East and Southern Africa are two of the regions on the African continent experiencing the most crypto adoption.
According to a 2021 report by Chainalysis, a blockchain analysis firm, Kenya, Tanzania, and South Africa ranked in the top twenty countries with the most crypto trading activity in the globe.
It also happens that these two regions have some of the most developed financial infrastructures and systems on the continent. According to a World Bank report, the population of Mauritius, an island nation in the Indian Ocean, leads the continent on bank account ownership at 90.53%.
In second place is South Africa, with 85.38% of the population having a bank account. Meanwhile, Kenya has led the globe in leveraging the delivery of financial services through mobile phones.
In 2022, over 90% of Kenyan households will have at least one mobile wallet through which they make and receive payments, save and access credit. As a result, Kenya has the third highest bank account ownership penetration on the continent at 79.2%.
Crypto Users in the Regions Still Struggle
The improved access to financial services in the regions has not translated to a better experience for crypto holders when they decide to cash out. Indeed, in some of the countries in the region, that has turned out to be a huge impediment.
For example, because most of the payments in Kenya are processed through M-PESA, a mobile money service, exchanges that have attempted to set up shop in the country have had to shut down because they cannot get access to M-PESA Application programming interfaces (APIs), a highly critical component for any business entity that needs to process financial transactions.
The telcos behind mobile money services are generally highly cautious about how the regulators might interpret their support of transactions on crypto exchanges.
Meanwhile, commercial banks in the region have been a little hesitant too to facilitate crypto-related transactions. The reasons for this are diverse.
For example, South African commercial banks are concerned about risks of money laundering (ML) and terrorism financing (TF). That is despite being asked by The South Africa Reserve Bank (SARB), the financial regulator, not to cut relationships with the crypto asset service providers (CASPs)
In other countries, the reason is that the regulators have given clear directions that financial service providers should not facilitate crypto transactions. The Central Bank of Kenya (CBK) has warned commercial banks against providing support to crypto enterprises. That has resulted in bank accounts being shut down whenever they are suspected of being involved in crypto-related transactions.
It is important to point out that while crypto users in the other countries in the two regions also face the same restrictions, they also have to contend with other challenges. For example, Tanzania and Mozambique struggle with low financial inclusion, and Zimbabwe has continued to deal with high inflation and an unstable national currency.
What Options Exist?
Regular Exchanges
A few crypto users in the region do use regular centralized exchanges to cash out. However, in most countries, there are no such local marketplaces that are reliable, as regulatory approval does not come easy, and the existing financial system is often hostile. Those who choose this option often must sign up on exchanges based in North America, Asia, or Europe.
The primary challenge in using these exchanges is adding local bank accounts and payment options. Most of them work better with American or European bank accounts, which are not easy for someone based in Africa to get.
Peer-to-Peer (P2P Exchanges
Peer-to-peer exchanges are the most accessible to crypto users in East and Southern Africa, and indeed the rest of the continent. According to data from Usefultulips, an online tracker of P2P exchanges, between October 2021 and October 2022, South Africans traded crypto worth $118 million on LocalBitcoins and Paxful. Kenyans traded crypto worth $122 million on the two exchanges in the same period.
Only Nigerians in Africa traded more than these two countries. The traders in the West African country transacted crypto worth $635 million.
The P2P marketplaces match sellers and buyers of crypto and provide tools for them to transact directly with one another. This arrangement creates leeway for cashing out even in countries where regulators or financial institutions are reluctant to support crypto transactions.
The P2P platforms facilitate traders to decide the channel through which to send the fiat component of the transaction. For example, in Kenya, traders can choose to use M-PESA as individuals. That means there is no corporate entity that has to face the regulator and the primary service provider for transacting crypto.
Weaknesses of P2P Exchanges as a Crypto Cash-Out Option
The P2P exchanges have their weaknesses though. The most notable include the following:
- It can be a little difficult, especially for a non-tech-savvy person to buy and sell on the marketplaces
- It takes unnecessarily long to complete a transaction. This is in part because you have to find someone online willing to accept the exact offer you have. Often it happens that you need to initiate a cashout process several times before you are successful
- Users are susceptible to theft and scams. Indeed, some have learned how the system works and can easily trick others into releasing their crypto funds before the fiat payment is complete
- It is often difficult to find a trader willing to buy or sell significantly high amounts of crypto. If you want to offload up to, say $1, 000 worth of crypto, you will likely not face significant challenges. On the other hand, it can be extremely difficult, and in most cases impossible, if you are targeting a volume exceeding $10,000
- The fiat payment channels have low transaction limits in most countries. For example, M-PESA, the payment method that supports most transactions on peer-to-peer exchanges in Kenya, cannot process more than Ksh 150,000 (about $1,400) per transaction. Also, the payment service cannot process more than Ksh 300,000 (about $2,800) in a day
- Meanwhile, bank transfers exceeding $10,000 must be explained to the bank. If the bank is not satisfied with the reasons provided for the transfer, it has to report it to the regulator. If it is discovered that the transaction is crypto-related, the bank can easily shut down the account
Crypto Debit Cards
This is turning out to be the most convenient option for cashing out crypto in East and Southern Africa.
A debit crypto card is a payment card supported by the mainstream payment rails, particularly Visa and MasterCard, and can be loaded using crypto.
In the backend, a crypto debit card is also supported by an exchange, which processes the conversion into and out of fiat currency. In particular, the card is loaded using a wallet linked to the exchange. And with that system in place, the holder can easily use the card to pay for goods and services in any store that accepts Visa and MasterCard.
The merchants don’t even need to know about the existence of crypto.
The holder can also withdraw from local ATMs as they do using a payment card issued by a commercial bank.
An example of a crypto debit card that works in East and Southern Africa is ClubSwan. This debit card comes with USD, GBP or EUR fiat accounts. The holder can receive international fiat payments into either of these two fiat accounts besides them facilitating moving into and out of crypto.
The bank accounts are provided for by a legally registered, licensed, and regulated financial institution in the UK.
Advantages of Crypto Debit Cards
Some of the advantages of using a crypto debit card include the following:
- It is user-friendly – You don’t need much technical knowledge to process transactions. You initiate the loading of the card through an easy-to-use online interface. Whenever you have a challenge, a card like the one issued by Clubswan comes with a concierge component
- The transactions are completed in a very short time. Indeed, it is almost instantaneous
- The card holder is protected from scamming schemes. They don’t have to deal with third parties who might attempt to steal from them. Of course, standard security precautions, such as protecting your logins and implementing 2-factor authentication, apply
- The card allows relatively high limits. For example, Clubswan has a $15,000 daily transaction limit. The daily ATM withdrawal limit is $1,500.
- A crypto debit card is an additional option, especially if you frequently travel. If your other payment channels fail, this can be what saves you from a tricky situation
It has become easy and fast to apply for and have crypto debit cards like the one issued by ClubSwan delivered to you in East and Southern African regions.
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