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Huge opportunities in Africa for cryptopayments: an interview with Ola Atose, founder of KoinKoin

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I was intrigued by a nudge that came through of a company that believed cryptocurrencies could transform Africa. The African continent is the third fastest growing market for cryptocurrencies, and Africa has many nations engaged in crypto usage. Nigeria is one of the largest.

I decided I wanted to know more and reached out to Ola Atose, a former banker turned FinTech founder of KoinKoin. Here's what he had to say:

 

 

 

Chris Skinner: You started KoinKoin in 2017. What was the idea?

Ola Atose: Back  in 2013, when I was  still in banking  I was approached by someone promoting bitcoin, unluckily for me, I was with a colleague from work who happened to be the Chief IT Security Officer who immediately dismissed this individual, I was curious and wanted to know more, but at the time I was focused on my banking career and looked  the other way.

Then, in 2017 I saw what some cryptocurrency exchanges were doing and had seen people trying to buy Bitcoin. I studied what they were trying to achieve, and of course everyone who knew enough about the subject was talking about price.

The penny dropped for me in 2015, when I tried to buy Bitcoin for the first time online. I was still a career banker at the time, I looked everywhere but couldn’t find anything, literally nothing. There was no simple, easy way to buy bitcoin. I was thinking hold on, this is supposed to be the money of the future, and everyone is curious about it and how come I can’t buy it easily online and why was it so hard to buy bitcoin with any country’s fiat currency?  That was my eureka moment and I figured I would get involved in some way by solving the challenge of easy and grassroots access to cryptocurrencies especially across varied currencies.

I wanted to solve the real monetary problems with digital assets  and with the blockchain infrastructure permitting - swift settlement of assets,my plan was to  potentially be a future solution for some of the challenges with payments and cross-border trade that we see here on the African continent.  That was it and I figured the best thing to do was create a platform where firms, businesses and users can easily access cryptocurrencies regardless of their fiat currency. So KoinKoin Exchange was born in 2017.  That’s what we set out to do, over the years it has been a challenge given that the technology is still evolving, but we now have a thriving ecosystem of trusted partners and clients and a tested and stable platform for our retail business.

What we’ve found in Africa in recent times is a new level of adoption. A lot of people talk about phase 1 adoption being retailers and people being interested in buying Bitcoin. Phase 2 was more the ICO’s, where there were more coins coming onto the scene. Phase 3, which we’ve seen a lot of in Africa, is where corporates and businesses are looking to trade and invest in stablecoins as a store of value or a mean of value transfer and payment. As you know, stablecoins make up roughly $37 billion of the digital assets market cap.

What we find in Africa is a lot of our clients who are international companies are using these stablecoins as a hedge to inflation in local currencies. What we have been seeing is a lot of those companies seeking alternatives to the USD.  These firms are also shying away from bitcoin due to its volatility and are instead opting for short term investment in stablecoins.  A lot of them are coming to us for stablecoins.

Pertinently, we have a variety of liquidity providers in Nigeria, Ghana, Senegal, Cameroon, Chad, South Africa, Kenya, Tanzania and more. So, in several the African countries, we have the ability buy or sell large volumes and provide stablecoin services.

The discerning firms and companies who choose to use our services have been impressed by speedy delivery of USDT once we receive their local fiat.   The USDT we find is used for (a) a hedge against inflation and risk in the local currencies, and (b) as a means to hold and store value on their balance sheets, changing the way their treasuries’ work and utilising the USDT-USD conversion it to pay international bills or international invoices, or liquidate back into local currencies to pay local invoices, salaries and replenish stock depending on business type.

That is what we are seeing, and it’s exploded over the last year for us.

We have spent some time with some central regulatory bodies here in Africa, emphasising the fact that the final frontier of resolving issues around financial inclusion in Africa, especially when it comes to cross border payments - not just flow into or out of Africa but flow around Africa -is USDT and other stablecoins. They have presented a solution to a myriad of SME businesses.

We are also seeing a lot of our larger clients, mostly in the energy, agriculture and foods sectors’ who have operations across the continent, they are able to take equity in form of USDT from one African country to pay their costs in another region on the continent..   This wasn’t something they could do previously, largely because of USD costs and the local costs of banking but now with the low cost of settling in stablecoins, we are seeing a lot of flow and have been successful in the region and we intend to do more.

Chris: What do you mean by stablecoin?

Ola: We are seeing a lot of demand for USDT and, to a lesser degree, USDC. This, we presume is because of the semi-regulated nature of USDC, some clients however opt for USDC, most, however prefer to hold USDT on their books.  The firms see USDT as more obtainable in the local markets here than the US dollar given its lower cost and speed of delivery.

Now the issue with the US dollar supply is that there is simply not enough available for local businesses to meet demands be it for export or import.   We have, thus been able to meet some of their demands via stablecoin

I mentioned local fiat risk hedges earlier.  Hedging against the local currency risk is key for most businesses and USDT serves as a temporary store of value for most firms.  I think it’s too early to say if USDT or something similar will be the pan-African currency.  that because it’s largely unregulated. But the private sector global users are for it, and the solutions are there.  It’s allowed them to keep more value in their businesses and, at the same time, it has permitted the SME businesses to start pushing pan-African solutions in a cross-border fashion in Africa, which we saw very little of previously.

