From banking the unbanked to international remittances, cryptocurrencies are being touted as a silver bullet to systemic financial challenges in emerging markets. And to a certain extent, this has held true. In Zimbabwe, frequent currency shortages coupled with rising inflation have driven Zimbabweans to put their trust in cryptocurrencies to save their money. On the other hand, the CBN restrictions in Nigeria have left Nigerians with limited options of international money transfer companies that charge high fees. As a result, interest in BTC has been on the rise in the country as cryptocurrencies are being seen as the preferred alternative to enable Nigerian businesses to make global transactions.
Despite the high crypto adoption rates in Nigeria, South Africa, and Ghana, which lie even above the global average of 5.5%, the adoption and awareness of cryptocurrencies remains low across the continent. This is largely because, unlike in developed markets such as the US and UK, where financial systems are very well developed, use cases are very different in developing countries; consumers predominantly use cash and mobile money and are not as digitally inclined. While we can’t deny the changes cryptocurrencies can bring to emerging markets, there are several barriers to entry that need to be adequately addressed to increase the everyday use and adoption of these currencies.
The complexity of the crypto ecosystem and the user-unfriendliness of crypto platforms remain the key barriers to entry in emerging markets. In a continent where, despite digital penetration rates of 40%, the adoption of digital banking has been remarkably low, it is an even greater challenge to onboard customers who have little to no knowledge about blockchain technology and cryptocurrencies on an unfamiliar platform with specialized digital wallets and confusing private keys.
Learning how to buy, store, and use cryptocurrencies is already difficult for a first-time adopter, but impossible without reliable internet access. One of the key features that gave mobile money the upper hand over traditional banks in emerging markets was its accessibility across social classes through the use of USSD codes. This made it possible for everyone, even those who didn’t own a smartphone, to use the service, not limiting it to a tech-friendly consumer segment. Cryptocurrencies should partner with and leverage existing technologies such as mobile money and bank networks to build hybrid financial systems to overcome the initial adoption barrier and access a wider customer base. Moreover, allowing customers to access new technology on a familiar platform can help instill confidence and dissuade fear of technical aspects that its customers and partners may not fully understand.
Moreover, Africa as a continent is complex because its regions and sub-regions are so very different in culture, infrastructure, and incumbent players. African as a continent is complex because while domestic financial infrastructure has boomed over the last decade – although still lagging behind other continents – there is little financial infrastructure across borders. Regulation, basic power/internet access, language, population-density, cultural habits, and ease of doing business all differ greatly. Comparing South Africa and its neighbor Zimbabwe or drawing a chart on the differences between Ethiopia and Sudan are ways to quickly realize how different each individual market is to understand from a business perspective. A solution that is successful in Kenya may not deliver the same results in Nigeria, hence personalisation to individual markets is vital. Despite these differences and structural borders, most businesses and many individuals split their lives between countries. Therefore, it is essential for cryptocurrencies to have a multi-country approach if looking for success on the African continent.
At BitPesa, through over seven years of real-time client on-boarding and off-boarding into digital currencies across 12 African countries, the UK, Europe, and the Middle East, we have managed to overcome these barriers. The only reason we are able to do this is instead of reinventing the wheel entirely, we started as an adaptive company using a hybrid approach of bank, mobile, and crypto infrastructure to create a platform of streamlined service and efficiency. Compliance complexities, payment infrastructure delays, and individual company operational difficulties still make it hard to complete an end-to-end digital currency transaction unless the participants are existing users with existing stores of digital currencies. Understanding these nuances and establishing partnerships with local payment companies has played a vital role in our success in the African continent.
Undoubtedly, cryptocurrency companies need to be able to find the right local infrastructure partners or have the patience and resources to build their own that are similar to existing platforms, as this will make or break their frontier market strategy. In the conversation around adoption, leapfrogging is overrated. While the Western business and finance culture is strong, it is not universally accepted and there are great swathes of the continent that need to be considered on their own terms. Instead, cryptocurrency companies should focus on learning from the wins and losses of the many companies who have been on the ground in frontier markets figuring out the local nuances to implement local solutions.