Crypto cross-border payments are recording more demand in Africa, helping boost the adoption of blockchain technology. As a result, crypto payment startups are expanding their businesses across the continent.
Bitcoin, and USD-pegged stablecoins led by USDT and USDC are gaining more popularity among retail and business users. This has resulted to Web3 payment services giving pressure to traditional banks and remittance firms to lower fees to retain customers.
Major US fintechs like Block, Circle, Coinbase and ConsenSys will likely expand their operations in Africa via partnerships with local Web3 projects. Binance will likely retain its leading position in the continent. Nigeria is the most-focused market in Africa for an expected growth in Web3 payment services, whereas non-blockchain payment startups like Moniepoint are gaining momentum to attract underbanked users.
Rise of Web3 Pegged on Lower Transaction Fees
The cost of sending money has been the major driver for a seismic drift from the use of banks and remittances firms such as WorldRemit, Moneygram, and Western Union to Web3 platforms among Africa’s middle class users. Sending money via a blockchain network is at least three times lower than transferring the same amount via banks. It is also faster, consumes less time to send all because there is usually no paperwork required as compared to banks and remittance firms.
Fees charged on cross-border payments in Africa are the highest in the world, with an average cost of 8.9% of the transaction value in 2020, compared to the global average of 6.8%, according to Data Mynt. These high costs are attributed to lack of competition, high operational costs, currency conversion fees, and compliance costs. To send money via these two ways requires the sender to travel to a bank or remittance shop physically and queue to wait for their turn to be served. Yet, despite this time wastage and high transaction fees, the amount being transacted is subjected to further reduction through low foreign currency exchange rates at the banks or remittance bureaus. Up to 5% of transaction value is lost during currency conversions.
In Sub Saharan Africa, remittances comprise 1.3% of GDP. They grew at an annual rate of 5.2% in 2022 to $53 billion in transaction value, according to the World Bank. The bank has estimated that there are about 400 million migrant workers in Africa, with about 50% of these migrants living outside their home country. In 2021, remittances, including payments for online jobs, made over 3.5% of Kenya’s GDP, at a value of $3.7 billion. With the global weighted average remittance costs at 4.71% in 2021, Kenyans receiving remittances are potentially losing out on nearly $100 million per year due to high transaction costs.
Remittances as a share of GDP are significant in the Gambia (28%), Lesotho (21%), and Comoros (20%). Sending $200 to the region cost 7.8% on average in the second quarter of 2022, down from 8.7% a year ago. Remitting from countries in the least expensive corridors is on average 3.4% compared to 25.2% for the costliest corridors.
In 2022, remittance inflows into the whole of Africa totalled an estimated $100 billion, accounting for nearly 6% of the continent’s total GDP, according to the UN. This is approximately twice the level of overseas development assistance.
The World Bank’s data show that the global average cost of sending remittances was 6.5% in 2020, reaching up to 9% in Sub-Saharan Africa. During the third quarter of 2022, transferring money internationally had an average cost of 6.3% of the total transaction amount. Banks had the most expensive transfer cost of 11.69%. With global remittances totaling $626 billion in 2022, even a 1% reduction in fees could put more than $6 billion into the pockets of those who need it.
Cross-border B2B payments are expected to exceed $40 trillion worldwide by 2024, up from $37 trillion in 2022, according to a Juniper Research report.
Besides economic growth and the employment levels of foreign workers, the other two variables that affect remittance flows in Africa are oil prices, and exchange rates of local currencies with respect to the US dollar.
Crypto Remittances are Rising in Africa
According to the Brookings Institution’s 2022 Foresight Africa report, cryptocurrencies have had a great potential to improve remittance payment systems. While international wire transfer fees cost an average of 7% of the total amount sent and could take several days to clear, some cryptocurrencies support foreign exchange and money transfers for less than a dollar and process payments in seconds. Cryptocurrency transfers associated with remittance payments have experienced rapid growth, both in terms of value and volume, since the start of the COVID-19 pandemic.
Because cryptocurrency platforms bypass traditional banking services by introducing decentralized peer-to-peer lending services, they can help level the economic playing field and are well-positioned to address a number of economic challenges in the region.
Due to their near-instant transaction speed, remittances done via crypto platforms come in handy for individuals and businesses relying on timely release of funds to pay for emergent needs such as health, evacuation, school fees or food.