It is a sign of things to come.

Chris: You’ve mentioned is a cross-border Africa as a driver of demand. What would a borderless Africa look like?

Ola: There is no reason why Africa cannot try to emulate the achievement for inclusion that we have seen in China and India. That’s the aim of a borderless Africa, at least for trade.

We are not saying that the individual nations won’t remain sovereign nations but, from a trade perspective, it makes sense for nations in geographic proximity to exploit opportunities for easy trade and join forces. I’ll give you a very straight forward example. You’ve got Nigeria, which is 200 million people strong. It’s a massive economy on its own.

Nigeria has her own financial inclusion objectives. Then you have countries like Benin or Togo. Togo has 8 million people and Benin around 12 million. These countries are small but, of course, the individuals want to trade. They want to do business with their neighbours and cryptocurrencies can support this. There are no reasons why smaller African nations shouldn’t enjoy the benefits of a larger pan-African economy.

Zoom out to all of Africa and there are 54 different countries and 48 different currencies. That’s crazy in 2022, no matter how you want to look at it.

You’ve got Botswana for example. There are three million people in Botswana. They’ve got their own currency. You’ve got Malawi. There are nineteen million people there, and they’ve got their own currency. Of course, sovereign nations should have their own currencies of course.  They have their own structures for debts, credits, and a variety of programs for financial inclusion.  A lot more can however be achieved for trade and business if these nations have access to each other’s economies.

What we are finding with cross-border trade however is that a lot of the smaller nations are benefitting so much from having access to a much larger African market. That is the prospect today. That’s what borderless Africa, borderless world stands for the nations should remain nations but, from a trade perspective, getting the business edge to trade cross-continent is invaluable.

It takes a lot of time to move money around Africa today. We are talking up to a week in some cases, with costs as high as 20%, and so a lot of business and individuals simply cannot afford these costs.

With USDT and stablecoins, we are seeing a lot of individuals and businesses coming into the digital assets space, and smaller nations are gaining a lot more from having access to the larger Africa markets.  Things are changing, slowly.  Things are happening.  And it is all thanks to innovative technology which is being adopted very quickly Our exchange, and a lot of other platforms, are using smart phone applications and websites to make this easy.  On our website, you can go through KYC, get your details online, get some education on the process and proceed to start holding USDT. We are seeing the movement. It’s slow, but it’s happening a lot faster than it did in 2007 when mobile money came onto the scene.

In 2011, I think financial inclusion was at 23%. That moved up in 2017, with more access to banking, to about 43%. What we are now seeing, across the continent in financial inclusion, is moving to 50-60% being included. In fact, across the continent, the numbers have been growing by almost 1200%. Things have changed.

It is also a continent with a very young population. They are getting educated very fast. They all have smart phones, and internet penetration is at an all-time high in Africa. This means that, with all this technology, financial inclusion is going up fast and things are happening.

Chris: When you talk about stablecoins, why not just stick to the US dollar?

Ola: It’s just so difficult to get them and we like to do things by the book. We are aware of currency controls and we always ensure we remain compliant from a KYC and cross border FX perspective. Here in Nigeria, for example, there is a cap limit on the amount of dollars you can get your hands on, and that’s the problem. Of course, the other problem is the fact that here, in Nigeria, there is a parallel rate. There’s a bank rate, and what people find is that the real value is a parallel rate or, what some people choose to call, the black-market rate.

USDT in most cases is closer to that parallel rate, so people are willing to say, you know what, I need some dollars, the easiest way to get to the dollars is by USDT. They can hold on to the USDT and liquidate it for US dollars. So, we are seeing people who choose that route because it is easier, faster and cheaper than getting US dollars, as is the case in most African countries.

Chris: It’s interesting when we look at the demographics of African nations, because there is a very young population, and is that the reason they are moving to platforms like KoinKoin?

Ola: Africa, as you say, is very young but, coming to parts of Africa, is like seeing different areas exist side by side. You have a lot of people who don’t even know what a debit card is, and they are still going round with their little books, pens and paper. But, with the young people, they are very forward thinking and there’s been a lot of money put into this area in Africa over the last five years.

There’s been this whole explosion across Africa of the internet. Young people love it, and they all want to be involved in one way or another. They are always asking questions. They are always getting online to learn. Many companies like ours, always try our best to educate. We have a very small blog and some videos on Youtube, for example.  Just some communications on how people can get information of USDT and other digital assets, and what the benefits are to them.

The central authorities in most regions have not restricted digital assets and of course many see digital assets as a means to make money, and people get excited by the fact that Bitcoin can move 10% in either direction in a single day.  Some however opt for USDT. From their perspective USDT allows them to hold value without the risk bitcoin presents.  In most cases, many choose to buy USDT, hold to hedge against long term fiat risk.

