With PayPal yet to expand across Africa and credit and debit card penetration low, the remittances space has been described, even by Kofi Annan’s Africa Progress Panel, as a “super racket”. It is easy to see why. An industry dominated by Western Union and MoneyGram sees diaspora Africans charged an average of 12.3 per cent for every $200 they send home.
With more than 30 million Africans sending home $40 billion per year, this is an industry ripe for innovation. And there were no shortage of companies looking to do the disruption needed. BitPesa launched in Kenya and expanded to Tanzania to a reported tune of $1.7 million, Beam launched in Ghana, and Bitstake rolled out services in Nigeria.
Yet in 2015, the optimism that bitcoin could be the answer to African remittance challenges is dwindling. Beam has pivoted, focusing on allowing Ghanaians in the diaspora to pay for items back home, but in a key move has dropped bitcoin as a potential payment method. BitPesa is also refocusing, moving away from remittances, as firms begin to realise the limitations in the sector.
Falk Benke, co-founder of Beam, said lack of uptake had been key to the startup’s decision to pivot, with both individuals and merchants proving reluctant to adopt bitcoin as a means of sending and receiving money. It was the disposition of Africans to adopt alternative modes of finance – mobile money being the key example – that had encouraged companies about the potential of bitcoin on the continent, but it has proved a bridge too far so far.
This lack of adoption is attributed by Ovum financial services analyst Gilles Ubaghs to the negative perception of bitcoin amongst not only Africans but potential users elsewhere in the world. The preconception that bitcoin is unreliable – the collapse of the Mt Gox exchange still casts its shadow in this respect – and the domain of criminals has also hindered uptake.
Ubaghs says people do not understand bitcoin, and as a result are dissuaded from using it by generally negative press. There are also fears over security.
“While the bitcoin network itself is secure, exchanges and digital wallets where you store bitcoin can be stolen, and this has been high publicity where it happens,” he said.
“It is literally the equivalent of someone breaking into a bank vault and stealing gold bars, but in digital form, the gold – or bitcoin – network isn’t compromised, it’s the containers around them.”
Some companies continue with their efforts to implement bitcoin successfully in remittances. Bitstake co-founder David Ajala still believes it could have a huge impact on the sector, given it provides a cheaper and faster way to send money.
“Bitcoin is encouraging market competition due to the reduced costs and increased financial access to the unbanked, which will spur on economic development in Africa,” Ajala said.
For Preston J. Byrne, chief operating officer of Eris Industries, however, bitcoin’s role will be as a niche tool and an alternative to mainstream finance, rather than as an architectural backbone. Yet he thinks the blockchain might perform this function.
“If we assume that a remittance business needs to have a very high threshold of verifiability, and that new entrants who might displace entities like Western Union are dissuaded from doing so, at least in part, due to high infrastructure barriers involved in setting up these businesses, blockchains could be an innovative solution – at least as an IT back-end or a telecommunications tool – to solve that problem,” he explained.
So if bitcoin is not likely to succeed in remittances, are there areas where it is likely to do so? A number of companies think so. In Kenya, Bitsoko has developed a mobile wallet that implements blockchain technology and mobile money to cut the cost of sending money between individuals.
Cape Town social impact incubator RLabs has launched a bitcoin crowdfunding platform, while in Zimbabwe BitFinance has rolled out a bitcoin exchange that allows users to buy and sell bitcoins, using mobile money or their bank accounts.
Two of the most innovative uses of bitcoin in evidence across the continent can be found in South Africa. One is Stellenbosch-based Custos Media Technologies, which is using bitcoin to tackle digital piracy. The company embeds bitcoin bounties as watermarks within videos, which can then be downloaded by bounty hunters using a free tool, if they are made widely available by the intended recipient, most likely a reviewer. Once the small bounty is claimed, Custos is alerted through the blockchain, and is able to inform the media owner.
Custos co-founder G-J van Rooyen admits his company is applying a leftfield usage of bitcoin, but says uptake and response have so far been positive, and that it proves there are innovative ways of applying bitcoin aside from remittances. He still feels the digital currency could have a bright future in Africa. “Africa has a history of leapfrogging industries and technologies, especially where communities are underserved – think about the way mobile technology completely leapfrogged fixed-line telecommunications infrastructure on the continent,” he said.
“In the same way, blockchain-based financial technology can provide very efficient solutions where existing services are lacking. Of course, bitcoin’s application to traditional FinTech [financial technology] is just one of the uses of the blockchain. We are likely to see some very interesting ways in which cryptocurrencies like bitcoin are used to create microjobbing markets, or manage ownership of assets, or doing social saving.”
Banking on bitcoin education
Another entrepreneur who still has faith in bitcoin’s ultimate success in Africa is Lorien Gamaroff, who runs the quirkily-named company Bankymoon. The company provides bitcoin payment gateways to smart metering vendors, allowing utility vendors to accept bitcoin payments. It also recently launched a crowdfunding platform for public schools, allowing them to gain electricity credits.
Gamaroff says there is great potential in bitcoin, but says the only thing hindering it is education.
“Most people have not yet heard about bitcoin and for those that have it is only in the context of hacked exchanges, illicit dark web sites and money laundering. Mainstream media has largely been negative about the prospects of bitcoin, which casts doubt about its utility and stability in the minds of people,” he said.
But, in his view, it still has a part to play, even in the remittances space. “According to the World Bank, 80% of Africans do not have access to banking services. This makes it difficult if not impossible for them to cheaply and conveniently make payments for products and services,” Gamaroff said. “By adopting digital currencies such as bitcoin they can enjoy the benefits of cheaper transaction costs and convenient payments. The savings can then go back into the economy and positively impact GDP.”