Last week the 14-month-old Australian based Bitcoin exchange, Igot, launched in Kenya with the acquisition of local company TagPesa to target the country’s remittance market. In addition, Igot has also been granted access to the mobile money service, M-Pesa, giving members the ability to deposit and withdraw money directly from their M-Pesa account, currently used by about 17 million Kenyans.
Igot’s service, which targets the international remittance market, is available in about 40 countries, with Kenya being its first African market. Remittance inflows into Kenya in 2014 are estimated at over US$1.4bn.
According to co-founder and CEO, Rick Day, over 2.5 million Kenyan emigrants remit money home to their families, with the average transaction fee of sending to African countries being almost double the amount it would cost to send elsewhere in the world – sometimes above 20% per transaction.
As a result of these excessive charges, it is estimated by the Overseas Development Institute (ODI) that Africa is losing around $1.8bn annually.
However, the cryptocurrency Bitcoin allows money to be transferred across borders swiftly, simply, and more affordably. For example, Igot charges a 1% flat transaction fee.
How we made it in Africa’s Kate Douglas talks to Day about Bitcoin’s future on the continent, and why he sees Africans using the cryptocurrency more as a mechanism to transfer money, rather than an investment.
Bitcoin has proven highly volatile, with its value crashing from over $1,000 in 2013 to below $300 currently. Do you think users in Kenya are going to want to use the cryptocurrency as a means of sending money back home? What role do you see Bitcoin playing in their lives?
There are a couple of responses to this. Yes, prices have dropped considerably in the last so many months and it is unfortunate. Bitcoin is something we need to address, and the market needs to be more stabilised. Secondly the Bitcoin prices have gone up in the last three days… So people who bought last week are making a good profit. But yes, it’s very volatile and if you send money from say Australia to Africa, and the Bitcoin prices drop 40%, it’s going to be a shock. It’s people’s hard-earned money.
But we don’t see Africans generally holding onto Bitcoin as much as we would like them to [as an investment]. I don’t see them speculating about the Bitcoin price that much. They want cash and they want it right now. Compared with western markets, say Europe or America, where people are holding onto Bitcoin and playing in the active market, we don’t see African nations doing as much of that.
So, if Bitcoin is sent to Kenya, we see this being exchanged to cash almost instantly. And what Igot offers is, if you send money to Kenya as Bitcoin, you can choose to convert that into cash right away, so volatility doesn’t affect you. On the one end you send five Bitcoin, and on the other end you get [around] $1,000 – and we make it happen right away.
Many African markets have quite strict exchange controls which can make transferring money from country to country difficult. Do you see Bitcoin playing a role in overcoming this?
Yes, absolutely. Bitcoin is instant. Of course there are moving parts here: Bitcoin doesn’t work if, for example, someone sends Bitcoin to his mother in Somalia but there is no exchange to cash that into the Somalian currency. Then it doesn’t make sense. So, local exchanges will ultimately play a very big role in seeing this mass adoption as well.
And yes, cross border transactions in Africa are painful. They’re slow, they’re expensive, they’re closely watched by the government, regulators or whomever. But in the case of Bitcoin, if there is a local company exchanging Bitcoin, then basically the money is being transferred internally. So it’s not then as big a risk for the government, and I think that’s what is needed.
And Igot’s position is to be a local exchange to make money transfer a little bit easier, wherever we may operate. Obviously you need trade volumes. If you don’t have enough trade volumes in Africa to pay out cash, then you need to transfer money. So, we are also pushing for locals to buy Bitcoin so we have enough liquidity to fulfill the remittance demand as well.
But across the continent, cash is still very much king. And while we see M-Pesa revolutionising transactions in East Africa, for the majority of Africans who do not have a bank account, most transactions are made through cash. What future do you predict for Bitcoin on the continent?
Its [adoption] will be more or less slower than other nations – that is for sure. But given the success of M-Pesa it also tells us mobile money and digital money is widely understood in African nations.
Do we see Bitcoin being used as a currency in the next five years in Africa? I don’t think so. But given the adoption of technologies like M-Pesa, mobile money, and all that – I do think there is value. Bitcoin will not replace cash anytime soon, but it will somehow complement the already existing services out there like M-Pesa or traditional banking… So, ultimately for people to use Bitcoin they will have to see [the benefits] – that it’s faster, easier and cheaper [to transfer]. I believe that’s what will drive it.
Tell us a little bit about this decision to acquire TagPesa.
We met these guys a few months ago, and what they were trying to do in Kenya, and East Africa in general, was really exciting. We started talking and seeing how we could work together with our launching in Kenya or other Africa countries. But these guys are really smart and young, and they’ve done all the groundwork already. They had all the right corporations, to accounts, to everything we were looking for.
And for our expansion into Africa, we didn’t want to go there and start the process from scratch – so we wanted a local partner. And a few months later we decided to acquire their business.