Nairobi-based crypto payments startup, Kotani Pay with a vision to make cross-border remittances easier for the large underbanked populations in Africa recently closed a $2 million pre-seed funding. The round was led by P1 Ventures, with participation from investors such as DCG/Luno and Flori Ventures.
Kotani Pay aims to address the challenges faced by underserved populations in Africa when it comes to cross-border remittances. By leveraging blockchain technology and stablecoins, the startup seeks to make remittances more affordable, efficient, and accessible.
Remittances play a crucial role in the African economy, with the Sub-Saharan region estimated to receive $55 billion in remittances this year. However, traditional money transfer methods are hindered by high transfer fees, reaching up to 20% of the amount transferred in some countries.
Several factors contribute to these exorbitant costs, including an underdeveloped banking system, information asymmetry, and currency fluctuations. Additionally, many individuals and families in Africa lack access to bank accounts and official identification, further complicating the remittance process.
Kotani Pay aims to overcome these challenges by utilizing blockchain technology and stablecoins. Stablecoins are cryptocurrencies that are pegged to fiat currencies, such as the USD, providing stability and reducing the volatility associated with other cryptocurrencies. By leveraging stablecoins, Kotani Pay can facilitate low-cost international money transfers.
Furthermore, Kotani Pay has developed a middleware that connects blockchains to local payment networks. This enables users with feature phones and no internet access to send and receive money through a communication protocol called Unstructured Supplementary Service Data (USSD). This technology allows users to cash out their stablecoins and make local currency transactions, promoting financial inclusion for underserved populations.
Kotani Pay offers its technologies as a business-to-business (B2B) solution by connecting crypto platforms’ smart contracts with mobile money APIs. The startup has formed partnerships with various crypto partners, including Yellowcard, DCG, Fonbank, Celo’s Valora, Mercy Corps, UNICEF Crypto Innovation Fund, and Stellar.
Building upon its success, Kotani Pay aims to expand its operations to Rwanda, Senegal, Ivory Coast, Tanzania, and Nigeria. The startup also plans to introduce additional products, including Reconset, a Reconciliation-as-a-Service offering, and Money Ledger, a Ledger-as-a-Service solution, following its acquisition of Nigerian startup Fuhlstack.
With its potential to impact foreign currency reserves, Kotani Pay recognizes the importance of adhering to regulatory frameworks. The startup works closely with local mobile money operators and regulated partners to ensure compliance with central bank regulations. The development of Central Bank Digital Currencies (CBDCs) has also sparked interest from central banks in Africa, further supporting Kotani Pay’s innovative use cases.
