Show Notes
https://www.forbes.com/sites/laurashin/2016/06/15/elizabeth-rossiello-describes-how-bitpesa-slashes-international-payment-fees/#2c3a73892a6dTranscript:
Laura Shin:
Hi everyone. Welcome to Unchained, the Forbes podcast produced by Fractal Recording. Thanks for tuning in. Today we’re launching with two podcasts, both from Sir Richard Branson’s Necker Island in the British Virgin Islands. After today, you can expect one new show every other week. For one of our inaugural podcasts, we’re talking with Elizabeth Rossiello, the founder and CEO of Bit-Pesa, a sub-Saharan African foreign exchange and business to business payments company. Elizabeth tells us what’s broken in the world of remittance and B2B payments from Africa, and she also describes the solution that her company offers.
So welcome Elizabeth Rossiello. I’m so glad to have you on my show. I’ve heard so much about you and was so excited when I realized I was going to get to meet you in person here. So, I was wondering, I’m sure many of our listeners are kind of interested in the atmospherics of Necker Island. What has been the highlight of your time here?
Elizabeth Rossiello:
I mean, you just don’t realize how diverse some people’s lives have been, and what they were working on before they came into either business, or before they get into government, and my dinner partner last night was the former Prime Minister of Haiti, during the earthquake, and if that wasn’t enough, we then started talking and it turns out he’s got an office in Senegal, where I live, and he’s been working in West Africa for a decade, so I mean it was just, wow, okay. So, you don’t really get that kind of networking staying at home.
Laura Shin:
Right. And then you don’t normally get to do that, and then also get to go paddle boarding the next day.
Elizabeth Rossiello:
Yeah. You know, when you’re running a start-up it’s pretty intense. You don’t get a lot of time to just think strategically, so there’s definitely some space here for that. Although, not a lot.
Laura Shin:
Right. We’ve been very busy. Okay. So, tell our listeners the story of how you came to found BitPesa and what the company does.
Elizabeth Rossiello:
Sure. I’m American, and I was living abroad in Europe for a few years working investment banking, and I paid off my student loans and I decided with my husband at the time that we wanted to go to a more interesting market. We were living in Europe, in Zurich, and London working for Credit Suisse, and we actually applied for a job in Singapore in the sector of microfinance, which at the time was the fintech-iest thing there was, and the rating agency which I applied for a job with said, sorry that job’s full, why don’t you go to Nairobi Kenya? So, sight unseen, never having…
Laura Shin:
And what year was that?
Elizabeth Rossiello:
- So I accepted the offer in ’08 and in ’09 I began my training in Paris with ______00:02:51, and they sent me to Bosnia, and Georgia and Azerbaijan, and I thought, wow these banks here really are horrible, I mean, I can’t believe the operation and the governance and the systems, and they said, Elizabeth these are A-rated banks, wait until you get down to East Africa. I went down there, and I led up the office and every month I would visit a new financial institution from Kenya to Botswana, so covering all of sub-Saharan Africa and doing everything from interviews with the governance teams, the executives, down to the branch officers, talking to the customers in the field, whether they’re an urban trader, or out doing agriculture, looking at their credit products, looking at these million dollar management information systems, that’s an MIS system, what’s that, that’s the nuts and bolts of how the bank runs, so for small banks, it’s everything. If you don’t have a good one, you don’t know how many customers you have, you don’t know whether they have loans, when they were taken, how much they’ve paid, how much interest, how efficiently you’re operating, which branches are doing better than others, and if you do have a good system, it can make a huge difference.
So, for the system that really integrated with mobile money, which at the time was really coming up, you saw operating expense ratios drop from 70 percent down to, closer to 10, which would give them an A rating. So, for me it was really interesting, you know, you could be in the coolest market with a really innovative governance team, great customer base, really cool product, but honestly if you didn’t have the efficient back office, it wasn’t going to work, and if you couldn’t manage, collect, sort and risk, identify the risk of your data, and all those things, then you really had some big problems. So that was really interesting to me, and I started to move away from doing the ratings, to kind of interpreting the ratings for investors, and by investors at the time, those investing in a microfinance base were social investors, so Gates Foundation, and Acumen Fund, Grameen Foundation, and they would come down and say, well we think microfinance works, and there was a lot of hype about microfinance, very similar to bitcoin I might say, and they said, we can use microfinance for everything, we can collateralize microfinance portfolios together. Sound familiar?
