Ian Putter, Head of Blockchain for Africa at Standard Bank
Blockchain technology has burst onto the African fin-tech scene over the past two years as adoption on the continent has skyrocketed. The distributed ledger technology creates new possibilities for transparent, decentralized and fraud-proof solutions that can help boost trade opportunities between African countries. The continent has the highest remittance costs globally where on average it costs in excess of 10% to make a transaction, something that needs to change. The rise of decentralized technology offers solutions in the payments and remittance space that could reduce costs close to zero, which can accelerate economic growth and boost intra-African trade.
How is this possible?
Many people assume that every token is a ‘currency’ and they all face extreme volatility. The advent of ‘Stablecoins’ has been developed to combat the volatility problem and give investors a way to store their money and send it around. Stablecoins track the price of other assets and have mainly been pegged to traditional ‘FIAT’ currencies like the United States Dollar. These are essentially digital versions of their FIAT counterpart and offer an easy way for people to get exposure to foreign currency – without the limitations on where/who you can send it to.
How do Stablecoins solve the remittance problem?
Stablecoins cut out intermediaries like banks and payment companies like PayPal, they use the peer-to-peer technology to send money to anybody at a fraction of the cost, with near-instant settlement. Cutting out the middle-man, it significantly reduces the remittance costs and allows people to send money to relatives whenever they want.
In addition, Africans can get exposure to foreign currency at their fingertips. For example, many African countries face high inflation rates which devalue their local currency relative to the world reserve currency, the United States Dollar. To protect their wealth, they could trade their local FIAT currency for a USD stable coin and hold their wealth in stablecoins. This is especially useful for countries facing hyperinflation like Zimbabwe.
Are Africans adopting this technology?
The rate of crypto adoption in Africa has been staggering, boasting an adoption rate of 1200% between June 2020 and July 2021. Over this period, more than $100bn worth of crypto-currency payments were to Africans, with the bulk of this being for remittances. Africa has the youngest population in the world, with 70% of sub-Saharan Africa under the age of 30, there is an appetite for new technology amongst the youth which has contributed to people engaging with new technology and trying out new payment providers.
The case for African adoption
Small and medium enterprises (SMEs) are the lifeblood of the African economy. SMEs make up the majority of businesses on the continent and account for a large portion of the workforce. Historically, SMEs have struggled to get adequate funding for their businesses and have been limited to the local market because of the cost of cross-border transactions and bureaucratic red tape. SMEs can now access international markets using stablecoins and use decentralized finance (De-fi) for new funding opportunities.
While the continent has made progress through the African Continental Free Trade Agreement (AfCFTA), the key limitation has been the free flow of capital between people, businesses and economies. Stablecoins and decentralized payment solutions offer a unique solution to this problem and could be the key to rapidly escalating the transformation of African welfare, wealth, and global standings.
The spanner in the works
The world we live in still largely uses FIAT currency for trade and daily transactions. As these payments get facilitated by a worldwide banking network, it is still necessary for users to convert their stablecoins into FIAT to use it in their local economy.
Standard bank has risen to the occasion by providing banking services for growing centralized exchanges like Luno, VALR, and Revix. Standard Bank is showing commitment to helping these companies by guiding them on disclosure and requirements for having bank accounts. In addition, Standard Bank has partnered with CV VC to help grow and show support for new start-ups in the space.
Blockchain technology promises to solve many pressing issues in the African payments and remittance space. Viable payment solutions are being built but will require collaboration between traditional banking services, regulators, and payment providers to achieve true scale. Blockchain technology can kickstart new trade opportunities between nation-states and give ordinary Africans the opportunity to take part in a technological revolution, and form part of the decentralized economy.