Africa and Financial Technology
Several countries in Africa show how financial technology is being used to solve real problems. On this continent, the adoption of technology is also massive. In China, Alipay started in 2004, and in Kenya, MPesa started in 2007. Money transfers are a big problem for African countries because of limited access to banks and transportation. However, the number of people who own a mobile phone is greater than those who have a bank account.
In 2007, Vodafone seized this opportunity. The company launched MPesa in Kenya. Apart from the fact that the market potential is large and profitable, the company and the government are working together to achieve financial inclusion. With MPesa, Kenyans can use their mobile phones to quickly transfer money (text messages were sufficient back then), both within the country and between countries, even if they don’t have a bank account. MPesa also facilitates microfinance for residents who do not have access to a bank.
Remittances sent through banks are still slow and expensive in Africa. While there are multinational banks where fees for international transfers have now dropped to zero and money can be received the same day, this arrangement remains limited to certain banks and countries. Remittances can be faster and cheaper when using cryptocurrencies. This is what many Africans are doing now. They are using cryptocurrencies for real needs and not just for investment or speculation purposes. These actual needs include money transfers and international trade. Africans are also facing high inflation rates. Some of them are using cryptocurrencies to hedge their assets against this inflation. For example, Ghana, Malawi, Egypt, Mozambique, Nigeria, and Zambia have double-digit inflation rates, while Sudan and Zimbabwe are already experiencing hyperinflation. In the past, MPesa service in Africa spread rapidly from Kenya to several countries. Now MPesa has to compete with crypto exchanges and cryptocurrency-based remittance services like BitPesa, BitMari and Kobocoin.
It is common knowledge that international trade transactions with multiple African countries are risky. Besides the risk of fraudulent use of credit cards, the cost of bank transfers is also a problem. To overcome this, international transactions in Africa are now increasingly being conducted using cryptocurrencies. As well as being able to minimize the risk of fraud, ones can make instant transactions and at a low cost. For example, to transfer Litecoin (LTC), the transfer fee is only 0.001 LTC (= +/- USD 0.25 right now), regardless of the amount. If one is worried about fluctuations, one can transfer using USDT (a stable coin), which requires a transfer fee of 1 USDT (= USD 1), regardless of the amount transferred through the TRC20 network (TRON blockchain). It does not matter if the benefactor from Edmonton (the northernmost city in Canada) and the recipient in Cape Town, South Africa. The sender can transfer his/her money to the recipient’s mobile phone in just five minutes. Afterwards, the recipient is able to convert these USDT into his/her local currency. Financial technology can make it easier, but the digital financial ecosystem is complex. It requires understanding, accuracy, and caution when dealing with it.