Chris: I was going to ask you about the regulatory view as I’ve been following Flutterwave, and seen the issues there*. Equally, the Crypto winter has hit and the value has gone down. Is the regulatory environment encouraging you or is it blocking you?

Ola: It differs from country to country. In Nigeria, the central bank has introduced a central bank digital currency (CBDC) called eNaira. Their idea was, on the back of the digital explosion with blockchain, that they’ve created something internally which they’re now pushing out to citizens across the nation.

There is a system in Nigeria that works already however, which is the banks. Folks can move money from A to B, using their banks. It will take a lot of work and a lot of time for the CBDC, even in Nigeria, to get any traction. So, it’s not really got that much traction.

The same is happening in Ghana who are introducing the E-Cedi CBDC, and this is a similar situation where they already have banks. They already what they call the Ghana Interbank Payment and Settlement Systems Limited (GhIPSS) system. In Nigeria they have the Nigeria Inter-Bank Settlement System Plc (NIBSS) system, which allows money to flow and move. It’s a completely different problem they are looking to solve.

What I do know that the central banks would like to introduce a system between the central banks across the continent where, if people wish to move money between nation and nation, they will provide a solution and provide some sort of exchange service.

A lot of the young people here laugh at me when I say I want to engage with the central banks, largely for regulatory purposes. I want them to be involved in what we are doing. I want to assist where I can, as I have worked in the regulatory space for many years in the U.K.  Hence, I feel, the digital assets industry would gain so much from having some official standards and regulatory overview.

The young people do not really care for this. They just think they are not getting enough support and want to run with it and do it themselves.  Again, because of my financial services background, I am very keen on continuing conversations with the central authorities, with the hope that, someday, they can come on board to assist with our long-term goals and a worthwhile solution for Africa.

At the end of the day, I feel that if this is really going to work, not just for individual nations but for all nations, then there needs to be some sort of regional regulation.

Right now, there aren’t many restrictions from any of the central authorities or the regulators, as there may be in a lot of the regions.  The Nigerian central bank has issued a circular, saying they don’t want cryptocurrencies to be banked directly.  They have however invited fintech companies to be involved in this sandbox environment and assist with the central bank digital currency.

That is largely what we are hearing from the central authorities here, but they remain open to some sort of format by which they can regulate crypto activity. Even the Securities and Exchange Commission in Nigeria recently put a paper out on what they intend to do to manage exchanges, virtual assets, and ICOs and the like.  It is not too dissimilar to what is happening in the UK, with the FCA’s virtual assets service provider license.

So, they are aware of it. They are confident of the movements that are happening, I think they are aware of the benefits of the system as well, but just not quite ready to regulate it.

Chris: Going back to the borderless Africa, mPesa never managed to break out of Kenya into a pan-African payments and it’s very difficult to move across borders within African nations. How would you get to a pan-African borderless Africa?

Ola: So, right now it’s not impossible to get across borders within regions. In West Africa we have a similar economy community as East Africa. We have one in Southern Africa and of course there is MENA in the Middle East and North Africa. So, you can get across borders, you can do business.  We are just here to make it better, faster and simpler.

There are more logistics now than there has ever been in Africa regarding cargo planes, shipping of goods and services, that sort of stuff. Some of the larger international companies are doing a lot in that space regarding intra-Africa business trade. So, it is happening.

What’s exciting for the Africans is that they are coming out from the times in the 1980’s and 90’s, when things were slow. They were slow not just from a monetary perspective, but generally. Things were so slow. Now these younger folk are ever so excited to connect, and there’s a lot of cross-cultural exchange, trade, and ongoing dialogue.

It is the whole borderless Africa idea.

There is a lot of sentiment of course, at the end of the day, we are seeing younger Africans reaching out to each other in a way the generation of my parents, for example, never did.

People just want to share and do more business and, like I said earlier, the smaller traders in the smaller countries, see a lot of value in buying cheaper products from the larger countries and then bringing them to their own communities and selling them.

Chris: How do you see the future for Africa?

Ola: I see a borderless Africa for trade. There will be more inclusion within all areas of the financial system in Africa too, especially by building a pan-African payments rail. Africa will open up, not just to itself but to the world. This is a huge opportunity, and the hope is that a borderless Africa will be a reality in one generation.

Chris: It’s so lovely to talk to you Ola, I really appreciate it and I like the idea and concept of KoinKoin. I don’t know how successful you will be, but I wish you every success.

 

KoinKoin is a London-based digital assets exchange that reached $40 million in revenues this year.

 

* African central banks are toughening up on Flutterwave signaling what other startups should expect

African payments company Flutterwave was barred from doing business with banks in Kenya because it has “been engaging in money remittance and payments services without licensing and authorization,” according to the central bank. In Ghana, the company’s relationships with banks are being reviewed as part of a surveillance of the financial system.

The regulatory scrutiny from both central banks add to the tense attention on Flutterwave, Africa’s highest valued and best known startup. For months, it has been the subject of increased curiosity around the state of compliance and corporate governance at African startups. It has denied recent allegations of money laundering.

 

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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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