Laura Shin:
That word is a scary word.
Elizabeth Rossiello:
We can offer credit guarantees from big banks like Citi Bank or Deutsche of AG that don’t even do microfinance, you know, all this kind of cool stuff was happening and it’s going to save the planet, and what we realized afterward, after the bubble died down, was it can do a lot of things. It can be a really helpful tool, increasing financial inclusion and growing economies, but it’s not the end all be all, and there were some really great learnings that came out of that. One of those things that I learned was, to really make a bank or financial institution or a product work in a region where there’s very little infrastructure, you have to invest in technology, and the technology not only has to be easy to use so everybody can understand it…you can’t have a really cool technology that only one teenager in the IT department understands, you know, and then you can bring it up to the C-level or the board, they’re like, what is this, and they can’t interpret the data or how they use it, it has to be intrinsic. So, it was really exciting to see a few banks would be mobile money only, so everything they did was just using mobile money, no paper. Everybody that came in, from day one, was told all of their procedures and policies were based on that. That started getting me thinking, and I met one of the men, Duncan Goldie-Scot, who had founded the first mobile money only microfinance institution in Nairobi Kenya and I said, look I’ve been consulting forever, I’m so sick of working for other people, and he said, I’ll seed you if you figure out a way to bring bitcoin into the mix. I said, what’s bitcoin, and he had been involved in the financial cryptography association for a while and he said, it’s mobile money that goes beyond borders, it’s international mobile money.
His idea was more of escaping the banking system and creating, you know, replacing mobile money and bring it to regions like Somalia, who at the time were having real problems with international banks, they’re all being cut off, with all these injunctions against Barclays because they cut off Somalia. But for me I said, I’m still a business person, I’m still pretty practical minded, what I’m most interested in is how do we get better products to those urban customers that you see all across Africa, from Dar es Salaam in Tanzania to Lagos Nigeria, they’re importing from Dubai, they’re exporting to Europe, they’re importing from China, they’re trading with each other. New digital businesses are growing up that have customers, they’re doing digital advertising in four east African markets, these are really the customers that get me excited. Agricultural lending, bottom of the pyramid lending, financial services for the extreme poor, I haven’t given up that there are solutions for that, but it’s very multi-faceted work, it’s really multi-variable work, you need a lot of people in the ecosystem to make that work. I have a lot of friends that do some very cool work from One Acre Fund, to even syngenta with Farmforce, but for me, I was interested in creating a product that could help these urban customers grow their businesses beyond their own markets. So, how do you make a payment to your supplier? Well the way most of these people made payments was they would carry cash on an airplane. One friend would be representative to go to Guangzhou, China with a bag full of cash, or worse.
Laura Shin:
I’m sorry, but was there any risk that if they were caught doing that, then like, the money would you know, be…
Elizabeth Rossiello:
Sure. Cash is risky. But you know, it works in different ways. The other way would be to send a wire to an unknown fixer or partner in China ahead of your trip. That would take a few weeks and then when you get off the plane, you hope that guy has sent the wire to your hotel, the hotel gives you cash again, in US dollars, and then they have the hotel FX broker come with his backpack to the hotel and change the cash from US dollars into RMB. Those are just some of the tamer ways people used to move money around.
Laura Shin:
What’s a less tame way? I’m kind of curious.
Elizabeth Rossiello:
I mean, you don’t go in person, you send the cash with other people, you know, there’s a lot of informal networks, semi-formal networks, something like over 75 percent of regional remittances out of South Africa travel by bus, in envelope. I’ve had this myself in Nairobi Kenya. I once was at a safari house and I forgot the key, and they said, well put it in an envelope and give it to the bus driver who drives the route upcountry. I mean, that’s a common thing to do.
Laura Shin:
Because there isn’t a reliable postal service?
