In the realm of cryptocurrency’s lofty promises, one shines particularly bright – its potential to bring financial inclusion to underserved users. Nairobi-based Kotani Pay is at the forefront of this revolution, aiming to simplify cross-border remittances for the vast underbanked populations across Africa.
Breaking Down Barriers
The two-year-old startup has set its sights on a critical issue affecting the livelihoods of millions in countries like Kenya, Ghana, Zambia, and South Africa. These nations often rely heavily on remittances, with the Sub-Saharan region expected to receive a staggering $55 billion in remittances this year alone, contributing significantly to some countries’ GDP.
However, there’s a formidable obstacle in the path of these essential funds – exorbitant transfer fees. In certain regions, these fees can devour up to 20% of the total amount sent. A combination of factors, including an underdeveloped banking infrastructure, information asymmetry, and volatile currencies, contribute to these inflated costs. Moreover, many families lack bank accounts or official identifications required for traditional financial services.
Recognizing these impediments, Kotani proposes a blockchain-based solution to streamline remittances into Africa. Specifically, the startup leverages stablecoins, cryptocurrencies pegged to fiat currencies like the USD, to enable cost-effective international money transfers.
The Power of Stablecoins and Local Access
To further enhance accessibility, Kotani has developed middleware that bridges blockchains with local payment networks. This innovative approach allows users to cash out stablecoins from their mobile wallets and make local currency transactions without the need for an internet connection. They achieve this via Unstructured Supplementary Service Data (USSD), a communication protocol that enables feature phones to send money effortlessly.
Kotani operates as a B2B solution, facilitating connections between crypto platforms’ smart contracts and mobile money APIs. The startup boasts a roster of influential crypto partners, including Yellowcard, DCG, Fonbank, Celo’s Valora, Mercy Corps, UNICEF Crypto Innovation Fund, and Stellar.
Unlocking Local Currencies
Kotani also provides users with the capability to convert local currencies into USD, primarily catering to businesses at present but with the potential to expand to retail users once the necessary licenses are secured. This process is enabled by a network of liquidity providers established through partnerships with local forex services and money transmitter operators.
As of now, the majority of Kotani’s transactions, totaling $23 million, consist of inbound payments. Given its enterprise focus, the platform’s average transaction size hovers around $150,000. Kotani monetizes its operations through an interchange fee, averaging around 1% of the gross transaction volumes.
A Vision for the Future
Kotani is not content with just revolutionizing remittances. Following its acquisition of Fuhlstack, a Nigerian startup, the company is poised to introduce additional products to its portfolio. These include Reconset, a Reconciliation-as-a-Service offering, and Money Ledger, a Ledger-as-a-Service solution. The startup’s co-founders, including Fuhlstack founder Lemuel Okoli, are dedicated to pushing the boundaries of financial inclusion in Africa.
Navigating Regulatory Waters
Given the potential impact of its business on foreign currency reserves, Kotani has already captured the attention of regulators. However, the company is proactive in its compliance efforts, collaborating closely with local mobile money operators and regulated partners to ensure its operations align with regulatory requirements. In fact, some central banks are becoming enthusiastic about the possibilities presented by Kotani’s solutions and are actively engaging with the startup as they explore the development of Central Bank Digital Currencies (CBDCs).
In the rapidly evolving crypto regulatory landscape, Kotani’s CEO, Macharia, holds an optimistic view. He points to positive developments in various regions, such as the launch of Virtual Asset Service Provider Licenses in Botswana, Mauritius, and South Africa. Additionally, he highlights MiCa, passed by the European Union parliament, as a promising step toward regulating stablecoin issuers, on-ramps, off-ramps, and exchanges.
He believes that other African markets like Kenya, Ghana, and Nigeria are poised to follow suit in the near future.
Kotani Pay’s journey to democratize cross-border remittances in Africa is not just a vision but a tangible reality.
Through the innovative use of stablecoins, blockchain technology, and USSD, Kotani is systematically dismantling the barriers that have long hindered the flow of funds into the hands of those who need it most.
With a commitment to compliance and a vision for expanding its offerings, Kotani Pay is poised to transform the financial landscape of Africa, one transaction at a time.