the court ruling, the Central Bank of Kenya landed a further blow against Bitcoin adoption in East Africa's biggest economy when it issued a public warning stating, "The CBK reiterates that bitcoin and similar products are not legal tender nor are they regulated in Kenya. The public should, therefore, desist from transacting in bitcoin and similar products."

According to Elizabeth Rossiello, CEO of BitPesa, the company still has live operations in Nigeria, Kenya, Tanzania, Uganda and the Democratic Republic of Congo, with an average transaction size of $25,000 across all these countries.

"We do have enterprise customers that themselves offer remittance products," Rossiello told Bitcoin Magazine , "but we would not characterize our product itself as a 'retail remittance' product. Rather, BitPesa provides low-cost, robust, and efficient infrastructure for companies doing business and making transactions in African currencies, including wholesale remittance companies."

While BitPesa is continuing to flourish as a business due to its focus on digital currency-based B2B payments across Africa (as opposed to private remittances,) the bitcoin remittances and wallet provider Kipochi was forced to cease its operations in Kenya and closed down.

Bitcoin Remittances in Ghana

Unfortunately for Bitcoin, Kipochi is not the only startup in the African bitcoin remittance space that has struggled to succeed. The Ghana-based startup Beam also failed to build a business based solely on bitcoin remittances in Africa.

Beam launched its service in October 2014, with the aim to improve remittances into Ghana through the use of the Bitcoin network. However, less than a year later Beam's management decided to cease its bitcoin remittance service . The reasons given for the closure were the complexity of bitcoin conversion into local currency, the limited number of merchants accepting bitcoin payments, and bitcoin's high price volatility.

Beam has since changed its business model and now enables "Ghanaians in the diaspora to care for loved ones back home," by paying for school fees, utility bills, airtime minutes and even errands using an international debit or credit card.

Despite the failures of Beam to bring bitcoin remittances to the masses in Ghana, local entrepreneurs have not given up on the idea. There are currently two Ghana-based e-money exchanges, PMCedi and PayPlux , that are accepting bitcoin as a means of payment and for the purposes of international money transfers.

Cashaa and the Sharing Economy

London-based Bitcoin startup Cashaa is the newest player entering the digital currency remittance market, and is in the process of launching its service after several months of successful beta testing of their platform.

Cashaa's business model differs from that of other bitcoin remittance startups as it is based on a peer-to-peer model involving local traders conducting fiat currency exchanges, while the digital currency aspect of the transaction happens in the background.

Speaking to Bitcoin Magazine , Cashaa Founder and CEO, Kumar Gaurav, suggested that Cashaa's advantage in the space lies in the company's business model. Because Cashaa is a "peer-to-peer marketplace that allows people to send money from one country to another or one city to another," rather than an actual bitcoin remittance company, it alleviates several of the challenges that bitcoin remittance companies have been facing in Africa. These challenges include the illiquidity of exchanges, country-specific regulations, KYC/AML requirements and the need for enough working capital to meet client liquidity needs.

"The reality is that when conducting country-to-country bitcoin remittances, you have to go through exchanges twice," said Guarav. "For example, if you want to conduct remittances from the U.S. to Ghana, you have to first change your fiat currency into bitcoin on a U.S. exchange, then send the bitcoin and then use a local exchange in Ghana to convert the bitcoins into Cedi. For the latter, however, liquidity is a big issue … as there is currently not near enough local demand for bitcoin. Hence, this type of business model has struggled and failed in the past."

Cashaa alleviates the liquidity and working capital requirement issues by partnering up with local exchanges, bitcoin ATMs and local cryptocurrency traders. Furthermore, Cashaa's platform is token-agnostic, which means Dash could be traded for Ethereum Classic, for example. As Cashaa is not linked solely to one digital currency, the company's future is not dependant on a single currency for its business to succeed.

To recruit digital currency traders that will utilize the Cashaa platform to facilitate remittances, Gaurav told Bitcoin Magazine that Cashaa intends to attract "young people that can use their savings to buy and sell on the Cashaa exchange for a profit." Rather than having to buy and maintain a car to become an Uber driver, for example, "people can raise $500 capital to start the business of becoming Cashaa trader. They can buy cryptocurrency cheaper at Cashaa and sell for a profit on local exchanges every time they handle a Cashaa transaction."

Cashaa is also currently targeting educated Uber and Ola drivers, who could earn more money by becoming digital currency traders. And as they are already transacting in cash, this makes them an excellent user base that can work as local collecting agents. The company is already testing this model in India.

"The cryptocurrency traders that will handle the physical cash exchanges will be trained by Cashaa and can currently only become traders on an invite basis," said Guarav. "Furthermore, a large part of future Cashaa cryptocurrency traders will be Uber and Ola drivers, which are already fully KYC-ed and are traceable."

Will Bitcoin Remittances Finally Take Off in Africa?

As Bitcoin awareness and adoption is slowly growing in Africa, more remittances will likely start to take place using digital currencies. Considering that the average fee for money transfers to Africa is 12 percent and the average size of a transfer is $200, according to the World Bank, choosing digital currencies as a means of transferring money makes sense, given the low costs and the speed of the transactions. As the ecosystem matures and more companies experiment with ways to overcome current obstacles, Bitcoin may eventually begin to make inroads into the multi-billion dollar African remittance market.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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