Nairobi-based startup Kotani Pay has raised $2 million in pre-seed funding. To help underserved African populations with cross-border remittances using cryptocurrencies. The company aims to make sending money across borders easier for millions of people in countries like Kenya, Ghana, Zambia, and South Africa.
This funding round, led by P1 Ventures and featuring investors like DCG/Luno and Flori Ventures, will enable Kotani Pay to expand its services to more African nations, including Rwanda, Senegal, Ivory Coast, Tanzania, and Nigeria.
According to the World Bank, the Sub-Saharan region is expected to receive around $55 billion in remittances this year. In some African countries, remittances make up as much as 20% of the GDP.
However, traditional money transfer methods in Africa face a major challenge: high transfer fees. Sometimes as high as 20% of the transferred amount. These high costs are due to factors like an underdeveloped banking system, currency fluctuations, and the lack of bank accounts or official identifications for many families.
Kotani Pay proposes using blockchain technology, specifically stablecoins, to make international money transfers more affordable. To enable users to convert stablecoins into local currencies and make payments without the internet. Kotani has built a middleware that connects blockchains to local payment networks. This allows transactions via feature phones using a communication protocol called USSD.
Kotani operates as a B2B solution, connecting crypto platforms’ smart contracts with mobile money APIs. Major crypto partners include Yellowcard, DCG, Fonbank, Celo’s Valora, Mercy Corps, UNICEF Crypto Innovation Fund, and Stellar.
While most of Kotani’s transfers are inbound payments, the platform focuses on enterprises, with an average transaction size of $150,000. They monetize through an interchange fee, approximately 1% of the gross transaction volumes.
Kotani Pay is set to introduce new products like Reconset and Money Ledger after acquiring the Nigerian startup Fuhlstack. Regulatory compliance is a priority for Kotani, with founder Macharia noting that central banks in the countries they operate in already monitor these transactions. They work with local mobile money operators and regulated partners to ensure compliance.
Despite the evolving crypto regulatory landscape, Kotani remains positive about developments in Africa, with countries like Botswana, Mauritius, and South Africa launching licenses to regulate digital asset fintechs. Macharia believes that other markets in Africa, including Kenya, Ghana, and Nigeria, will soon follow suit.