Africa is seeing a rise in Bitcoin activity, with the continent’s first Bitcoin conference having taken place earlier this year, and startups springing up in specialising in the cryptocurrency. Lawrence Wintermeyer, CEO, Innovate Finance (pictured below) shares his thoughts with Appsafrica.com on how digital currencies have huge potential to change the financial landscape in Africa.
Innovate Finance is an NGO that represents the UK’s global FinTech sector. It aims to accelerate the country’s leading position in the global financial services sector by directly supporting the next era of technology-led financial services innovators.
1.) Are digital currencies the solution to the unbanked in Africa?
The interest surrounding digital currencies continues to gain momentum – especially the blockchain technology behind it that has the potential to revolutionise the world of finance and help to reach the unbanked. One of the main draws of blockchain is its role as a visible ledger that can support decentralised applications that gets rid of the middleman. There’s no individual or group or organisation – like a bank- that controls the digital currency or whatever other application that blockchain enables. Everything is in the public domain and controlled by everyone participating in the network.
2) There’s a lot talk about blockchain being used to facilitate remittance payments abroad. Do you feel that there’s a realistic demand for block chain style currencies amongst Africa’s unbanked?
Yes absolutely. Much of the world’s population is unbanked and blockchain based currencies can be easily deployed over mobile networks, thereby allowing access to financial capital in the remotest communities.
There are 2.5 billion people that have no access to banks or accounts and most of them live in economically and politically unstable countries. By using bitcoin to store wealth, you eliminate the chances of a local government expropriating any funds from a bank account. These are corrupt activities that are on-going and impacting not just individuals but organisations as well, such as well-funded charities that are active in developing nations and where aid workers are finding their wages being skimmed by local banks and government. A study from campaign and advocacy group ONE reported that such corrupt practices results in an outflow of £585bn from developing countries annually.
Bitcoin remittances could allow a small shop owner in a remote part of a developing nation to receive, send and store the capital necessary to grow a business without having to rely on a complex, more costly, less efficient infrastructure that has been paid for by incumbent banks and governments. Bitcoin remittances could unlock a more international and instantaneous marketplace for trade.
Just imagine the possibilities. The ability of remittance means that a sole trader or stall keeper in the poorer parts of the world can grow a global business without having to rely on an infrastructure that has been paid for, approved and supported by the banking system and government.
Also, the increased ability to access cash can have a direct impact on the wealth of an individual and their community. Rural Kenyan households that adopt M-Pesa can increase their incomes substantially – and around 25% of the nation’s GDP flows through it. Imagine what could happen if a currency that is as international as bitcoin was adopted instead- the potential would be huge.
Furthermore, a transparent ledger system on which people opt to spend their money on – and which is the most important part of bitcoin- will create the need for greater transparency in the political and economic system. Ultimately this will give more power and equality to people who are often suppressed by their economic means.
3) Presuming demand is there, what are the main challenges to gaining uptake?
The biggest challenge will be connectivity – whether it’s mobile or land based networks. The current and short-term issue with digital currency is that it requires both users in a transaction to have access to a smartphone and good Internet connection- and most of the unbanked population doesn’t have access to either. Without these things, it is still more restrictive to send or receive digital currency than other money transfer like M-Pesa currently allows.
And once connectivity has been established, it is necessary for a dedicated ecosystem of technologists and startups to serve the underbanked market, designing user-friendly products for a market that does not have the benefit of being digital natives. This is crucial in gaining the critical mass necessary for widespread adoption.
Another main issue is the acceptance and local market liquidity. In other words the frictionless interchange between the new currency and the local one.
Despite these challenges, progress is being made. There are Bitcoin-text sending services that offer promise and could change things in the near future. The launch of cheap and good quality smartphones from companies like Google could potentially reach the billions of people that need them too. Also, UK based company Kipochi, has launched a pioneering solution that allows people to send or receive bitcoin and convert it to and from an M-Pesa balance. It’s only a matter of time before we see greater adoption.
4) Are there any ‘first movers’ in this space that we should point to? If not, which actors do you think will drive forward the idea of providing services to the unbanked via virtual currencies?
We have incredible businesses working in this space and making progress in leveraging the technology that will ultimately disrupt many legacy industries. These companies include GoCoin- which offers merchant accounts and payment gateway processors for Bitcoin and Litecoin; XBTerminal – which has created an NFC-enabled device with a PIN pad to authorise digital payments; Elliptic, which provides crucial bitcoin storage with anti-money laundering services and CoinFloor – the UK’s leading Bitcoin exchange.
Established banks and technology firms are also testing the potential of the underlying technologies of the digital currencies. IBM, for example is exploring the blockchain as a technology backbone to create far reaching low-cost networks – which is in big demand in emerging economies. Big banks like RBS and Barclays are also experimenting with blockchain too.
Together these kinds of forward-thinking companies are fuelling adoption and assisting in the creation of a global marketplace we can all engage with in a more universal and democratic way.
4) What are the fiscal implications of widespread virtual currency use in the developing world?
I think that the major impact will be freedom of international trade and possibly the failure of the national currency, which would introduce its own set of problems. This event would be more likely to occur in countries that have tight regulation on the movement of their local currency outside their borders and control the exchange rate.