Elizabeth Rossiello:
There is no postal service in Kenya, no home delivery, there’s only a few GPO’s, but forgetting the postal service, there’s a lot of informal networks that have sprung up that are just better than the formalized networks. Those only really work where you have trust. You do it on the bus routes where you know the bus driver, and they’re all of the same tribe, from the same region, so they’re probably not going to cheat you, and if they did, you know where the guy’s sister lives or the mother. But what happens when you need to kind of go out of your Nigerian community and you need to deal with somebody in Dubai? Or out of your Kenyan community and deal with somebody in Germany? Now, you don’t know the German sister, you don’t know where his mother lives, you know, you don’t know where he went to school, so if he is not trustworthy, how do you deal with him? So, in a system like mobile money, it’s domestic. Works beautifully because everybody’s got it. What if you don’t have it? How do you trade with them? So, all of these kinds of questions were just really interesting to me because I had been ______00:10:58 for 10 years, I had been living abroad, I’d been sending money back and forth between continents for years, and it was always interesting to me, how crazily different it was with each country. I moved to Germany, my first internship was with the German Parliament in the Bundestag, and when I had to pay my rent, they said, oh you just do a wire online, I said, what do you mean, they said, yeah, you just go onto the online banking website and you send ______00:11:24, which is an online wire, instant, and I said, I’ve been giving a paper check to my landlord at my university for four years, they said, what’s a check? Back in the US they couldn’t believe that we were using this online banking and that was in 2003.
So, I mean, it’s just always been interesting to me, like, if the technology exists, why aren’t we using it? Why don’t we adopt the latest? What holds people back from that? Having done those ratings, I saw it, to have the Dutch government give a million-dollar management information system to a bank, and they couldn’t absorb it. They didn’t know how to use it. There was no customer support that was local, it was super complicated, they had to do a migration from their old system to the new system, they might’ve used one functionality out of 100, you know, so the technology had to be easier. It had to be cheaper to set up. It had to be intuitive, and you didn’t need to maintain it yourself. So, when you think about bitcoin, right away when you start a company, if you learn about it and you have a developer that can link into it, you can kind of just start. You don’t have to build the whole infrastructure yourself.
Laura Shin:
So, is that essentially what you’re doing with BitPesa? Do you feel like you don’t have to build infrastructure, because it’s kind of built in?
Elizabeth Rossiello:
Yeah. I mean, you have to build security, you have to build procedures, you have to build your product, you have to build your market, you have to build relationships with your regulator, you have to build your order book, but I do not need to invest in a million dollar Oracle management information system. I don’t need to hire a team that sits on top of the customer’s ______00:13:01 we get from Oracle. If it turns out that my business changes and I don’t need that Oracle system anymore, I don’t need to buy an IBM system.
Laura Shin:
Then describe your product and how is it solving that problem of people having to carry cash in suitcases or trust the bus driver to deliver their money?
Elizabeth Rossiello:
The problem with mobile money is that it’s a closed loop, and the problem with Oracle systems in the microfinance bank management information systems is that they’re closed loops. If you’ve gone in a microfinance bank once to do a transaction with another, let’s say they ______00:13:44 treasury and they want to kind of make transactions like real banks do. They wouldn’t be able to. Because you can’t make a transaction out of the system to another system. They didn’t have Swift for microfinance, you know? Correspondent bank relationships were only really given to the top banks in these markets, so those banks were just islands amongst themselves, and sometimes they would use mobile money to make payments between them. So, what if you used bitcoin…
Laura Shin:
Wait, I’m sorry. Banks would use mobile money to make payments between them?
Elizabeth Rossiello:
Yeah. Actually, you can pay in and out of any bank in Kenya using mobile money. Because there was no other way.
Laura Shin:
Because the correspondent banking, which for our listeners who don’t know, is a way to connect kind of smaller regional banks to also smaller, potentially regional banks in international locations.
