No bank account required: how blockchain works at the last mile

African technologists and entrepreneurs are applying blockchain in innovative ways, creating a new financial infrastructure for the continent with wide-ranging benefits, including for the humanitarian sector.

Through its Blockchain Ventures investment programme – supported by Ethereum Foundation and GSR Foundation – UNICEF Office of Innovation provides funding and technical assistance to emerging market startups building innovative blockchain-based solutions.

Kenya-based Kotani Pay’s co-founder Samuel Kariuki, spoke with us about what the early work with UNICEF taught the team and how the company grew from a feature phone ready SMS wallet into a business serving multiple markets.

What did you see in those early days that told you there was a problem Kotani Pay could solve?

We started as a bunch of educators teaching people in Nairobi about blockchain, around 2018. We soon hit a problem: Africans pay through mobile money, and mobile money couldn’t connect to the blockchain. In one basic-income pilot in Nairobi’s informal settlements, people received digital money they couldn’t spend. A local agent swapped it for cash, and he quickly became a target.

We thought someone should be able to move from the blockchain to Kenya shillings, and from Kenya shillings back to the blockchain, using the readily available payment channel, which is mobile money. We experimented, and it was a eureka moment for us. We felt we had a product we could build a team around.

What did your first product allow someone receiving money to do?

Through our work with UNICEF Office of Innovation, we did projects in Ghana and Kenya, mainly with people living in refugee camps. If you look at Africa as a whole, the people who struggle financially – whether refugees or others – have feature phones and have trouble connecting to the internet. By designing infrastructure where someone can use any device to connect to the blockchain, what we provided was an SMS wallet: a user could simply dial a code to see what funds they had received and convert it into, local currency through mobile money making it possible to spend digital funds.

What did working with those early users teach you about building the product?

It was a phenomenal experience, to customize a product that resonates. Building a product that meant blockchain payments worked on basic phones and seeing the excitement of someone actually spending that money in the local economy, was very good for us, because it made a case that this is a product that can be replicated at scale.

UNICEF supported Kotani Pay to develop its model. What did the experience give you beyond funding?

The early projects also made a case for us to raise money, because we could tell investors: look, this is what we have been able to achieve, this is what we have been able to learn, these are some of the gaps we are identifying, and we think we can do more.

Beyond that, we had amazing support in terms of product design, market penetration and understanding the fundamentals of the business, and all of this was given for free.

Kotani Pay began with an SMS wallet and now provides payment infrastructure to businesses. What led to that change?

We decided to focus specifically on Application Programming Interfaces (API), tools that allow different software systems to connect and exchange information. With the projects in Kenya and Ghana, we had built a platform that could be used to transfer funds into two different markets, and that’s a very big value proposition. People in the Web3 ecosystem were asking whether they could have a pathway to move crypto into local currency in different countries.

How does Kotani Pay’s payment infrastructure work?

Money moves through something we call the ‘stablecoin sandwich’. The first leg of a transaction is fiat [traditional currency], the second leg is stablecoin, and the last leg is fiat again. Our API is multi-chain infrastructure: on one end it connects to local payment channels – whether that’s banking or mobile money – and on the other end it connects to the blockchain protocols.

Why is blockchain finding such practical uses in Kenya?

Most emerging markets tend to be victims of how financial services are structured. For me to make a trade with someone in Uganda, I have to exit from Kenya shillings into the dollar, then exit from the dollar into Ugandan shillings!

Say I sell phones on a street in Nairobi. I go to a local bank and tell them I want to make a payment to China to import goods. The process of settlement is so long, and most of this business is first-come-first-served, so if it takes one week for my funds to reflect on the other side, the product may have been sold to someone else. These frustrations are forcing people to look for alternatives, and one of the strongest alternatives has always been crypto, specifically stablecoins.

Kotani Pay now focuses on businesses. Is the social purpose of your early work still part of the company?

Social good is still something so close to our hearts. We still believe in it. We open-sourced our solution, and being in the UNICEF portfolio, we are known as people who have infrastructure that people can experiment with.

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