Crypto banks on USSD solutions to build financial inclusion

Sunday August 27 2023

Latest statistics from the Global System for Mobile Communication Association show that as of 2021, only 49 percent of phones used in Sub-Saharan Africa were smartphones, although this is projected to rise to 61 percent by 2025. PHOTO | SHUTTERSTOCK


Merchants of cryptocurrencies are increasingly adopting access tools that will not necessarily need the internet in a bid to reach out to the unbanked but potentially useful clientele.

These changing innovations may see new customers jump on the bandwagon of cryptos using simple quick codes that allow use of the digital assets without the internet, smartphones or digital sophistication.

The new innovations are utilising Unstructured Supplementary Service Data (USSD) codes to enable the not-so-tech-savvy individuals to also enjoy the conveniences brought by the digital assets, which might further accelerate their adoption across the continent, possibly bringing to reality the initial dream of boosting financial inclusion.

One such innovation is the recently launched Machankura, which enables users to set up a Bitcoin wallet by just dialling a USSD code. They can also send, receive, or cash out the popular cryptocurrency using the same code, at about one percent transaction fee.

Read: Lessons on digital currencies from mobile money

Those with smartphones and an internet connection but aren’t tech-savvy can also use a WhatsApp chat bot to set up and operate the wallet if they prefer not to use the USSD code, which is available on all phones.


Driven by necessity

Kgothatso Ngako, founder and CEO of Machankura, says the idea was borne out of “necessity” as many people on the continent use feature phones, which may not comfortably access the internet or run the needed applications for Bitcoin trade.

“We wanted to give anyone with an interest to send and receive Bitcoin the ability to do so regardless of what type of device they have, whether it’s a feature phone, or a cheap android device,” Ngako told The EastAfrican.

Another platform is Kotani Pay, which also utilises USSD technology to give people access to a blockchain wallet that they can use to send, receive and cash out stablecoins – cryptocurrencies backed by physical assets.

Their CEO and co-founder Felix Macharia told The EastAfrican that although their primary customers are businesses, the innovation was also inspired by the large number of Africans who still use feature phones as their primary way of communicating.

“It’s because of the unique nature of Africa, in terms of the technology gap that’s been there as majority of Africans still use feature phones,” he said.

Read: Why cryptocurrency is becoming popular in Africa

Latest statistics from the Global System for Mobile Communication Association (GSMA) show that as of 2021, only 49 percent of phones used in Sub-Saharan Africa were smartphones, although this is projected to rise to 61 percent by 2025.

This means access ver half of Africans couldn’t use cryptocurrencies.

The ability to operate crypto wallets using USSD will also significantly save on transaction costs, especially for cross-border transactions, giving banks and international money transfer agencies a run for their money.

AfricaNenda estimates that the cost of transferring money from one country to another in Africa is somewhere between 12 to 18 percent, more than double the global average of six to seven percent. Crypto innovations are offering the same service at a one percent fee.

Kotani Pay, for instance, is already being used by some charity organisations for cash transfers to refugees or extremely needy people on the continent due to the low transaction fees.

According to Macharia, the USSD-based solutions can also help accelerate the ‘gig economy’ by enabling micro-task workers, who are mostly youth, to process small cross-border payments at much cheaper costs.

Other use cases include access to loans and savings, as some people prefer to hold these stablecoins in their blockchain wallets as a hedge against rapidly depreciating local currencies.

Through these use cases and others that may come up in the future, cryptocurrencies may finally contribute to boosting financial inclusion in Africa, where about 45 percent of adults don’t have a bank account, according to the World Bank’s latest financial inclusion statistics.

In Kenya, 69 percent of adults don’t have a commercial bank account, according to data by the Kenya National Bureau of Statistics, meaning they can’t access formal loans, savings, and international money transfer services, a problem these crypto innovations seek to solve.

Read: Who are East Africa’s 12 million crypto owners?

However, ignorance and mistrust of the unconventional digital assets continue to limit their use even among the tech-savvy youth and affluent populations.

Machankura’s Ngako says they seek to make their service as intuitive and secure as possible, so people can easily use it and trust it, but they’re also counting on organisations that educate local communities on blockchain and cryptocurrencies.

“What we have noticed over time is that users tend to be curious enough to learn,” said Kotani Pay’s CEO, Macharia, adding that user education isn’t hard as the USSD system is simple as users just follow prompts.

But will these emerging solutions accelerate financial inclusion and crypto adoption on the continent?

David Otieno, blockchain researcher at Chaintum Research, argues that since just a few people and governments “are aware of or even care about blockchain and cryptocurrencies’ financial transformation potential,” it will take time before there’s any net positive impact on financial inclusion and their proliferation in Africa.

“I agree that these technologies will help more people in Africa get access to financial services, but I don’t think we’re there yet,” Otieno said.

“Therefore, promoting central bank digital currencies (CBDCs) can be a gateway to blockchain adoption. But stalled CBDC projects like the e-naira show that trust-building and regulatory clarification should be key priorities.”

Key challenges

The regulatory environment in Africa is among the key challenges facing these companies. Both Machankura and Kotani Pay (which started in Kenya) are incorporated in South Africa, where the regulatory environment is more conducive.

Read: Global synergy needed to control crypto assets

“That market is developing well in terms of regulations and it’s better to be in that kind of a market, but we’re also hopeful that there’ll be regulatory policy in Kenya as well soon enough,” said Macharia.

According to a recent report by blockchain investment firm Emurgo, the uncertain regulatory environment is the largest barrier to blockchain company’s growth and scaling, even though they continue to attract millions in investment capital every year.