Kenya-based Kotani Pay has received USD 2 million to simplify cross-border remittances in Africa with blockchain and stablecoins. One of the most praiseworthy aspects of cryptocurrency is its potential to enhance financial inclusion for underserved individuals, and Nairobi-based Kotani Pay, a cryptocurrency payments startup, shares this vision by aiming to simplify cross-border remittances for the vast underbanked populations in Africa.

The startup, launched in 2021, has set its sights on addressing a critical issue affecting the livelihoods of millions in countries like Kenya, Ghana, Zambia, and South Africa. Kotani Pay recently secured USD 2 million in pre-seed funding led by P1 Ventures, with participation from various investors including DCG/Luno and Flori Ventures. Their expansion plans include Rwanda, Senegal, Ivory Coast, Tanzania, and Nigeria.

Significant remittance flows According to the World Bank, the Sub-Saharan region is projected to receive approximately USD 55 billion in remittances in 2023. In some African nations, remittances constitute as much as 20% of the GDP, according to United Nations data. Despite their significant role in the African economy, remittances face a formidable challenge: exorbitant transfer fees, which can reach up to 20% of the transferred amount in certain countries.

Several factors contribute to these high costs, including an underdeveloped banking system, information imbalances, and currency fluctuations. In many instances, families in these regions lack access to bank accounts or official identification required to open one. Recognizing these hurdles in traditional money transfer methods, Kotani suggests employing blockchain technology to facilitate remittances to Africa, particularly by utilizing stablecoins—cryptocurrencies tied to fiat currencies like the USD—to move funds internationally at a fraction of the conventional costs.

Connecting blockchains and local networks Kotani has developed a middleware solution that connects blockchains to local payment networks, many of which enable users to send money via feature phones without internet access using a communication protocol known as Unstructured Supplementary Service Data (USSD). Kotani primarily offers its technologies as a B2B solution, bridging the gap between crypto platforms' smart contracts and mobile money APIs. Some of their major crypto partners include Yellowcard, DCG, Fonbank, Celo's Valora, Mercy Corps, UNICEF Crypto Innovation Fund, and Stellar.

The company also allows users to convert their local currencies into USD, a feature initially tailored to businesses but with potential future availability to retail users once the necessary licenses are obtained, as stated by the founder. This process is made possible through a network of liquidity providers established through partnerships with local forex services and money transmitter operators. How does it work? The majority of transactions on Kotani, amounting to USD 23 million thus far, consist of inbound payments.

Due to its enterprise focus, the platform's average transaction size is USD 150,000. Like other payment infrastructure providers, Kotani generates revenue through an interchange fee, typically averaging around 1% of the gross transaction volumes, according to representatives. In addition to their existing services, Kotani plans to introduce other products such as Reconset, a Reconciliation-as-a-Service offering, and Money Ledger, a Ledger-as-a-Service solution, following their acquisition of the Nigerian startup Fuhlstack.

Given the potential impact on foreign currency reserves, Kotani is likely attracting regulatory attention. Representatives acknowledge that central banks in the countries where the company operates already monitor these transactions since they oversee all termination points for banking and mobile money services. Kotani collaborates directly with local mobile money operators or operates under the supervision of regulated partners to ensure compliance.

Moreover, central banks are showing enthusiasm for these use cases and getting involved in the development of Central Bank Digital Currencies. .