Exclusive: Bitcoin - The Killer App in Africa and Latin America?
In driving financial inclusion and FinTech adoption in emerging markets, Ray Youssef, CEO of Paxful explains the key challenges in Bitcoin adoption in Africa and the strategies penetrating into the African markets.
We are glad to have an in-depth interview with Ray, on Paxful’s strategies into Africa and Latin America. He also explained the biggest challenge in driving Bitcoin adoption: how to deal with scammers!
We know that Paxful has been active driving Bitcoin adoption in Africa and Latin America. While these two continents have huge “unbanked” population, how does Paxful penetrates these two continents differently?
That's a great question, Paxful doesn't penetrate into those markets or any markets. Those markets are kind of penetrating into us. The people there are teaching us and we talk to them every day. I'm the CEO by doing customer support every day, we're in the process of completely revamping our customer experience department and customer’s feedback are absolutely invaluable! Their feedback varies across countries and continents. This is because the use cases, customer needs and the understanding of money are different.
We launched a Paxful Campus Tour to listen the needs of everyone and we are amazed at what we can learn from youngsters. They will tell us the problems in their country very clearly and that’s how we can identify potential use cases to them easily. We can then figure out the dominant payment methods in that country, whether it's cash, bank, online wallets, Visa, or even barter trading. Once we identified customer needs, we can figure out whether the existing product can address their needs or a new product is required.
That's basically entrepreneurship. First you need information, you need to understand what are the challenges and obstacles that customers are facing; whether the existing solutions can fully address their issues. Then we look at ourselves on how we can help. This applies for any startups, whether it's crypto, FinTech, or anything. It's all comes down to the basic formula of identifying a problem, then identifying the community and execution.
Does it mean for Latin Americans and Africans, they're facing the same problems? Or it really depends on each country?
We have identified 7 use cases for Bitcoin: grey markets, speculation, payments, e-commerce, remittance, wealth preservation and social good.
It’s depends on the country, because look at wealth preservation as a use case. Look at Latin America. Venezuela is driving Bitcoin adoption in Latin America tremendously because of extreme desperation. One million % projected inflation, can you imagine that? The desperation is like someone gets paid, and then literally a week later, that money's worth half of what it was worth. Can you imagine what's going through for Venezuelans? That forces them to look up Bitcoin. They don't want Bitcoin, they'll prefer USD. Even the value of Bitcoin is unstable, it’s way better than their local fiat currency.
That desperation coming from this wealth preservation use case is driving adoption. Argentina is happening too, people don't trust their currency Argentine Peso at all but inflation rate is much lower than Venezuela. If you're going to compare Venezuela, the best example is Zimbabwe, you can see those two markets are linked by the wealth preservation use case.
When you look at America and Europe, what is the use case and similarities there? Speculation! This also happens in the Dark Web where people use Bitcoin to gamble and for speculation!
Same thing applies to China as well. However, China has another prominent use case: Remittance. In China, there are limitations on how much money you can send out of the country. The Chinese are trying to find ways that can move money out of the country to pay their daughter and sons tuition bill overseas.
“Bitcoin’s adoption is based on use cases! Not so much on the market/ethnicity/religion/locations. It's all about use cases!”
Identifying and knowing those 7 use cases is a huge part of this puzzle, that's why everywhere we go, I give the same presentation over again on this is what Bitcoin is actually good for. By understanding those 7 use cases, we can understand how each use case can be applied to each country.
Buying Bitcoin is a killer app right now. It is difficult for the unbanked population to buy Bitcoin, as it can be very time consuming and entails high transaction costs even there are exchanges in the country. For example, South Africa has a lot of exchanges that people can use to buy bitcoin.
What about the migrant workers in South Africa that want to send money back home and he doesn't even have a bank account? He can't buy bitcoin from the exchange.
As the alternative, he goes to Paxful. Our staffs have built a new version of Western Union and they are focusing on helping migrate workers send money back home, converting the cash into Bitcoin and send to Nigeria or Zambia or Zimbabwe. Then workers are paying their families or get the money in local fiat currency.
The biggest challenge that I can say is because you're basically letting people transact over the internet. We asked individuals for ID verification when they reach an equivalent of USD 1,500 in trade volume or wallet activity. This basically opens up the possibility that everyone in the world essentially having their financial account.
There are bad actors in the market. They make it their job to scam people. If you think about what we have to do to make Bitcoin work, the hardest part is getting all this money and value out of the fiat world and into the new economy and that’s extremely challenging.
Challenges dealing with scammers
Think about a guy who makes 100 USD a month, is worth it for him to spend 100 hours a week trying to scam you out of 100 USD. The scammer will try to scam others 24/7. When you banned his account, he will make a new account and jump on another VPN. We will do whatever it takes to stop that person and that is extremely challenging.
Any company needs a way to deal with scammers. Look at PayPal, it is nearly bankrupted in the early days by a Russian mobster who was doing credit card fraud on PayPal. PayPal then built an AI called IGOR to detect credit card fraud. That's one of the only things that saved the company. Now we have to do the same thing, but we have to do it for 400 different payment methods with a much more complex system. Think about how immensely challenging that is, and that therein lies the value of platforms like Paxful, but we're making it safe and that is difficult, especially in emerging economies where there's a lot of desperation. We have to do whatever measures are necessary to keep the marketplace safe for everyone.
Paxful will only escrow digital assets but not fiat currencies. There's no capacity to do that, whether the fiat is money, cash, a gift card code etc. There's some huge challenges with gift cards such as Google Play, and iTunes. You cannot check the value of those cards and you will check their values only when you try to redeem them. We put a lot of education effort to tell people “If you want to redeem a gift card for Bitcoin, do not choose the two gift cards, because they're extremely hard to work with.” That's one of the reasons why sites like Localbitcoins ban gift cards completely because it's a huge pain in the butt.
The reason we keep it open is because it's one of the few ways that the unbanked can actually get Bitcoin and we don't want to abandon them. The only way to fix it is by education and this is the best way to go through these cracks. We're investing a tremendous amount in education such as campus tour and video contents.
By the way, there's a reason we have presence in places like Nigeria which PayPal and Coinbase have withdrawn. Because we believe in those economies and Bitcoin can have widespread adoption there. It’s not easy to do so but we never give up.
I know PayMe is very popular here, one of the top payment methods in Hong Kong. People in Hong Kong have a lot of gift cards, vouchers and the Octopus card etc. Markets like Hong Kong are really interesting because people in Hong Kong can acquire Bitcoin easily through a lot of exchanges. People in Hong Kong have good bank accounts that are connected to the whole world.
Hong Kong is the international financial center which makes it very interesting. That's why we would like to extend our campus tour here to Hong Kong. We'd like to teach people in Hong Kong about arbitrage and what they can do to basically build their own businesses on top of peer to peer finance, and to use the financial instruments at their disposal to make money. It's a huge opportunity here, we are still trying to figure out the market and that’s why we will be hosting a lot more events and learn from people in Hong Kong.
Can you share with us the future development plan for Paxful?
We want to focus on the four use cases: payments, remittance, e-commerce and wealth preservation. However, the truth is Bitcoin is still too difficult for a normal person to use. We have to make Bitcoin invisible, and it must abstract away the high volatility and become extremely user friendly.
When we have applications that serve each of those four use cases, these applications will be built and powered by Paxful. It doesn't necessarily have to be branded as Paxful. At the end of the day, we hope Paxful is the universal translator for money.