African banks have been late to the fintech party, but after leaving huge swaths of the population to get their financial services from telcos (most famously Safaricom’s M-Pesa in Kenya), banks here are increasingly seeing the continent as a testing ground for new financial technologies like bitcoin and the blockchain.
Blockchain is the hot topic at shiny new fintech innovation hubs like Rand Merchant’s AlphaCode in Johannesburg, which hosted the Afrikoin conference last December and is running a fintech accelerator this year, and Barclays Rise in Cape Town, which hosted Fintech Africa’s blockchain conference on Feb. 25. Blockchain is the “distributed ledger” that keeps track of bitcoin trades around the world. In the simplest of terms, the promise of blockchain is the tracking and transparency of all transactions, tamper-proof because no one transaction is kept in any one place, but stored on computers all around the world.
Barclays is working with several blockchain startups across the globe but sees special application in Africa. “Blockchain could be the most significant social and political innovation to impact Africa in 100 years,” says Barclays’ Head of Open Innovation Arian Lewis.
A digital economy based on blockchain and bitcoin could hold African leaders to a new level of accountability. “If digital currencies become adopted in African nations, it could significantly reduce corruption from government; it could provide transparency and control to every day citizens.” Bitcoin itself, he contends, which has inherent and tradeable value, has no counterparty risk, making it especially appealing in Africa.
Standard Chartered, is getting into the game. In mid-2015, its chief innovation officer noted the potential for blockchain as a “force for good,” positing that blockchain could dramatically cut costs on financial services like remittances, credit cards and money transfers, thereby opening them up to those who can’t currently afford them (aka most Africans). On a continent with 54 countries, using bitcoin as the interoperable system currency to convert between, say Kenyan shillings and naira or rand could make cross-border trade infinitely easier.
The Savannah Fund invested in Zimbabwean bitcoin startup BitFinance to test that thesis, as detailed in a just-released Stanford Business School case study. The collapse of the country’s national currency has given rise to several currencies in circulation, including US dollars and now the Chinese yuan, making it an ideal country to pilot bitcoin as a back-end trading currency.