Blockchain Technology ("BCT") could be the most significant social and political innovation to impact Africa this century. If digital currencies become adopted in African nations, it could significantly reduce corruption from government, it could provide transparency and control to every day citizens. Robert Courtneidge, global head of cards and payments, Locke Lord
"Blockchain based payment infrastructures are useful in any territory in which there is significant mobile coverage and heavy reliance on cash based solutions".
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BCT functions as a powerful decentralised ledger that records transactions and stores information on a global network that can be amended only according to strict rules and by general agreement. Banks see BCT as the future of financial exchanges and global money remittances.
Today, Africa relies heavily on cash which poses a number of issues including exposure to theft and leakage in the system. In most African and developing countries cash is the only solution as they do not have the technological infrastructure for a card based payments system. Mobile solutions on existing payment platforms are costly and generally require an issuer and acquirer solution which needs more infrastructure.
BCT, however, could provide a solution. The advantages of BCT include lower cost advantages and transparency particularly for developing countries within Africa where overall wealth is low and corruption high. BTC is particularly important because it meets the need for a trustworthy record, something vital for transactions of every sort.
"Blockchain compared with a mobile phone/smartphone can operate outside existing costly payment systems and enable virtually cost free money transfers and storage of value for payment users at the lower end and bottom of the pyramid".
The key issue is what currency should be stored on the BCT for peer to peer transactions. Most crypto-currencies are still too volatile to be used hence a central government backed fiat currency on BCT is the obvious solution.
Africa poses further problems in relation to building a new payments infrastructure. New businesses have to comply with complex, unharmonised regulations across the continent that vary by country.
Remittance is one such segment where companies are interested in using BCT to perform faster remittances and reduce the cost of sending remittance at the same time. Currently the money remittance space is based upon archaic distribution networks and multi-bank settlement chains like Western Union. Using BCT to transact local currency provides a clear way of receiving the cost and technology benefits of BCT.
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By GlobalDataUsing BCT in this way will not only lead to more value accretion to remitting customers, but it will also be the kind of radical value proposition improvement that will be required to attract customers and break them from established habits around sending and receiving money.
Similarly, BCT can be used in remittances to enhance pricing transparency and provide better transfer security. It’s important to also consider that while BCT can help lower costs and smooth transactions, it alone does not make a company poised for complete success. There are other components of a remittance startup that need to be taken into consideration, such as cash-in/cash-out points and strategies to attract and acquire customers.
"The speed with which m-Pesa grew in Kenya could easily be mirrored using blockchain mobile payments in any place where cash usage is currently high".
It is predicted that the way mobile payment technology leapfrogged fixed lines communications in Africa, BCT will leapfrog a lot of the financial infrastructure that exists today.
M-Pesa succeeded because of the monopoly positioning of Safari.com in Kenya which meant a solution could be easily deployed. It has established itself as a leading mobile banking service in Kenya, enabling nearly a quarter of the working population to use mobile phones to transfer currency by using text messages. However, the politics of mobile banking are problematic involving struggles among regulators, banks and telecoms companies.
BCT does not rely on a single mobile provider it simply needs an internet connection to work and hence has the ability to be a ubiquitous solution for mobile payments in any territory.
BCT solutions will make substantial contributions to rethinking existing structures in the political, social and economic sectors. There is a need for education about BCT and opportunities for streamlining existing services or providing services where they don’t exist. It is likely that there will be resistance from the African central banks however I hope the benefits of BCT will be enough to persuade them to further develop the technology going forward.
The development of open-platforms, digital ecosystems, and interest from legacy banks are demonstrating the huge potential for BCT in Africa. With the developing countries eager to receive banking services and increasing mobile connectivity, businesses and banks in Africa have a reason to be optimistic when it comes to the emergence of BCT.
