Why Web3 Payment Platforms are the Solution

There’s a shift towards crypto transactions, as they are faster, consumes less time to send because there is no paperwork required for identity as compared to banks and remittance firms. Of the $48 billion remitted to sub-Saharan Africa in 2019, Chainalysis estimates that up to $562 million worth of payments were facilitated by cryptocurrencies.

With global remittances totaling $626 billion in 2022, even a 1% reduction in fees could put more than $6 billion into the pockets of those who need it.

According to the Brookings Institution’s 2022 Foresight Africa report, cryptocurrencies have had a great potential to improve remittance payment systems. While international wire transfer fees cost an average of 7% of the total amount sent and could take several days to clear, some cryptocurrencies support foreign exchange and money transfers for less than a dollar and process payments in seconds.

Cryptocurrency transfers associated with remittance payments have experienced rapid growth, both in terms of value and volume, since the start of the Covid-19 pandemic.

Since cryptocurrency platforms bypass traditional banking services by introducing decentralized peer-to-peer lending services, they can help level the economic playing field and are well-positioned to address a number of economic challenges in the region.

Cross-border charges by Africa’s popular money transfer platforms

NOTES: Money can be transferred from these platforms to be withdrawn via the same platform, bank, cash out agent or mobile money agent. Every transaction fee is inclusive of foreign currency conversion costs.

Some platforms such as World Remit indicate a transaction fee of as low as $0.99 but the forex conversion rate is low compared to competitors e.g 141 vs 146 (Moneygram) for USD to KES conversion.

Sending from a credit card to for cash collection attracts even higher rates. For the case of Moneygram, the cost is $11.99. Xoom is a PayPal service and was therefore not included in this list. Some platforms have hidden fees that are embedded in the transfer fees as service fees and receiver fees.

*Chipper Cash started charging a fee for transactions that fail to get processed due to insufficient funds in Nigeria and Uganda in May and July 2023, respectively. While transactions are mostly free, its video selfie verification process hardly works and even when it does, the cashout process never works most of the time.

Sendwave is a fee-free service, but it charges 3% for currency conversion

Due to their near-instant transaction speed, remittances done via crypto platforms come in handy for individuals and businesses relying on timely release of funds to pay for emergent needs such as health, evacuation, school fees or food.

Cross-border payment fees on Africa’s popular crypto trading platforms

Cross border remittance cost comparison in Africa

Mitigating Currency Plunge and Fraud Risk

African countries are experiencing significant currency volatility, which in turn is negatively impacting the value of remittances. Countries such as Nigeria, Zimbabwe, Kenya, Sudan, Ghana have dismally performing currencies. Currency volatility has a wide range of effects including inflation, loss of purchasing power and overall reduction in standard of living.

Cryptocurrencies, especially bitcoin and stablecoins like USDT, are offering a potential solution by providing a stable digital asset that is not tied to any specific national currency. Stablecoins such as USDT and USDC, which are crypto tokens pegged to the US dollar, are already offering a reliable alternative for remittance transfers. By utilizing stablecoins, senders can protect the value of their remittances, mitigating the impact of currency fluctuations on their families’ financial well-being.

Additionally, blockchain technology, the underlying infrastructure of cryptocurrencies, provides transparency by recording all transactions on a public ledger. This transparency helps to reduce fraudulent activities and ensure the security and accountability of remittance transfers, benefiting both senders and recipients.

The emergence of cryptocurrency-based remittance platforms tailored specifically for African markets has further accelerated the transformation of remittance practices. These platforms leverage blockchain technology to provide secure and efficient remittance services. They often incorporate user-friendly mobile applications and mobile money platforms, allowing individuals to send and receive funds with ease.

Some platforms even offer additional features like instant bill payments and access to other financial services, further enhancing the value proposition of cryptocurrency-based remittance.

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