Some years ago, the electronic currency Bitcoin was only interesting for technology geeks. However, that has changed and Bitcoin has become more attractive for a wide range of investors. Especially in Africa, the electronic currency is getting attention.
The poorest continent on earth is not the easiest place to transfer money electronically. Credit card penetration is low and there is an over-reliance on cash. That makes it more difficult and less safe for individuals and businesses to manage their daily operations. Some entrepreneurs say, Bitcoin could be a way to solve this problem.
The use of Bitcoin could lower transaction costs of money transfers to Africa or within Africa significantly
Meanwhile, there are several start-ups that want to build up the Bitcoin business in Africa. Their ambitions are high; the plan is to change the entire payments landscape in Africa. Start-ups like BitX, Igot, Beam and BitPesa are some of the leading players.
Indeed, the lack of payment options when making payments to Africa and within Africa is an issue. Every year, Africans living outside of the continent send $40 billion back home, and the amount is steadily increasing. However, the fees they pay for these transactions are huge.
Mostly, the money is transferred via Western Union or MoneyGram, together their market share is more than 50% across the whole continent. If the transaction value is $200, they charge an average fee of 12.3%. Bitcoin remittance firms charge around 3% on transactions, significantly less than Western Union or MoneyGram.
Credit cards and other electronic payment methods are not widespread within Africa, which creates challenges for businesses
High transaction fees and the lack of electronic payment options harm not only individuals but also businesses. Less than 3% of all Africans own credit cards, bank transfers within Africa are expensive as well and cheaper payment providers like Paypal are not very widespread.
Therefore, many transactions are made in cash which is more dangerous, slower and less efficient. In Africa, many people still don’t even have a bank account. “One of the difficulties in remittances is the ‘last mile’ problem: getting money to the final recipient. Because recipients often don’t have bank accounts, the money is typically paid out in cash, which is expensive and inefficient to handle,” says Timothy Stranex, CEO of the African Bitcoin exchange BitX.
Moreover, Bitcoin offers the opportunity to bypass governmental regulations. The virtual currency can be traded internationally, without being controlled by any government or central bank. That is the major difference between ordinary Currencies and Bitcoin. For example in China, where the government has implemented strict capital controls, private investors often use Bitcoin to get their money out of the country. That’s one reason why the Bitcoin has been soaring during the last months.
Apart from remittances, Bitcoin can also be used as a payment gateway to smart metering vendors. The African start-up Bankymoon enables vendors to accept Bitcoin payments for utilities. “For years the smart metering company I worked for struggled to provide payment mechanisms for all customers,” says founder and CEO Lorien Gamaroff. According to Gamaroff, the response to Bankymoon has been positive so far.
Bad press and security issues have created a lack of trust which is the biggest challenge for Bitcoin start-ups
In developed economies, investors are still quite skeptical when it comes to the use of Bitcoin as their preferred currency. Cybersecurity issues hinder the uptake of Bitcoin, and the lack of control causes concerns among investors.
Although these concerns exist in Africa as well, the continent has traditionally been more willing to adopt alternative payment methods. That is especially true when it comes to the use of mobile payment methods, which have become increasingly popular in Africa throughout the last years.
Nevertheless, gaining trust is still crucial and that’s where start-ups have to improve. Bitcoin has received negative press during the last years and the concept is too complex to explain to many people. “While the bitcoin network itself is secure, exchanges and digital wallets where you store Bitcoins can be stolen, and this has been high publicity where it happens,” says Gilles Ubaghs, financial services analyst at Ovum.
Bitcoin is still a relatively new concept and it had a difficult start on the global stage. However, there are ways how the electronic currency can be used to overcome market inefficiencies and provide benefits to its users. The main issue faced by African Bitcoin start-ups in the coming years will be to make the currency safer, in order to gain trust and win more customers.