Start-ups in Africa are becoming magnets for venture capital, but there is concern that innovation is moving so fast that it’s overlooking more basic needs.
“Payments in Africa, for example, are heavily impacted by the continent’s lagging financial infrastructure,” said Elizabeth Rossiello, the founder and CEO of AZA, a currency trading firm that uses blockchain and application programming interfaces to improve business and consumer payments.
AZA and other companies such as WorldRemit are expanding their services in anticipation that local start-ups in underserved areas will require better digital payment options when doing business in other markets. Both companies face competition from blockchain firms like Ripple and Circle, as well as incumbents such as international banks.
Tech investments in Africa are expected to pass $10 billion by 2025, up from around $3 billion in 2021 and less than $250 million in 2015, according toAfricArena, a Cape Town, South Africa-based accelerator. Just this week, Stitch, a Cape Town, South Africa-based start-up that builds software for Africa’s growing fintech sector, raised $21 million from New York-based Spruce House Partnership, PayPay Ventures, TrueLayer and Village Global.
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“A relatively new industry about ten years ago, digital money transfers are not only here to stay, but they are also slowly becoming the method of choice for customers by proving that they’re just as safe as a bank transfer,” said Sharon Kinyanjui, senior director of Middle East and Africa Markets for the London-based WorldRemit, which is one of AZA’s partners in Africa.
AZA was founded in 2013 as BitPesa, a Nairobi-based start-up that supported crypto and other digital currencies in Africa. It rebranded as AZA in 2019 following its acquisition of Spanish money transfer service TransferZero. Now based in London, AZA offers business-to-business-to-consumer payments through TransferZero, and its BFX-branded service supports B2B payments to serve supply chain transactions. It plans on expanding its presence in South Africa, the Middle East and Asia in the coming year.
The digital payment rails in Africa often rely on cash or telco-supported mobile money apps designed for underbanked consumers. These mobile money apps boosted financial inclusion in the early 2000s, but AZA says there’s room for improvement.
Inconsistencies in telco coverage can create disparities in access between individual nations in a broader emerging market. That creates problems related to time differences, currency conversions and language barriers, Rossiello contends.
“This leads to unnecessary delays and cancellations and makes companies outside the African region hesitant about doing business on the Continent,” she said. “When fewer people want to trade a currency, fewer actors are willing to sell it.”
AZA relies on regionally distributed staff to make connections. It has offices in Luxembourg, Spain, and is licensed in the U.K. and EU. That allows it to offer currency pairings with G20 currencies, helping businesses in Africa work with North American and European counterparts. AZA also has local offices in central, eastern, and western Africa, and plans to open an additional location in Johannesburg in the coming year.
By using blockchain-based digital currency rails and application programming interfaces, AZA hopes to create a single point of access for foreign firms hoping to reach several emerging markets simultaneously.
“Now, our infrastructure is integrated with mobile money services like [the telco-supported MPesa] and other mobile money forms as one of many ways to make cross-border payments,” Rossiello said.
Other blockchain companies such as Ripple Labs and Circle tout financial inclusion as a key benefit of blockchain technology. The World Bank has reported distributed ledgers such as blockchain can both improve access and reduce expenses for cross-border payments.
Among payment companies, Stripe is active in Africa through its subsidiary Paystack, a Nigerian division that allows businesses to collect payments within and outside of Africa. Paystack plans to expand its strongholds in Nigeria and Ghana to the entire continent, and recently launched in South Africa.
Local payment firms include the Lagos, Nigeria-based PalmPay, which recently raised $100 million in a Series A funding round, according to Techcrunch. PalmPay, which supports a virtual Visa card, offers point-of-sale support, peer-to-peer transfers, bill payments and incentive marketing. PalmPay is active in Nigeria and Ghana and reports that it has about 5 million users.
These technology companies have competition from banks. The bank-led R3 consortium develops distributed ledger technology for a variety of use cases, including cross-border transfers to fund peer-to-peer payments or supply chain finance. Ripple also partners with banks to streamline cross-border payments.
A number of banks are building “outside in” cross-border transfer services to Africa, according to Enrico Camerinelli, a strategic advisor for Aite-Novarica in Monzo, Italy.
AZA negotiates fees with its partners, and claims its mix of local expertise, APIs and distributed ledgers allows it to charge less than U.S. or European banks would charge for the same services.