EPISODE 4
[00:00:00] Michael Kimani: Africans have been known for P2P trading of digital currencies from the earliest days of mobile phones. And I believe this is a key part of our culture and how we do things. People come under economic hardships. They start looking for alternatives for commerce."
My thesis really has always been that when people come under crisis or when the state has failed, yeah, people start looking for alternative ways of commerce. And I think, in the past, it was things like cash and airtime. But today in 2023, the options that exist for people are digital currencies like Bitcoin and cryptocurrencies. That's the real story here for me.
[00:00:45] Justin Norman: Welcome to crypto@scale. I'm Justin Norman. And in today's episode, my co-host, Gwera Kirana and I are exploring Africa's peer-to-peer story.
African markets are inherently peer-to-peer. And peer-to-peer markets, whether formal digital marketplaces or informal trading groups on WhatsApp and Telegram, have played an important role in the adoption of crypto across African markets.
According to Chainalysis, the transaction volume from peer-to-peer exchanges in sub-Saharan Africa more than doubles the share of the next closest region. And indeed, this peer-to-peer nature of African markets extends beyond just crypto, from community lending to the airtime trading and user behavior that predated formal mobile money.
To tell the peer-to-peer story and to interrogate this dynamic further, we're joined by two guests today, Michael Kimani, the co-founder of Fonbnk, and Emmanuel Babilola, or "Babz", the CEO of Bundle and the director of FIAT at Binance Africa.
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crypto@scale is not investment advice and is for entertainment purposes only.
This episode of crypto@scale is brought to you by Ripple. Anyone who sent money across borders to or within Africa knows how cumbersome expensive and slow the process can be. When it comes to remittances, sub-Saharan Africa remains the most expensive region to send money to. And for businesses, trapped capital, slow settlements and high failure rates pose major challenges.
The current financial infrastructure just doesn't work very well for the modern global economy. Ripple believes that crypto-enabled payments can help. Ripple's payment solution, on-demand liquidity, enables organizations to settle global payments in real-time at a fraction of the cost and without tying up working capital and destination accounts.
By leveraging the digital asset, XRP, as a bridge currency, funds can be sent and received in local currency on either side of a transaction. And across Africa, Ripple is partnering with local financial institutions and fintechs to bring the benefits of better cross-border remittances to the region.
To learn more and get in contact with the Ripple team, head over to ripple.com.
[00:02:52] Justin Norman: Michael, I want to start with you. And thank you for being here with us today. Can you just tell us a little bit about yourself and what you're building at Fonbnk?
[00:02:59] Michael Kimani: Yeah, thanks for having me, guys, on to talk about my favorite subject. My name is Michael Kimani and I'm a co-founder of Fonbnk, F-O-N-B-N-K. Fonbnk is a crypto Web3 on-ramp company. We on-ramp users from developing markets, such as Africa and Latin America, into Web3. And we do this in a unique way by enabling them to convert what they have on their phones, prepaid airtime, from any one of their carriers into USDC and other crypto. This is how we are able to on-ramp a lot of the unbanked and underbanked users in developing markets into the Web3 economy.
[00:03:42] Justin Norman: Thanks, Michael. And, Babz, it's good to have you here with us as well. Can you tell us a little bit more about your background and what you're working on with Bundle? And I know as the director of FIAT with Binance Africa as well?
[00:03:52] Emmanuel "Babz" Babilola: Yeah, thanks, Justin. I'm pleased to be here. I think from my side, generally been in the industry for close to six to seven years now. And as you mentioned, Binance since 2019. I think our work has really been around just increasing the adoption of crypto across the continent.
Back when we started, if you did a meet, up you would have like just two, three people coming in to talk about crypto. Today, reverse is the case, right? Crypto is the mainstream when it comes to like tech in Africa. You can have a tech conference today without mentioning crypto.
In my time, we've basically onboarded over a million people, VR, master classes, education initiatives, hackathons into Web3 as we call it today. At Bundle, we are basically a social payment app for cash and crypto. Our focus is really around building more and more easier ways basically for people to access crypto.
And we've done this with Cashlink. Cashlink is the first decentralized peer-to-peer on an off-ramp network. We have over 3,000 mothers and fathers basically helping people on and off ramp post the crypto ban that we experienced across Africa. Today these guys are basically helping people access crypto in a way that has never been done before. That's something that we are also very passionate about.
At Bundle, we are also bringing in a lot of social components to help people interact even while learning on their crypto journey. That's basically what I'm working on.
[00:05:24] Justin Norman: Thanks, Babz. Gwera?
