Crypto Seen as Africa’s Cross-Border Payments ‘Game Changer’

Flexibility, speed and low transaction fees.

Those are some of the reasons why an increasing number of consumers now view digital currencies as a viable method to send money to peers abroad, bypassing the inefficiencies in the current conventional remittance system.

According to data published in a recent PYMNTS cross-border remittances report, nearly a quarter (23%) of consumers surveyed who made online, cross-border peer-to-peer (P2P) payments sent funds using at least one kind of cryptocurrency, while 13% of consumers surveyed said cryptocurrencies were their most used payment method for online cross-border remittances.

Read the report: The Digital Currency Shift: The Cross-Border Remittances Report

“[Cryptocurrency] helps to get value across borders at a fraction of the price and at a fraction of the time that it takes to get there in traditional systems,” Farzam Ehsani, CEO at Johannesburg-based FinTech firm VALR, told PYMNTS in an interview. “In addition to that, it doesn’t even necessarily need to touch a financial institution. It has completely changed the face of the game.”

Beyond remittances, cryptocurrency use has exploded in emerging markets in the last few years, helped by the significant swaths of unbanked and underserved consumers and strong smartphone penetration across these markets.

Since launch in 2019, the cryptocurrency exchange platform Ehsani co-founded has already processed over $8 billion in trading volume for 275,000-plus retail customers and institutional clients worldwide, offering them the possibility to buy, sell and store bitcoin and 60 other types of cryptocurrencies at competitive prices.

One key benefit that institutional customers, who may be high frequency traders or corporates, get from VALR is the use of virtual currencies to diversify their assets.

“Some of our large institutional customers don’t want to simply have all U.S. dollars, [South African] rand or any other fiat currency on their balance sheet,” Ehsani explained, adding that due to currency depreciation each year, firms are turning to crypto assets as a hedge against currency volatility.

He went on to say that the $50 million they recently raised in a Series B round will be used to expand the platform across Africa and into other emerging markets, furthering the company’s goal of creating an inclusive financial system for its global clients.

“Bad” Crypto Regulation Is Dangerous

When it comes to central bank digital currencies (CBDCs) that are gaining traction across the globe, Ehsani said it would be wrong to put them in the same category as crypto assets that are decentralized and free from external control.

“Yes, [CBDCs] use cryptography, but a central bank digital currency, as it implies, is centralized, meaning the government or the central bank has full control over every single transaction in that particular network,” he explained.

Stablecoins, on the other hand, are going to play a key role in the interim, he noted, as they free up U.S. dollars from banking hours and enable people to transact with “whoever you want, at any time you want, nearly instantaneously without worrying about whether a bank is open or not.”

Recent data from the International Monetary Fund (IMF) also shows that the market capitalization of stablecoins quadrupled to over $120 billion in 2021, with stablecoin trading volumes overtaking those of all other crypto assets, which is a further indication of its growing relevance in the digital economy.

Read more: Capturing the Global Cryptocurrency Payments Opportunity

Overall, he said maintaining a strong relationship with regulators will be critical to navigating the complex world of digital assets and even stressed the need for appropriate regulation — “measured, educated and informed” — to guide the use of digital currencies and drive its growth across emerging markets.

What he cautioned against, however, is “bad crypto regulation” — one that is rooted in fear, stunts the progress of entrepreneurs and the public and excludes them from innovation altogether.

“Regulation needs to be protective and not just a blanket ban. That would just push everything underground and actually do a disservice to the public and put them into danger,” Ehsani said.

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