Beyond Innovation #3: Simplifying African Currency Exchange with BitPesa’s Elizabeth Rossiello

So Elizabeth how difficult is it to
transfer money in Africa? In Africa you face the reality that a lot of the
African banks are not actually correspondent banks or don’t have
correspondent banking status and the IMF talks about this de-risking all the
time, and what that translates to is another party or another intermediary
involved in every cross-border transaction. So when you’re making a
payment from Nigeria even to Uganda what ends up happening is it clears through a
U.S. correspondent bank. So that can take anywhere from two to 20 days and I
say if you’re doing transactions every month for the entire year, at least two
months a year that wire is lost. And that could mean up to three weeks and a
lawyer to get it found and resent and the average transaction costs for
cross-border payments in Africa the World Bank says is about 12%, but in some
quarters of course that can go as high as 19%. And so that’s extremely high so
we’re talking about a very lengthy process and a very expensive process
compared to your solution. So how does your solution actually work? Well, we
avoid using the correspondent banking system whenever possible and that means
maintaining and facilitating local pools of liquidity so our mission is really to
make it easier to trade in African currencies and frontier market
currencies and that means becoming a liquidity provider. So we are a market
maker in every major African currency which means we buy and sell locally and
we match up buyers and sellers, we take on a daily a trading risk for that day
and we manage our risk accordingly across our customer segments. So how does
that compare to the current way it’s being done? You know are banks- local
banks in the region are they your competitors or are that your long-term
partners? Well honestly most of our customers tell us that they either
didn’t have a way to transact or they had an unreliable method of transacting.
So either they were not entering the markets because it was too expensive and
lengthy and inefficient and there was no digital solution, or they were often
using informal brokers to supplement their formal banking transactions. So I
would actually say that the large institutional banks weren’t even serving
this segment well. Of course the very large transactions you know the tens of
million of dollars of single transactions will go through the bank
and they’re not time-sensitive, they’re not price
sensitive, but honestly the banks just don’t focus on this product. There’s a
lot of money to be made in some of these markets because there are so few
entrants in the banking sector so there there’s a bit of monopoly on things like
the housing market, investing in infrastructure, so nobody’s been really
focusing on liquidity. So speaking of infrastructure though is that one of the
challenges operating in the region that you do because it’s not known for
having the most advanced infrastructure? Well I beg to differ and I mean some
aspects, the payments especially with mobile money which started 10 years ago
is way ahead of what’s been in the United States or even in Europe. I
think it was when I had visitors from the U.S. visiting me in Kenya and they
reached for their wallets to make a payment, and I had already finished the
payment with my mobile phone. And most days I don’t even- I’d say for the last 7
years I don’t leave the house with a wallet because I can withdraw cash using
my phone from any ATM or agent. So in that way on the retail level there’s been
innovation using pay-as-you-go solar, mobile insurance, health, all sorts of
services: voting, census, all done over the phone in a way that has not even entered
the North American or European markets. We’ve seen when there’s a high
penetration of mobile payments, the GDP grows tremendously and there’s been
introduction of innovation you’ve seen that in the markets like Ghana, in Kenya,
in South Africa, even Uganda the high mobile- even Cote d’Ivoire in the last
few years, the markets that have really fully embraced innovation.

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