Kenya-based Kotani Pay secures $2m funding to power remittances without internet

Kotani Pay, a Kenya-based crypto payments platform, has closed $2 million in a pre-seed funding round. San Francisco-based P1 Ventures led the round while several investors like DCG/Luno and Flori Ventures participated. Kotani Pay aims to expand its operations to new markets including Nigeria, Rwanda, Senegal, and Ivory Coast. 

Kotani Pay intends to alleviate the burden of cross-border remittances in Africa through its offerings. The startup does this through blockchain technology by allowing users in the diaspora to send money to loved ones in Africa through stablecoins. 

For clarity, stablecoins are cryptocurrencies whose values are pegged to fiat currencies like the United States Dollar (USD). Through this offering, users enjoy benefits like significantly lower transaction rates and quicker settlement times. 

Kotani Pay’s products are designed for the B2B scene as they link the smart contracts of crypto platforms with mobile money APIs. The startup currently has Yellowcard, DCG, Fonbank, Celo’s Valora, Mercy Corps, UNICEF Crypto Innovation Fund, and Stellar as partner platforms.

The startup also offers a business-facing solution that lets users convert local currencies into USD. Although this is targeted at businesses, the offering could be extended to individuals soon. Beyond market expansion, Kotani Pay is expected to launch new products. They include Reconset and Money Ledger. 

Another interesting offering from Kotani Pay is that users can move their digital assets to their mobile money wallets using feature phones. This is done through Unstructured Supplementary Service Data (USSD). Essentially, those in areas with poor or no internet coverage can still transact using the startup’s feature.

Cross-border remittances which play a major role in the economies of many African countries are often problematic. Among the challenges plaguing remittances from the diaspora, the issue of high transfer fees is a major one. By allowing users to transact without the usual hefty fees, Kotani Pay plays its role in tackling the long-standing issue of financial inclusion.

Despite the presence of several fintechs coupled with a growing internet and mobile phone penetration, millions of Africans cannot access basic financial services. The barriers to financial inclusion include lack of trust, high cost of available financial services, unavailability of a nearby bank branch, and more. 

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Kotani Pay optimistic about the crypto regulation scene 

Kotani Pay says it has processed transactions worth a whopping $23 million. Interestingly, the average transaction volume is $15,000. Given the high volume of payments that occur on its platform, it is common for crypto regulators to keep a close eye on its operations. 

Kotani Pay CEO Felix Macharia acknowledged that its operations are closely monitored by the central banks of the countries it is available in. “We either work directly with the local mobile money operators or ride on the charter of regulated partners to ensure that our operations are compliant. The central banks are actually getting excited about some of these use cases and are getting involved as they develop Central Bank Digital Currencies,” Macharia explained. 

Recently, some crypto exchanges have come under fire for violating certain rules. Binance and FTX are among the companies that have been targeted by regulators. Given the recent clampdown on exchanges, investors have become reluctant to support the scene. 

However, Macharia is hopeful about regulatory efforts in Africa. “We are seeing positive developments in the Southern part of Africa with Botswana, Mauritius, and South Africa all launching Virtual Asset Service Provider Licenses that regulate Digital Asset Fintechs. MiCa passed by the European Union parliament is another positive development as it regulates stablecoin issuers, on ramps and off ramps and exchanges,” he explained.