Of the $48 billion remitted to sub-Saharan Africa in 2019, Chainalysis estimates that up to $562 million worth of payments were facilitated by cryptocurrencies.
Mitigating Against Currency Plunge and Fraud
African countries are experiencing significant currency volatility, which in turn is negatively impacting the value of remittances. Countries such as Nigeria, Zimbabwe, Kenya, Sudan, Ghana have dismally performing currencies. Currency volatility has wide ranging effects including inflation, loss of purchasing power and overall reduction in standard of living.
Cryptocurrencies offer a potential solution by providing a stable digital asset that is not tied to any specific national currency. Stablecoins such as USDT and USDC, which are crypto tokens pegged to the US dollar, are already offering a reliable alternative for remittance transfers. By utilizing stablecoins, senders can protect the value of their remittances, mitigating the impact of currency fluctuations on their families’ financial well-being.
Additionally, blockchain technology, the underlying infrastructure of cryptocurrencies, provides transparency by recording all transactions on a public ledger. This transparency helps to reduce fraudulent activities and ensure the security and accountability of remittance transfers, benefiting both senders and recipients.
The emergence of cryptocurrency-based remittance platforms tailored specifically for African markets has further accelerated the transformation of remittance practices. These platforms leverage blockchain technology to provide secure and efficient remittance services. They often incorporate user-friendly mobile applications and mobile money platforms, allowing individuals to send and receive funds with ease. Additionally, some platforms offer additional features like instant bill payments and access to other financial services, further enhancing the value proposition of cryptocurrency-based remittance.
Cross-border transaction charges by major banks in Africa
| Country | Number of Crypto Users (source: Triple A) | Bank | Minimum Cost of Sending $200 Across Borders (source: bank data) |
| Nigeria | 12,862,740 | Access Bank | $10.8 |
| South Africa | 6,041,450 | Standard Bank | $19.68 |
| Ethiopia | 5,079,631 | CBE | $19.0 |
| Kenya | 2,713,117 | Equity Bank | $11.43 |
| DRC | 1,712,781 | Equity Bank | $9.43 |
Cross-border charges by Africa’s popular money transfer platforms
| Money Transfer Company | Cost of Sending $200 Across Borders in Africa | Cost as Percentage of Transaction Value |
| Western Union | $6.90 | 3.45% |
| Moneygram | $4.99 | 2.49% |
| World Remit | $6.40 | 3.20% |
| Payoneer | $7.00 | 3.5% |
| PayPal | $7.47 | 3.74% |
| Chipper Cash | 0.00* | 0.00% |
| TransFast | 4.99 | 2.49% |
| Sendsprint | $5.00 | 2.50% |
| Skrill | $12.00 | 6.00% |
| Sendwave | $6.00 | 3.00% |
| Flutterwave | $7.60 | 3.80% |
| M-Pesa Global | $2.38 | 1.19% |
NOTES: Money can be transferred from these platforms to be withdrawn via the same platform, bank, cash out agent or mobile money agent. Every transaction fee is inclusive of foreign currency conversion costs. Some platforms such as World Remit indicate a transaction fee of as low as $0.99 but the forex conversion rate is low compared to competitors e.g 141 vs 146 (Moneygram) for USD to KES conversion. Sending from a credit card to for cash collection attracts even higher rates. For the case of Moneygram, the cost is $11.99. Xoom is a PayPal service and was therefore not included in this list. Some platforms have hidden fees that are embedded in the transfer fees as service fees and receiver fees.
*Chipper Cash started charging a fee for transactions that fail to get processed due to insufficient funds in Nigeria and Uganda in May and July 2023, respectively. While transactions are mostly free, its video selfie verification process hardly works and even when it does, the cashout process never works most of the time. Sendwave is a fee-free service, but it charges 3% for currency conversion
Cross-border payment fees on Africa’s popular crypto trading platforms
| Web3 Platform | Cost of Sending $200 Across Borders | Cost as Percentage of Transaction Value |
| Binance | $0.0005 | 0.0000025% |
| Coinbase | $2.99 | 1.50% |
| Kraken | $0.32 | 0.16% |
| Bitmama | $4.00 | 2.00% |
| Luno | $4.00 | 2.00% |
| Yellow Card | $0.00 | 0.00% |
| VALR | $0.00 | 0.00% |
| Ovex | $0.00 | 0.00% |
ES: Bitmama’s cross-border payment platform has integrated with Moneygram
https://datawrapper.dwcdn.net/dM9oc/1/
Crypto Payments Boost Blockchain Adoption
As the demand for lower transaction fees continues, web3 cross-border payments will be the catalyst the continent needs to help more communities understand and adopt blockchain in other sectors. When a rural recipient of money understands how their money is sent using crypto, he/she educates others who also won’t like losing part of their payments to transaction fees on platforms like Western Union, which require them to travel physically to the cash out point to fetch the money armed with their national ID card.
