“People think that if you put something on the blockchain all of the sudden the counterparty risk disappears,”says Swanepoel. “Take deeds or diamonds or shares. You’re effectively tokenizing something. But you still have to trust that the person who made the token for that asset actually holds that asset. The fraud happens when people load things onto the system, not within the system itself.”
A digital economy based on blockchain and bitcoin could hold African leaders to a new level of accountability.
Bitcoin itself, he contends, which has inherent and tradeable value, has no counterparty risk, making it especially appealing in Africa.
While BitX currently sees more uptake in Southeast Asia than Africa (where it sees only South Africa and Nigeria as viable markets), BitX actually owes its origins to an African bank. Its first incarnation as Switchless piloted a bitcoin system for Standard Bank in 2013. It was never released to the public, but used its proof of concept to gain tractioninternationally, eventually raising a Series A round of financing from South African media and e-commerce conglomerate Naspers in late 2015. Now it is developing use cases for online content monetization and cross-border e-commerce, two key areas for Naspers.
Standard Chartered, is getting into the game. In mid-2015, its chief innovation officer posted on the potential for blockchain as a “force for good,” positing that blockchain could dramatically cut costs on financial services like remittances, credit cards and money transfers, thereby opening them up to those who can’t currently afford them (aka most Africans).
On a continent with 54 countries, using bitcoin as the interoperable system currency to convert between, say Kenyan shillings and naira or rand could make cross-border trade infinitely easier.
The Savannah Fund invested in Zimbabwean bitcoin startup BitFinance to test that thesis, as detailed in a just-released Stanford Business School case study. The collapse of the country’s national currency has given rise to several currencies in circulation, including US dollars and now the Chinese yuan, making it an ideal country to pilot bitcoin as a back-end trading currency. But just as important to Alliy was the locally-founded team’s close relationship with the central bank.
“Our approach is very tactful. We’re working with the central bank to figure out how bitcoin can fit into Zimbabwe’s ecosystem. We’re not just going in on a Silicon Valley-style disrupt model.”
The regulatory challenge
The value of working with established players shouldn’t be underestimated, says Alliy. Fintech startups have uphill battles in Africa. They need to comply with complex regulations and navigate through political power constellations that vary by country; the tech to handle people’s money requires bank-grade security; fintech talent is highly specialized and expensive. ”Can you raise enough to survive as long as it takes? To build trust and a brand, that can take a lot of money.”
Lots of cash can be hard to come by in Africa. Venture capitalists are still relatively scarce, and often require more proof of traction than a young fintech startup can show. As banks step into that early-stage void, they hope to marry their lumbering corporate cultures to the agile but fragile early stage startups they’re working with.
Consent’s Conway says getting things done has been painful. “Even with support from top level executives, the institution is just not geared toward working as fast as we do.”
That prospect hasn’t stopped 454 fintech companies from applying to Barclays’ TechStars accelerator in Cape Town, which starts Mar. 29. But experienced entrepreneurs like Lingham are dubious that any of these will be game changers.
“I applaud what they’re doing but I’ve yet to see a corporate-sponsored VC fund, accelerator or incubator ever create a business that disrupts an industry. They come out of the places you’d least expect them to,” says Lingham. Lingham often invests in African startups, but stays away from financial services. “It’s not a quick win and it’s not gonna happen overnight. I’d say 5-10 years and then it will start accelerating. There’s just too much drag.”
Even the more optimistic acknowledge it’s a long road.
“10 years,” says Barclays’ Lewis. “It’s not the blockchain, it’s the internet. I chatted with (internet pioneer) Tim Berners Lee a few months ago, he estimated that in 10 years everyone in the world will have full access to the internet anywhere. That’s what it’ll take to enable a digital currency economy.”