[00:05:27] Gwera Kiwana: Cool. Now let's get into it. We'd like to kind of talk about the P2P story of Africa. And that really kind of aligns and funnels really nicely into the P2P story of crypto in Africa and really the mainstream adoption of crypto. But let's kind of take a look at like history.
Michael, you've written a number of pieces on your blog about the early days of airtime currency trading, and agent networks– and the way that that user behavior, how that's been historically and how it resonates with what we see today.
Michael, in your words, can you just tell us what is the P2P story that you saw in the early 2000s with airtime? And how does that correlate to what we're seeing now with crypto? Can you just take us on a bit of a history lesson?
[00:06:04] Michael Kimani: Sure thing. I think in the last 20 years, that's when mobile phones have really taken off in Africa. And these mobile phones – to use these mobile phones, you need something known as prepaid airtime. It's like call units. It's how you pay for services on this mobile phone. And this is often forgotten. But this is probably the first type of digital currency that people were accustomed to.
Yeah. You have to go to an agent somewhere, take out some cash and buy a scratch card or a voucher and top-up your phone and then you're able to make phone calls. This is as far back as 2007, 2005, 2010, the early beginnings of what we call the digital economy.
And one of the interesting things, the interesting stories are found out from some of my mentors who are some of the earliest builders of telcos systems in Africa, is that some interesting phenomenon started occurring when these agents who sell airtime, some people would approach them and request to send money across a remote area. They propose to use airtime.
Purchase some airtime. The agent transfers this airtime from a city center into the rural area. And then another agent enables a cash-out to a recipient. And this is what's known as the remittance.
And this was the earliest beginning of what became to be known as mobile money. What we now consider the biggest payment, digital payment, revolution in Africa, mobile money.
Africans have been known for P2P trading of digital currencies from the earliest days of mobile phones. And I believe this is a key part of our culture and how we do things. And if you look at the history – for example, if you look at the history of Nigeria during the structural adjustment programs in the late 80s and early 90s, we see that when people come under economic hardships, they start looking for alternatives for commerce.
There's a paper written by a couple of authors that documents by Yahaya Hashim. It's known as Cross-border Trade and the Parallel Currency Markets in West Africa. A case study from Kano, Nigeria. And in this paper, they outline how people turn to informal currency exchanges when the economy was standing bad and they needed this for cross-border exchanges.
My thesis really has always been that when people come under crisis or when the state has failed, people start looking for alternative ways of commerce. And I think in the past, it was things like cash and airtime. But today, in 2023, the options that exist for people are digital currencies like Bitcoin and cryptocurrencies.
I think the real thesis here is how do people maneuver during crisis, during economic hardships when looking for alternative ways of making payments for the sake of trade and commerce? That's the real story here for me.
[00:09:07] Emmanuel "Babz" Babilola: Yeah. What Michael said, completely agree. I believe that, even today, what we are seeing with crypto and the adoption it's getting even in Nigeria and across Africa is largely people trying to exit from the current failed financial systems as it were. That's the whole idea of what we do. That's why people actually use these alternative services. I just wanted to just touch on that as well.
[00:09:37] Justin Norman: Yeah. Thanks, Babz. And based on public blockchain data, we can see your role at Binance and obviously building a social payments app for crypto with Bundle. We can see Binance is doing meaningful peer-to-peer volumes as well.
And I would just be interested if you can speak to a little bit more of what you're seeing from a user behavior perspective, from a peer-to-peer perspective, the sort of uptake in this as a sort of payments method and as a way as you said to solve existing problems with the current fiat ecosystems. What sorts of things are you seeing across Bundle and Binance?
[00:10:11] Emmanuel "Babz" Babilola: It's clear that the user behavior is changing. Before now, we had direct channels to banks and PSSPs that allow people to do on and off-ramps easily, right? And that ushered in I think the first – it helped with the fresh rush of users. I think that was back in 2019, early 2021.
After the crypto ban, again, we saw African users revert back to our first nature, which is P2P. P2P is natural to Africans as Michael had earlier mentioned. When that ban happened, obviously we started seeing a lot of innovations around P2P and how people are now – I think even if there was a change in regulation in Kenya and Nigeria and all these countries where people can't have direct access for like crypto exchanges, I think people will still use P2P even though they have a direct bank channel.
Overall, the behavior has changed, right? People now feel more comfortable trading directly with one another. And even the whole P2P infrastructure across Africa has also improved, right? It's a lot more safer. It's a lot safer now because the escrow systems, the risk controls, and I know that has been kind of like built over time. At the end of the day, we are at a point where P2P is now basically here to stay. Within crypto in Africa, we would hardly ever mention crypto without talking about P2P.
