Many think it is easier for Kenyans to embrace crypto because of M-Pesa. But, unfortunately, it turns out to be the other way.
When it comes to the adoption of crypto, Kenya is a unique market in Africa and the rest of the world. At the center of that is the overwhelming need in the country to interface with M-Pesa.
The mobile money service facilitates the bulk of transactions in almost every sector of the Kenyan economy. According to the Kenya National Bureau of Statistics (KNBS), the government agency that collects, analyses, and disseminates data, over 90% of the adult population in the country has an M-Pesa e-wallet.
At face value, this exposure of the population to mobile banking might seem like the ideal environment for cryptocurrencies. Indeed, it is the case, but unfortunately, that is balanced out with another force.
M-Pesa could have been a great ally of crypto if those running it did not see it as a competitor, and therefore shouldn’t be enabled to grow. It is M-Pesa, and not the regulator, that killed the first two native Bitcoin exchanges on the African continent.
In 2013, Pelle Braendgaard, a Danish computer programmer, moved to Kenya with a huge dream to interface two fintech technologies that mesmerized him at the time; M-Pesa and Bitcoin. Working with others he met in Nairobi, they launched Kipochi, a wallet, and exchange that could make converting between Bitcoin and M-Pesa fast, secure and convenient.
However, within a year, they had to close down Kipochi after Safaricom, the telco company behind M-Pesa, pushed their payment processor, KopoKopo, to cease the service. While the regulator had given Kipochi a tentative go-ahead, it could not operate anymore without access to the M-Pesa platform.
Pelle Braendgaard, in the recent interview with BitKe, has claimed that the order to deny them access to M-Pesa came from London. Safaricom is part of the UK headquartered Vodafone group.
Two years later, after Kipochi ceased its operations, another local exchange, Bitpesa, had to move its operations out of Kenya for the same reasons. They were denied access to the M-Pesa platform. Today Bitpesa’s core market is Ghana and Nigeria.
The shutting down of these two exchanges illustrates how much hold the mobile money service has on Kenya’s financial sector.
In most countries worldwide, access to bank service, especially for centralized exchanges run by corporates, is critical to their survival. In Kenya, it has access to the mobile money platform M-Pesa.
Even after the exit of exchanges from Kenya and despite its hostility, M-Pesa remains the primary means for converting between crypto and fiat. Today, the trading into and out of M-Pesa happens through peer-to-peer exchanges, particularly Localbitcoins, Paxful, and Binance.
Meanwhile, Kenya remains a significant crypto market on the African continent. According to research by Localbitcoins, it ranks third behind Nigeria and South Africa.
It is important to point out that while M-Pesa is the primary way of buying and selling crypto, it comes with other limitations. In particular, you can’t transact more than US$ 3000 in a day, and a transaction can’t be more than US$1500.
Also, using peer-to-peer exchanges to transact with M-Pesa can be cumbersome in several other ways. For example, it is not a smooth process, especially when you have to actively search and pick the best offers from a list of traders online. Often those you approach decline your business for one reason or another, and you have to continue looking. This is time-consuming and anything but convenient.
There is also a risk of being scammed. Even though the peer-to-peer trading platforms have put in place various security features, scammers are still finding ways to trick and steal from genuine traders.
What about bank transfers?
Using bank transfers seems like an obvious option. Indeed, many of the transactions on Localbitcoins, Paxful, and Binance are settled using bank transfers. However, Kenyans mostly use bank transfers for transactions involving amounts that can’t be transacted on M-Pesa (above US$1500).
But more importantly, Kenyan banks today will block any transaction they believe is crypto-related.
Michael Kimani, a blockchain consultant, a contributor to Coindesk, and one of the earliest Kenyan crypto evangelists, believes that banks take a cautionary note the central bank of Kenya, the regulator, issued in 2015 on bitcoin use very seriously.
“The commercial banks are not actively looking for transactions that are crypto-related to flag, blacklist or block,” he states, “However, if it is so obvious to them that you are sending money to buy crypto or the funds you are receiving come from a crypto transaction, then they have no other option but to flag the transaction. They don’t want to get into trouble with the central bank.”
Michael says he has had issues a few times getting payment into his account because the bank noticed the payment is coming from a crypto entity.
Maybe crypto debit cards.
Kenyans are starting to explore crypto-funded debit cards. This service is handy, especially when one just wants to convert their holding into fiat so that they can spend it.
How this works is that a provider registered to offer this kind of financial service, issues you with a Visa or MasterCard branded debit card. To use it for shopping or making withdrawals at the ATM, you need to make available an amount of crypto in a wallet connected to your account with them.
Every time you make a purchase or withdraw from the ATM, an equivalent amount of crypto is automatically converted into fiat-based on the reigning market exchange rates.
With this debit card, a Kenyan does not need to go through M-Pesa to spend their crypto. Nor do they need to try their chances with the bank hoping they don’t get caught. Instead, they can just walk into any store that accepts debit cards for payments and shop.
Recently I set out to try crypto-funded debit card and see how it works in Kenya. Unfortunately, few companies have been interested in giving the African market this product. Binance, one of the most used exchanges by Kenyans, and Africans, has a Visa debit card, but it is not yet available to Kenyans.
In Africa, the Binance debit card service has been available to users in South Africa and Nigeria. However, for some unclear reasons, as at the time of writing this article, the service had been temporarily disabled in both countries.
Doing some research online, I ran into an entity known as Club Swan, a club that offers various financial services to its members, including crypto use through their debit cards. I applied for their debit card.
The card from Club Swan seems to be treated like any other debit card issued by either a local or foreign company affiliated with Visa or MasterCard.
In my next post, I will describe my experience using the crypto-funded debit card in Kenya.
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M-Pesa Has Stood in Crypto’s Way was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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