In the vast crypto landscape, Kotani, a Nairobi-based startup, stands out with its ambitious vision to simplify cross-border payments for Africa’s enormous underbanked population. This two-year-old startup is specifically focusing on a use case that directly affects the lives of hundreds of millions of individuals in countries like Kenya, Ghana, Zambia, and South Africa.
Securing $2M Pre-Seed Funding
Kotani recently announced the completion of a successful $2 million pre-seed funding round. The funding was led by P1 Ventures, with significant contributions from other prominent investors, including DCG/Luno and Flori Ventures. This financial boost is poised to propel Kotani’s mission to promote financial inclusion through the use of cryptocurrency.
Aiming for Expansion
With this newfound capital, Kotani plans to amplify its operations and extend its reach to other African nations. The countries in sight for expansion include Rwanda, Senegal, Ivory Coast, Tanzania, and Nigeria.
Remittances: The Lifeline of Sub-Saharan Africa
Remittances to the Sub-Saharan region are estimated to reach $55 billion this year, according to the World Bank. In certain African countries, remittances make up as much as 20% of the GDP, as reported by the United Nations. Despite playing a critical role in the African economy, remittances are plagued by high transfer fees.
High Transfer Fees: The Insurmountable Challenge
In some nations, transfer fees can gobble up to 20% of the transferred amount. The reasons for these exorbitant costs are multifaceted, ranging from a poorly developed banking system, lack of information, and currency volatility. Kotani aims to overcome these challenges by leveraging blockchain technology to facilitate remittances to Africa.
Stablecoins: The Solution for Remittances
Specifically, Kotani is utilizing stablecoins, a type of cryptocurrency pegged to fiat currencies like the USD. The startup’s goal is to enable the transfer of money across borders using stablecoins, thus significantly reducing the cost of remittances.
Integrating with Local Payment Networks
To allow users to cash out their stablecoins and make payments in local currencies, Kotani has developed a middleware that connects blockchains to local payment networks. This system works with networks that enable users to send money on feature phones without internet connectivity, using a protocol known as Unstructured Supplementary Service Data (USSD).
B2B Solutions and Partnerships
Kotani offers its technology as a B2B solution, connecting crypto platforms’ smart contracts on one end and mobile money APIs on the other. Some of its major crypto partners include Yellowcard, DCG, Fonbank, Celo’s Valora, Mercy Corps, UNICEF Crypto Innovation Fund, and Stellar.
On-Ramping: Converting Local Currencies
In addition to cross-border remittances, Kotani also enables users to “on-ramp,” i.e., convert their local currencies into USD. This service is primarily offered to businesses but could potentially be extended to retail users in the future.