After tweeting about his interest to interview an African entrepreneur in the crypto space, looks like Antony Pompliano finally settled for the CEO of Luno, Marcus Swanepoel, to discuss the company’s impressive growth in Africa.
In this interview, Marcus offers some deep insights into the early beginnings of Luno and the reality on the ground when it comes to crypto adoption on the African continent.
“This is one of many myths in the emerging markets – this idea that if you just build, they will come – obviously that is not true and distribution is King.”
– Antony Pompliano
This is a deep, detailed, and insightful discussion that reveals the state of crypto in Africa, the success of Luno, and what other entrepreneurs and brands looking to build on the continent can learn from experiences and success of Luno and its founder.
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Here are some interesting insights by Luno CEO from the discussion:
- When we started out in 2013, we looked at bitcoin and realized, surely, the banks are gonna be interested. We thus decided to build a tool for banks
- We actually built a crypto system fully integrated for Africa’s largest bank where you could actually log in with your customer details on this bank and buy bitcoin, integrated into ATMs, send and receive it
- We built this system with the bank’s compliance teams and the Central Bank of South Africa
- Over the next year, we worked with a lot of big banks on how to settle interbank settlements and how to make trade finance better – all the things we are seeing current blockchain companies trying to do
- We realized that banks are going to take 10-15 years to build something customers are actually going to use
- We launched our own consumer product on top of this product we had built for banks
- The emerging market is a broad category – the difference between Nigeria and South Africa is massive – and you almost forget this if you’re not careful
- South East Asia seems to be 3 – 4 years ahead of Africa in crypto
- Everybody talks about MPESA but this is not something that has been broadly replicated across emerging markets, certainly not in Africa – in fact it has failed in many other countries
- It is easy to latch onto 1 or 2 success stories and then assume that everything else we build is gonna be like that in fintech or crypto
- The biggest challenge in these emerging markets is largely distribution. It is not a product issue
- It is very hard to get to these markets – we are dealing with low trust environments and it takes a long time to build this trust with the consumers, governments, and stakeholders
- In the beginning it was all about product, but we are now at a point where as long as you have an MVP, the game is gonna be won on distribution
- We have to acknowledge that a lot of the growth and traction we have seen in our industry wasn’t because we had the most amazing product, it was because the media wrote about crypto the whole time
- If you are building a crypto remittance product today, your competitors are the Western Unions, TransferWise of the world because they are distribution camps – consumers are not gonna care how the money moves
- If you’re targetting remittances, you are building a remittance company, which means you will have to raise capital to compete with remittance companies that have raised millions of dollars and have licenses in all these markets – you are 90% playing a distribution game
- There is this western myth in the crypto industry that people don’t trust their governments in emerging markets. The problem actually is that so many people trust their governments – this is the critical mass that keeps these governments in power. People trust and love them
- If the whole industry collapsed tomorrow and the only thing it did was to educate people about money, its a massive success story
- Education about crypto in emerging markets is gonna take a generation – its not gonna take 2 or 3 years
- There is this myth that due to hyperinflation, everybody is gonna run to bitcoin – on a macro purely intellectual level, that is true – but the alternative to that is actually the U.S. dollar and after that gold, and way after, something like bitcoin
- We’ve seen in some countries where there is deep currency depreciation an increased activity of people buying crypto, but it happens in very small amount of cases – most will go to the U.S dollars and gold
- In South Africa, our biggest market, about 80% of our users only use mobile
- In a lot of countries in Africa, the regulatory regimes are not adequate yet, not just for crypto, but also for mass market finance consumer products – there is no economic support or need for this
- In the US or UK, you can, for example, apply for a challenger bank license and its very easy to become a remittance company – in a lot of these African countries, these finance product classifications don’t even exist
- You can rephrase distribution as building trust in these markets – the trust equation when it comes to money is very complex
- If you can build trust in these markets, you can broadly leverage this – this is the opportunity in emerging markets once you cross the trust threshold
- Centralized vs Decentralized Finance (DeFi) conversation is still 2-3 years away in emerging markets
- In almost all countries in Africa, you have to report how much money you send and receive, in and out of the country – the reality now is capital controls are the rules of the game in these countries
- The risk for most emerging markets is the perception that crypto is used, or could be used, to move money in and out of these countries – If you see the kind of regulatory actions in these market, if they are not positive, then its usually because of this factor
- The de facto regulators in our world has actually been the banks – they set the rules of derisking since they are afraid of getting fined
- The big markets to watch in Africa are Nigeria and South Africa – they are by far the biggest markets by any measure in terms of population, GDP per capita, and crypto transactions reflect that
- Only 10% use crypto to move money across borders, and this is largely for convenience, not to navigate around capital controls – the rest, 90%, use it for investments, store of value, and speculative trading
- It might not look like the most exciting thing, but this idea of buying your first bitcoin is still a problem that has not been solved in our market
- A lot of what we are doing over the next 12-50 months is continuding to address the problem of where people go the first time – all the way from the top brand mind building and eduation through the funnel, to trust you with their money, KYC, and so one – its a crucial problem to be solved
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RECOMMENDED READING: [WATCH] Crypto Significantly Threatens the Safety and Soundness of Nigerian Financial System, Says Governor, Central Bank of Nigeria
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