It is through these transactions that the masses will ultimately learn of blockchain’s properties of immutability, decentralization, transparency, accountability and security. These are all needed by African economies as they all have been grappling with challenges of financial embezzlement, corruption, counterfeits, illicit trade, and rigid and bureaucratic health, education and land systems.
More Trust in Bitcoin and Stablecoins
Bitcoin is the world’s most trusted cryptocurrency, and the same is true in Africa, where a couple of enterprises accept payments in the digital currency. At Betty’s Place, a restaurant in Nyeri, a town in central Kenya, all bills are paid in bitcoin, from as early as 2018. In the capital Nairobi, a spa also accepts this mode of payment. South Africa’s retail giant Pick-n-Pay has also enabled bitcoin payments in all locations.
George Residence, a restaurant in Lagos, Nigeria, also accepts bitcoin payments while Paychant, a startup in the same city, helps businesses to process bitcoin payments. In Zimbabwe, entrepreneurs import cars using bitcoin. Over 70% of the crypto traded in Africa is bitcoin, as well as that remitted across borders. To help speed up the duration of bitcoin transactions, an innovation called Bitcoin Lightning Network has been embedded on major crypto wallets in Nigeria, Kenya, and Ghana. This makes remittances an almost instant process. The Lightning Network is a layer built on top of the Bitcoin network to speed up transaction duration.
African crypto traders are also sending remittance in two stablecoins, the USDT (Tether) and USDC. They are popular because they are pegged to the US dollar at a ratio of 1:1, and have the option to operate on multiple blockchains, making them more accessible. Both stablecoins transfer rapidly peer to peer. Instead of sending $500 from Nigeria to Kenya via Paypal, for instance, and incur a cost of $23, users can send the same amount in bitcoin to a wallet. The receiver now converts the amount into USDT on the Binance platform, for instance, and then sells it to online mobile money merchants who send the money to their mobile money wallet without any transaction fee or losing part of the amount to foreign exchangers. With such a mechanism, it is expected that the use of stablecoins will grow exponentially in the next 12 months.
Web3 Startups Are Expanding Services
Startups that are pioneering crypto remittances are expected to expand their operations as demand for low cost transactions rises. Many will be encouraged to venture into new markets in Africa, where remittance fees are still very high. Changera, Bitmama’s remittance platform, has expanded its services outside Nigeria, to Senegal, Uganda, and Kenya, as well as cash-out services using USDC, Circle’s stablecoin, through the Stellar blockchain network.
Since launching in Nigeria in 2019, Yellow Card has expanded into more markets in the continent, and is currently present in 17 countries. They include Kenya, Uganda, Tanzania, Rwanda, Ghana, Ivory Coast, Senegal, Togo, Cameroon, DRC, Republic of Congo, Gabon, South Africa, Botswana, Zambia and Malawi.
South Africa’s Ovex expanded to Kenya in April this year, with plans to take its services to Nigeria.
And as this demand soars, their profitability rises, an indicator for investors that the future of cross-border payments lies within Web3. More public awareness on the range of transaction services offered by these startups is expected to attract more venture capital in the next 12 months. This is set to push these startups into more African markets.
Crypto Remittances are Coming for Banks’ Lunch
Banks have for the longest period dominated Africa’s remittance business. To even consolidate their grip on the market, they usually partner with remittance companies such as MoneyGram, Western Union, World Remit, TransFast, Xpress Money, and Instacash to offer cross-border payment services. Research by Duplo, a Nigerian business payments automation firm, shows that 61% of businesses in Nigeria, Ghana, Kenya and South Africa, engage in cross-border payments. Almost half (48.4%) of these businesses pay their foreign suppliers and vendors through local banking partners. Only 19.5% of surveyed businesses make cross-border payments with fintech solutions.