[00:11:53] Gwera Kiwana: I like that you've – yeah, you've mentioned that we cannot talk about crypto in Africa without talking about P2P. But also, just to bring us back, we can't talk about the financial inclusion story in Africa without talking about mobile money, right? And if you go further back, just to reiterate what Michael said, the initial exchange of value that we've seen across the continent and the way that it's been adopted was really with airtime in the beginning, right?
P2P, people sending money to each other via airtime. And then that evolved into mobile money. Some of the architects of mobile money to this day are still in this space. Dare of MFS Africa, he is one of the architects of mobile money. And he's moved on into evolving payments across the continents. And now crypto, right? We've got crypto. Binance is really writing that story. And so is Fonbnk as well in really interesting ways.
Let's kind of talk about some of the challenges that we see with P2P. Whilst we've seen crazy uptake across the continent, we still have some challenges that exist and kind of everything ranging from trust. In Africa, we live in low-trust economies. People need to be able to trust, I guess counterparty risk in some ways, liquidity.
Is there liquidity in the markets? The price stability of various cryptocurrencies? Can you kind of outline some of the challenges that you see, I guess, that we're still really struggling with and grappling with when it comes to P2P and that are hindering P2P in Africa right now?
[00:13:13] Emmanuel "Babz" Babilola: Yeah. As I mentioned before, obviously, we've come a long way, right? But as you said, there are definitely going to still be challenges. Take for instance today, P2P markets are taking a hit from – like in Nigeria, from like the whole cashless policy going on. Where it's a lot more difficult now for people to access cash. Aand there is huge pressure on the banking system. Everybody is making transfers now. And that's leading to a lot of failures.
Today, because P2P is highly dependent on the local banking infrastructure or the local mobile money infrastructure in Nigeria specifically, because the banking system is having issues today, this is an existing underlying issue. Because P2P is hugely dependent on the local banking/mobile money infrastructure. That's one.
There's obviously the second issue of scam, right? Africa is high-risk generally. And that's why, obviously, a lot of these international wallets, like PayPal and a couple other ones, restrict certain African countries from accessing their resources and their platforms.
We still see that in P2P where users get scammed when they try to make a transaction, right? But [inaudible 00:14:26] overtime has greatly reduced. More and more users understand that the whole idea of having an escrow is to guarantee that transaction. To understand not to release the transaction up until they confirm it in the accounts, right?
In fact we had scams where people were sending fake SMS alerts to people to say, "Oh, you've received the money," when they haven't, right? Users are becoming more aware because of a lot of educational efforts that have been put into getting people to know what are the latest scams. How to avoid them? How to protect yourself? Those kinds of things. That's another issue.
And then I think a third issue you will see with P2P is, for new user onboarding, for bringing in new users into the industry, it's a bit harder, right? Imagine first time you're hearing about crypto and you want to buy crypto. And then at that point the first thing they're telling you is you have to buy from someone you don't know on a P2P platform, right? Even though they still go ahead to buy and it still obviously works, there's that friction there.
[00:15:34] Justin Norman: I think that's a perfect segue, because what I find interesting, and to turn to you Michael, about Fonbnk bank is your unique view on how to on-ramp users into crypto with a specific focus on airtime. And I'm wondering if some of these considerations that Babz is talking about, the difficult UX and the inherent trust or low-trust in peer-to-peer. And then, obviously, going fiat to crypto, versus airtime to crypto. If those are some of the considerations behind the sort of product design of Fonbnk. What do you think as it relates to challenges for on and off-ramp? What do you think about some of these challenges perhaps through your Fonbnk lens in particular?
[00:16:12] Michael Kimani: Yeah, I'm definitely with Babz on the fact that we have a new technology here, which works a bit different. I think the escrow capability of Bitcoin transactions or crypto transactions is really powerful. It's something that doesn't exist in the systems are used to such as mobile money or airtime without requiring some intermediary. But that means, also, this is a unique kind of service. We usually have to also go through like training programs for the people who are part of our marketplace, the market makers and the verified market makers.
And we've recently designed our program known as the land to earn in partnership with Crypto for Good Fund, Mercy Corps. We are always trying to address this issue of educating them on how to use these new technologies.
I think you're right about us as Fonbnk taking a unique approach to unlocking this P2P opportunity. I like to think of Fonbnk as a micropayments marketplace for crypto. If you go to somewhere, like Binance for example, I think the minimum you can buy there is like $10 or higher. And if you look at the volumes there, they are massive. There are people doing volumes in the thousands of dollars. Yeah.
