In Africa, cash is still king. However, digital payment services have played a huge role in expanding access to financial services to millions of underserved customers on the continent. In Kenya, for example, M-Pesa, an electronic transfer product, helped increase the percentage of Kenyans with access to formal financial services from 26.7% in 2006 to over 70% in 2016. This shift highlights a gradual transition from cash-centric economies to ones driven by digital payments, a trend observed across various African nations. The digital payment market in Africa is projected to reach $314.80 billion by 2028 from $195.50 billion in 2024. But this doesn’t mean payment is still not broken on the continent, in fact half of the continent still doesn’t have access to financial services.

As consumer prices rise across the continent, Africans have had to pick up the pieces. According to the international monetary fund (IMF), the average inflation rate in Sub-Saharan Africa stands at 15.7%. Similarly, the volatility of African currencies has contributed to the growing popularity of cryptocurrencies and blockchain products that serve as an hedging tool. Seven of the top 10 worst-performing currencies against the US dollar in 2023 were African, with the Nigerian naira and Malawian kwacha falling as low as 55% and 39% respectively.

Cross-border money transfers in Africa remain costly due to high fees from traditional banks and money transfer operators, burdening individuals and businesses, especially those with lower incomes. Inconsistent regulations and diverse currencies in African countries complicate fast and cheap cross-border payments. However, the blockchain - an immutable digital ledger that enables secure transactions across a peer-to-peer network - is capable of providing financial access that traditional banking institutions are unable to provide. In this article, I discuss blockchain technology’s role in enabling inflation hedging, smooth domestic payment infrastructure, cross border transactions, peer to peer (P2P) lending and supply chain finance.

A growing need for fast and cheap payments

In an increasingly digital and urban Africa, cryptocurrency has enjoyed rapid growth and adoption on the continent, despite the African continent receiving the smallest share of crypto globally. A recent report by Chainalysis, a blockchain data platform, found that between July 2022 and June 2023, Africans received $117.1 billion worth of cryptocurrency payments. According to Chainalysis, Nigeria is the second fastest-growing crypto economy in the world.

Moreover, Africans are flocking to stablecoins - cryptocurrencies pegged on the dollar - as an alternative store of value to hedge against rising inflation and currency devaluation in their respective countries. Stablecoin’s appeal on the continent revolves around facilitating low transaction fees, providing the ability to send money across jurisdictions for commercial trade, shoring up USD liquidity, and hedging against devalued currencies.

Crypto payments, facilitated by stablecoins due to their relative stability, are faster and cheaper than traditional international payments hence their growing popularity for cross border payment. That is why Emurgo Africa, with its multiple investment vehicles including venture capital fund and cardano accelerator Adaverse, has expressed its commitment to accelerate blockchain solutions on the continent by investing in blockchain payment solutions. Emurgo Africa has invested in blockchain payment solutions such as Kotani Pay, a Kenyan fintech which facilitates on-ramp and off-ramp processes that enable businesses to connect Web3 payments to local merchants; Fonbnk, a DeFi company powering cross border payments through stablecoin-to-prepaid airtime conversion and Onboard, a stablecoins payment rail that allows fast and cheap cross-border payments. These products contain on-ramp and off-ramp features that allow Africans to switch across various African currencies to make payments.

It is no wonder that Yellow Card, Africa’s largest centralized exchange integrated circle’s USDC on the Solana network to raise stablecoins adoption on the continent for merchant settlement and foreign remittance usage. Its CEO, Chris Maurice had previously revealed that stablecoins account for 95% of transaction volumes on its exchange. It’s important to note that centralized exchange carries the most share of cryptocurrency transaction volumes on the continent, per Chainalysis.

Chainalysis estimates that in 2019, up to $562 million in remittances to sub-Saharan Africa were facilitated like Ripple. Last year, Ripple partnered with Onafriq, Africa's leading fintech company, to support cross-border payments to the UK, the GCC, and Australia. Through this collaboration, customers of PayAngel, Pyypl, and Zazi Transfer can now easily send affordable payments to 27 countries in Onafriq's extensive network, fostering financial inclusion and breaking barriers in international transactions. By utilizing Onafriq's widespread mobile money services and 1300 payment routes in 40 African countries, this partnership will greatly improve financial access and inclusion in Africa.

Many African countries use a traditional payment infrastructure that relies on centralized technology. However, financial service providers face challenges due to the unreliability of these central payment switches. They struggle to handle the increasing volume of digital transactions, often leading to system failures and network downtime. This results in delayed payments and reconciliation problems.

The blockchain's immutable and non-repudiable records can address the issue of payment finality that many centralized systems struggle with. Africa-focused blockchain company Zone operates a decentralized payment infrastructure company which it claims is used by 20 of Africa’s biggest commercial banks, fintechs and OFIs and helps solve their biggest problems including payment disputes and fraud. According to the firm, it processes up to $1 million daily for Nigerian banks.

Data from Chainalysis shows that the cryptocurrency market in Sub-Saharan Africa is driven more by retail transactions compared to other regions, with a significant volume of transactions under $1 million. South Africa has seen an increase in the use of cryptocurrencies for retail payments. For example, Pick n Pay, the third largest retail store in the country, partnered with CryptoConvert to introduce a payment system that allows customers to pay for goods with bitcoin at over 1,500 stores. In September 2023, two major cryptocurrency firms in South Africa, Luno and VALR, also collaborated with CryptoConvert to enable Bitcoin payments at Pick n Pay through their respective apps.

Blockchain payments and cryptocurrency adoption are in their early stages in Africa, but the continent's interest in the technology is rapidly increasing. This trend is creating opportunities for innovators, investors, and customers seeking a smooth financial experience.