However, bank cross-border fees can be as high as $19 when transacting $200 across borders, while fintechs charge up to $12 when transacting the same amount. This makes them extremely expensive for African populations that are already suffering through economic strife. Here is where Web3 remittance startups come in – to help users move cash without the worry of high undercuts. Lower transaction fees on these platforms is expected to pile pressure on banks and traditional remittance firms to reduce their charges in the next 12 months.
Big US Firms Set Their Sights on Africa’s Remittance Business
There is a growing appetite among US payment companies to invest in Africa’s Web3 payment service providers. In April 2023, American company Block, which runs popular payment apps Cash App and Square, partnered with Yellow Card, a leading crypto exchange in Africa but headquartered in Atlanta, Georgia to facilitate cross-border payments among 16 countries in Africa. In its broader strategy of cross-border remittances, Block has funded Gridless, a Bitcoin mining firm in Kenya that uses renewable energy.
Last year, Coinbase, the largest crypto exchange in the US, led in a $23 million seed round financing of pan-African crypto exchange platform MARA which targets to get more Africans into crypto remittances. Its services are active in Kenya and Nigeria. Coinbase has also injected capital into Jambo, a Congo-based startup building Africa’s web3 user acquisition portal.
In March this year, New York-based decentralized protocols software company ConsenSys announced a partnership between its MetaMask self-custody wallet and Miami-based MoonPay, a web3 infrastructure firm to offer more crypto payment services in Nigeria. The services have now been expanded to Kenya, Botswana, and South Africa.
Web3 Deals Tracker: Remittance Platforms Raise Over $280 Million
Seychelles-based crypto exchange KuCoin leads the continent in the amount of capital raised to fund cross-border crypto remittances. It raised $150 million in March 2022 in a funding round led by US-based Jump Crypto, an investment arm of Jump Trading. In July the same year, it raised an additional $10 million in a round led by Susquehanna International Group, to build networks for crypto startups.
In August this year, Yellow Card closed a $40 million Series B funding round led by Polychain Capital. In August 2021, the exchange announced a Series A funding of $15M that added onto a $2 million pre-series financing. That brings the total to $57 million.
In a Series B funding round, South Africa-based crypto exchange VALR raised $50 million in March last year. It has raised $3.4 million in its Series A round in 2020. Both rounds have lifted the company’s valuation to $240 million. Ovex, a South African digital assets manager and crypto exchange, raised $4 million in 2021.
Nigeria’s NestCoin and Bitmama have raised a combined total of $10.35 million, with some funding being undisclosed. In total, these platforms have raised $284.75 million.
Table 1.4 Web3 Deals Tracker
| Web3 Project | Country | Amount of VC raised so far | Biggest VC firm |
| KuCoin | Seychelles | $160 million | Jump Crypto |
| Yellow Card | US/Nigeria | $57 million | Polychain Capital |
| VALR | South Africa | $53.4 million | Pantera Capital |
| NestCoin | Nigeria | $8.35 million | Hashed Emergent |
| Ovex | South Africa | $4 million | Sanctor Capital |
| Bitmama | Nigeria | $2 million | Tekedia Capital |
QUOTES OF THE MONTH
“High remittance fees have long plagued the African continent. Web3, with its blockchain underpinning, could dramatically slash these costs, facilitating smoother cross-border transactions. Lower remittance fees could mean more money in the pockets of Africans, stimulating economic activity” – Benjamin Arunda, Author of Understanding the Blockchain, Kenya.
“In the traditional method, it can take up to five days, and on average, it can cost 7% for a $200 transfer. On the other hand, crypto allows the transfer of money within minutes from one wallet to another. User-to-user fees would depend only on the blockchain’s transaction fees.In some of the pilots that we’ve seen for using crypto as a remittance rail, we’ve seen that transaction fees are really reduced. There’s a company in our portfolio called Kotani Pay, which has been testing cross-border payments of gig workers in Kenya. Using crypto, they’ve cut down transaction fees by 93%” – Jocelyn Cheng, CEO of Luno, UK.
“Web3 applications can provide small businesses in Africa with access to more secure systems for conducting business, reducing the risk of fraud and increasing customer trust” – Aminu Bin Ibrahim, Blockchain Project Manager, Startbench, Nigeria.