Whereas if you come to somewhere like Fonbnk, it's really for micropayments. It's a $1 micropayment, half a dollar. It's really accessible to anyone who's familiar with airtime. And that has really made our product a bit more relatable. Our product is built on top of a phone number identity and a SIM card. Users don't really have to deal with like a crypto address, a long complex crypto address. I think UX, as Gwera has mentioned, I think those types of adjustments are going to help us get to more and more users. I think we're still early.
Maybe I wanted to mention a bit about price stability. I think the liquidity of Bitcoin has always been successful because Bitcoin has available liquidity almost everywhere. But as you go down the coin market capitalist, the liquidity of these tokens becomes scarce. Yeah.
But something that has happened is I think the stability of US dollar-priced stable coins, such as USDC and USDT, has really grown. And I think it's because of this price stability element. Yeah. People are comfortable holding some of their value in dollars because it's going to be the same tomorrow, the day after.
And for people like the traders, the market makers, if they are holding these stable coins as inventory, then it's not as volatile, and they can hold it for much longer. I think that's how some of these inherent challenges are being addressed by market forces.
[00:18:49] Justin Norman: I think that's also another great segue, Michael. Just thinking about sort of what the future looks like. I'm sort of curious if we're meant to see or we expect to see just a steady increase in peer-to-peer volumes in African markets or if with this sort of perpetual question around user experience if centralized exchanges or DEXs are going to chip-in to payments volumes. Or even what we should expect or what we want to see in this context knowing the uniqueness of peer-to-peer as it relates to African markets and user behavior.
Michael, just sticking with you, what do you think the future should look like or ought to look like? Or what do you hope that it looks like as it relates to crypto on and off-ramps and onboarding and the role that peer-to-peer payments plays in all of that? Or just peer-to-peer in general?
[00:19:34] Michael Kimani: Yeah, I think I'm really looking at the economic situation across African markets right now. I don't know if I'm the only one who sees this. But to me, it looks like the next three years, three, four years, is going to be really tough. Our governments are under pressure from the rising cost of the dollar. And this trickles down to the common people.
Generally, there's economic hardship everywhere right now. And for me, I think that's bullish for crypto. I think, like we said earlier, when the state fails, when the currency of the state fails, people are going to start looking for options. And right now, we have a whole generation that's been on mobile for the last 15 years on smartphones. I think it's only natural that we'll see some of this pressure push people into exploring options.
In fact, in places like Kenya, the Kenyan government is already starting to talk about taxing mobile money transactions. Yeah. And it's really making people to consider options. What are options that are a bit more private? I think I'm generally bullish, I see the P2P markets are going to grow over time. And I think the economic conditions are going to propel that momentum.
Regarding whether we need better UX, better DEXs. I think, for me, what I'm seeing is the use cases are missing. What I'm really hoping to see is like Web3 takeoff. Something like Web3 gaming. I'm really looking for use cases that can drive people into this blockchain ecosystems, whether it's to play games or to some type of activity. Because that's the type of activity that's going to start getting people into crypto without necessarily – I'm not trying to speculate on a crypto coin, you know? I'm trying to play a game or something. I'm really looking for that. And that's going to help drive more on-ramping into these ecosystems.
[00:21:24] Justin Norman: I think we're not allowed to talk about speculation on this podcast. That's going to be one rule.
[00:21:27] Gwera Kiwana: Yeah, the one rule is we don't talk about the price of Bitcoin. But I guess I think we're all in agreement. We're all quite bullish on the future of P2P and future of crypto on the continent. But then we've touched on the UX piece, and we've touched on those liquidity issues, on-off-ramp issues, right?
Babz, I'm going to come to you. Who do you think is going to be onboarding the next billion users? Is it going to be the centralized exchanges who have already done a pretty good job with this? Are we going to see de-gen behavior? Like people going on to decentralized exchanges? Are we going to see airtime companies or telcos maybe even adopt this? What do you see the future of P2P money movement across the continent looking? Who is going to be the architect of it?
[00:22:07] Emmanuel "Babz" Babilola: Very good question. My stand, I think it should be a healthy mix of both, right? Crypto regulation is becoming more and more a big deal, right? And we've seen banks yanking of crypto platforms as we've seen like with Silvergate and signature banks recently. We're seeing the SEC trying to get more involved.
Things are going to get a lot more structured very soon with crypto. And obviously, that's a good thing. Because you can't have mass adoption, which is what the question is about, without government say so, right?
The government is actually pretty powerful. And usually when the government says, "Oh, this is good. Let's use it." People tend to use it, right? Because of regulation, mass adoption is definitely going to come. And a lot of that will go through the centralized platforms.
However, there are still going to be a huge majority of people who prefer privacy and who wants to use decentralized services to do business, right? To trade, to send money and to do exports. Do whatever they want to do. And decentralized platforms are obviously going to be very appealing to them.
