Bitcoin continues to be the subject of much debate and controversy, but for many African companies the choice is simple. For them, the cryptocurrency is not at all related to anonymous black market business – it’s about enabling them to flourish. Sanne Wass speaks with Elizabeth Rossiello of BitPesa to find out more.
“It’s like shampoo: you try it, it works, you use it.”
It is with a smile that Elizabeth Rossiello compares bitcoin to shampoo when asked if it is hard to convince African businesses to use the highly-disputed virtual currency.
But the issues she has set out to solve are of a more serious nature. “This is not a light problem. These are companies that are really struggling and when you’re struggling, you look for other solutions,” she says.
Rossiello is the founder and CEO of BitPesa, a pan-African exchange platform that uses bitcoin to help businesses make or receive international payments.
She started the company in Kenya in 2013, after having worked in investment banking in Europe and then moving to Nairobi in 2009 to work in microfinance. There, she discovered the everyday hurdles faced by Kenyan businesses: despite a real need, they lack ways to move money across borders. Paying a supplier abroad or receiving a payment from a regional customer is not only expensive – according to Rossiello the average cost is 12% in Africa – it is also highly manual and inconvenient, and can take weeks.
That was how the idea of BitPesa was born. Fast forward four years to 2017, the company helps thousands of clients make international payments through the de-centralised bitcoin network. Outside of Kenya, it now also operates in Uganda, Tanzania, Nigeria and the Democratic Republic of Congo, and works with licenced brokers with access to local accounts all over the world.
As BitPesa expanded, so did the problems it found it could solve using the digital currency. “In Nigeria, not only were we fighting plain old delays, inefficiencies and high cost, we also started to fight currency controls. A big problem there is that any time you want another currency, whether its Chinese renminbi or Swiss franc, the only way to get it is to first buy dollars. Dollars are restricted, and a lot of companies don’t even want dollars,” Rossiello says. Nigeria today is BitPesa’s biggest market.
Where a payment would often take up to two weeks through a local bank, BitPesa can do it in a few minutes, and no longer than an hour. It is not only convenient and quick, it increases the liquidity of businesses, which avoid having to settle transactions in dollars.
“Bitcoin is a really incredible business tool,” she says. “And it’s especially great for trade finance, any kind of cross-border activity.”
So how does it work? Rossiello gives an example of a Nigerian company that needs to pay its supplier in China. Via the BitPesa app or website, the Nigerian customer makes a transfer to BitPesa – in the local currency and through its local bank. BitPesa then buys bitcoin and sells it on to a Chinese broker, a licenced partner, who makes sure the money goes into the recipient’s local bank account in China.
Amounts of up to US$10,000 are transferred automatically, while larger sums have to be approved by BitPesa.
“In one hour or less, my Nigerian customer has made a payment in naira, he has all the documentation and his partners in China has been paid,” Rossiello says. “Often people take out guarantees of letters of credit for this period when their payment is being made. So it actually reduces the need for trade financing, because they can do instant payments. Suddenly you remove the two weeks of nonsense.”
Real world impact
Since the cryptocurrency was first released in 2009, bitcoin has been a contentious entity. Critics point to the fact that its popularity hinges on its anonymity and thus the ability to use it for illicit activity.
This is an argument that Rossiello often hears, with people claiming that they only use bitcoin to “cheat the system”.
“Everybody is critical of it, and get crazy about it,” she says.
But she emphasises that BitPesa has all the relevant regulatory licenses in the countries in which it operates, including from the Financial Conduct Authority in the UK, and it undertakes all the required know your customer and compliance obligations. The company even has a seat on the Central Bank of Nigeria’s committee for virtual currency.
Another common concern is the price volatility of the bitcoin. According to Rossiello, that does not matter for the users of BitPesa, who are guaranteed the price shown when the payment is made. She says the risk is removed by the fact that the company settles instantly.
Once the bitcoin is sent, it is immediately changed into local currency and delivered locally. BitPesa doesn’t hold bitcoin, it merely uses it as a medium. “I’m just buying and selling African currencies – and bitcoin – all day long,” Rossiello explains.
In fact, the end-users are often traditional companies in that they only hold local currencies, and do not necessarily know anything about bitcoin or that it is used for their transactions. For them, the experience is much like sending money through any other mobile service.
But the impact on the ground is huge. It enables companies to do things that people elsewhere in the world may take for granted, such as paying their employees on time.
Today, the average transaction size on the BitPesa platform is US$25,000, and most use it in more than one trade corridor. The company’s largest customers transfer US$100,000 a day, sometimes even more.
Most of them start out small, Rossiello explains.
“Nearly all our customers grow with us. They all start small and grow. A lot of them enter new markets with us. They may have thought, ‘I could never enter this adjacent market,’ but now that it’s so easy to make payments, or collect payments, or hedge the risk, because you can do instant payments, they start to enter these new markets.”
She references a fast-growing company that launched in Kenya after having received a major investment from a venture capitalist in America. “They quickly went to Uganda and Tanzania using our model as a business tool and they got to test out the market and see which one would work for them, just because we were there. They asked, ‘Where are you? We will go where you are’.”
Partnering with banks?
Going forward, BitPesa will continue to open up its platform in new payment corridors to better serve the growing number of people doing business in Africa. This year, it is looking to enter Ghana, Morocco and Egypt.
What’s more, the platform is not only suitable for payments, but can help bridge the funding gap for SMEs in Sub-Saharan Africa, a function the company is already exploring.
Earlier this year, BitPesa partnered with BitBond, a Berlin-based firm that connects fixed-income investors with small business owners who need loans.
The integration between the two platforms enables borrowers in Kenya, Nigeria, Uganda and Tanzania to receive loans from anywhere in the world in their local currency, paid out directly to a mobile money or bank account, within minutes.
Rossiello hopes to add other features to the platform in the future, such as partnering with an invoice company. She says she would love to see the platform integrated with banks too, but that might have to come at a later stage.
“A lot of these banks are such slow-moving ships,” she ends.