Kotani Pay, a Nairobi-based crypto payments startup, is on a mission to simplify cross-border remittances for the significant underbanked populations in Africa. The startup, founded two years ago, recently closed a $2 million pre-seed funding round led by P1 Ventures, with participation from investors including DCG/Luno and Flori Ventures. It has plans to expand its services to Rwanda, Senegal, Ivory Coast, Tanzania, and Nigeria.

According to the World Bank, Sub-Saharan Africa is expected to receive approximately $55 billion in remittances this year. In some African nations, remittances make up as much as 20% of GDP, according to UN statistics. However, high transfer fees have long been a challenge for remittances in Africa, sometimes reaching as high as 20% of the transferred amount. Factors such as an underdeveloped banking system, information disparities, and currency fluctuations have contributed to these high costs. Additionally, many families lack bank accounts or official identifications, further complicating the process.

Kotani aims to address these challenges by utilizing blockchain technology to facilitate remittances to Africa, specifically by leveraging stablecoins—cryptocurrencies pegged to fiat currencies like the USD. These stablecoins allow for significantly reduced transfer costs compared to traditional methods.

To enable users to convert stablecoins in their mobile wallets and make payments in local currencies, Kotani has developed middleware that connects blockchains to local payment networks. Many of these local payment networks allow users to send money using feature phones without the internet, utilizing a communication protocol called Unstructured Supplementary Service Data (USSD).

Kotani primarily offers its technology as a B2B solution, connecting crypto platforms' smart contracts with mobile money APIs. Some of its major crypto partners include Yellowcard, DCG, Fonbank, Celo's Valora, Mercy Corps, UNICEF Crypto Innovation Fund, and Stellar.

READ ALSO - Nigeria's Itana Secures $2 Million in Pre-Seed Funding Pioneering Africa's Digital Free Zone

Kotani also provides a solution for users to convert their local currencies into USD, although this feature is currently tailored more to businesses. The startup sources local USD through partnerships with liquidity providers and local forex services.

Most of Kotani's transfers to date—totalling $23 million—are inbound payments, with an average transaction size of $150,000. The platform generates revenue through an interchange fee, which averages around 1% of the gross transaction volumes.

In addition to its current offerings, Kotani plans to introduce other products, including Reconset (Reconciliation-as-a-Service) and Money Ledger (Ledger-as-a-Service) following its acquisition of Fuhlstack, a Nigerian startup. Fuhlstack's founder, Lemuel Okoli, joins Kotani Pay's co-founders, Macharia and Samuel Kariuki.

Regarding crypto regulation, Kotani acknowledges that regulators are already monitoring its transactions, as central banks oversee all termination points for banking and mobile money services. The startup ensures compliance either by working directly with local mobile money operators or through regulated partners' charters. Macharia, one of the co-founders, believes that regulatory developments in Africa are progressing positively, with some countries introducing regulations for digital asset fintechs and stablecoin issuers.

He also sees positive developments at the European Union level, such as MiCa regulation, which addresses stablecoin issuers, on-ramps, off-ramps, and exchanges. Macharia believes that Kenya, Ghana, Nigeria, and other African markets will eventually catch up with these regulatory trends.