We have several hybrid projects like Fonbnk, Cashlink, that basically are kind of like a healthy mix of both. Generally, long-term, I think that the next billion users from Africa would be kind of like a very good split between DeFinance based off of user preference, right? More P2P is going to continue to play a huge role as regards to that future.
[00:23:55] Justin Norman: Well, thanks, guys. I think one question that we want to do at the end of every episode or towards the end of every episode is just ask for recommendations. Generally speaking, for our audience, where can people go to learn more about peer-to-peer crypto in Africa? Michael, I'll start with you. Do you have certain recommendations for people to go and learn? Maybe not even necessarily about peer-to-peer, but crypto in general? Where would you recommend them to go check out?
[00:24:20] Michael Kimani: I think, for me, I'd recommend people go back to history, like back in time, and explore some of their patterns that have existed in the past around how people exchange money, exchange money during crises and such. I'd recommend like a paper by Peter D. Little who wrote about how Somali people were able to move – Somali traders were able to move trade and money across borders during the war despite the collapse of the central bank.
I think another thing people should look into is – there's lots of stories out there from researchers around how people used airtime during currencies such as in South Sudan, in Zimbabwe, in the Congo. I think I'd ask people to go back into history and look at how Africans interact with money to understand how they might interact with digital currencies like crypto in the future.
[00:25:15] Justin Norman: The one thing we're learning is nothing is new.
[00:25:19] Emmanuel "Babz" Babilola: Yeah.
[00:25:19] Justin Norman: Right? I think a lot of crypto folks are learning that the hard way, is that it's all the same and it's happened before.
[00:25:26] Emmanuel "Babz" Babilola: History is a very, very, very, very, very powerful teacher. Either you learn from experience or you learn from others' experience.
[00:25:33] Justin Norman: Babz, what about you? Where would you recommend people go and learn more about peer-to-peer and just crypto in general?
[00:25:38] Emmanuel "Babz" Babilola: I think one of the things that we've been able to do is really prioritize user education, right? And that's why we've created hundreds of hours of resources for this. If you want to learn about crypto, check out Binance Academy. You would find very useful information as regards to P2P, as regards to crypto, that would help you on your crypto journey. That's my top recommendation to you.
[00:26:07] Justin Norman: We'll link to all of that in the show notes.
[00:26:10] Gwera Kiwana: Cool. I'll wrap up with my own recommendations. For those who – you know, I think a lot of our listeners are actually like nerds who are willing to dive into the numbers. I'd recommend looking at Chainalysis. Aa report released by them at the end of last year regarding the basically trends that they're seeing in adoption of crypto. There's an entire section on Africa that is – on the global South really, but on Africa, that is really fascinating.
I think Nigeria and Kenya in the top 20 for what they call retail payments, which is usually P2P. If anyone is interested, like I'd say, dive into that data. I think they have links as well to on-chain data as well that is publicly available. That's my recommendation.
But, yeah. That wraps up today's discussion. Thank you so much for joining Justin and I. Where can people find out more about you and what you're up to? Michael?
[00:26:59] Michael Kimani: Yeah. Right now I'm working on two projects. I'm with Fonbnk. They can check us out on f-o-n-b-n-k.com. Fonbnk.com. I think all our links are there to our social, to our app as well.
For myself, you can check me out on pesa_africa on Twitter. And I'm working on some projects, some exciting projects in East Africa around community building with the Blockchain Association of Kenya. I'm always tweeting what I'm working on. Follow me there.
[00:27:28] Gwera Kiwana: Thank you so much. Babz?
[00:27:29] Emmanuel "Babz" Babilola: Yeah, I'm mostly active on Twitter as well, Emmanuel Babzz. You can follow me there to catch up on stuff we're working on. Also, Bundle. Bundle is Bundle Africa on Twitter and all social media platforms as well. There's Cashlink. Cashlink is basically, as I said earlier, a decentralized on and off-ramp platform that is fully functional in Nigeria, Kenya and Ghana. You could also check it out at Cashlink HQ.
And also, of course, Binance Africa is part of my key focus now on helping building out payment reels across the continent. That's also something that is very, very interesting.
And if you're based in Côte d'Ivoire, Mali, Senegal, if you check now, you can use some of those channels that are there to basically deposit and withdraw crypto. And then lastly, there is a new initiative coming up for Digital Currency Coalition. Made up of basically all the exchanges. Operate all the exchange operators in Nigeria. And we are basically trying to expand that across Africa. Maybe Michael will tell you about that later. That's something that is also happening as well. It's still early days. And yeah, those are pretty much it.