Elizabeth Rossiello:
Yeah. When your US bank…when I went to school up in Buffalo, I think my bank was called M&T Bank, a New York bank. In Kenya my bank was I&M Bank. Now, is M&T Bank north New York going to have a direct relationship with I&M Bank Kenya? Two small little banks. How would they ever connect with each other? Well, they have to join the international correspondent bank network, and how do they do that? They kind of sign up to Citibank. So, when M&T Bank New York wants to deal with I&M Bank, they go through Citibank’s, Citibank is their correspondent bank. Turns out, that Citibank and Standard Chartered own pretty much the majority of the entire African continents corresponding bank relationship. Almost every bank in sub-Saharan Africa has to go through one of those two to meet another US bank. That gives it a pretty strong monopoly on pricing. Timing, settlement, no customer support, no incentive to change.
Laura Shin:
Right. And yet for the African banks to talk to each other, there was no good…
Elizabeth Rossiello:
Exactly. So actually, Swift has done this really interesting report that talks about how when Africa trades with other continents, so when an African payment that’s destined for Asia, it often goes through a US correspondent bank like Citibank, back to the US, clears there, and then goes over to Asia.
Laura Shin:
How interesting. Okay, so let’s talk about BitPesa.
Elizabeth Rossiello:
Yeah. So what we decided was, we’d put up a flag, and we said we’ll accept payments whether their for remittances, people, businesses, whatever they are, we’ll accept transactions, and we’ll put them in a bank, or mobile money, or however you want to receive them here, net cash, so bank and mobile money, debit cards in Nigeria, we put up that flag and we said, anybody who wants to gain access into these last mile, these last way to a consumers wallet, does not have to only go through a correspondent bank. If you send me bitcoin, I will make sure that I put the corresponding value in the bank account. So suddenly, somebody in Canada could send me a bitcoin, and I would take the value of that bitcoin and I make a market and a price for that in African currency and say, we’ve agreed the value of this one bitcoin is worth 35,000 Kenyan shilling, and I will put that directly onto the mobile money. Or, it’s worth 3,000 Naira, and I’ll put that directly into the bank account. Now I can transact with anyone in the world without going through the correspondent bank. Now, it ends up in a bank in Africa, and it probably started in a bank in Canada, but now CIBC bank Canada does not have to have a relationship with my end user. They don’t even know that it has to end up in a Kenyan bank.
Laura Shin:
And then does the sender have to convert to the bitcoin themselves, or do you also do that for them?
Elizabeth Rossiello:
That’s a great question. In the beginning, the sender had to buy the bitcoin themselves, so the sender from Canada had to say, I’ve got bitcoin, I’d like you to put this in a Tanzanian bank, and we’d say, sure we’ll do that. Now, we have a Nigerian who’ll come to us and say, I need this to go to a Chinese bank, I don’t know anything about bitcoin. We say, okay that’s fine. They give us Nigerian Naira, we effectively sell them bitcoin, but we deliver that bitcoin to a broker in China.
Laura Shin:
And they don’t know that the coins…
Elizabeth Rossiello:
I mean, they know they come to us because our company’s name is BitPesa. They know that we do something unique. On the receipt it says how much bitcoin they’ve received, but they don’t have to hold the bitcoin, they don’t have an exposure to the bitcoin. When we give them a quote, what that Nigerian Naira to Chinese Yen price is, it includes a transaction fee for going through our version of a correspondent bank.
Laura Shin:
And what do you charge?
Elizabeth Rossiello:
For a large transaction, it could be less than one percent. For a smaller transaction, it can go up to three, four percent depending on the currency, depending on the form of payment. Sometimes it’s a flat fee. So, if somebody pays us by a debit card or pays us by mobile money, then we need to pay a flat fee for that which can increase the cost.
Laura Shin:
Okay. And how does that compare to what people have been paying using these other methods?
Elizabeth Rossiello:
So, they can pay anywhere from 2 to 20 percent.
Laura Shin:
Wow. What scenarios are they paying 20 percent?
Elizabeth Rossiello:
So, the average cost of remittances to Tanzania is 19 percent.
Laura Shin:
From anywhere?
Elizabeth Rossiello:
From anywhere the average incoming cost of remittance is Tanzania. In tri Kenya it was pretty expensive, it was over 12 percent, so Kenya to Tanzania was over 12 percent, and when you use a mobile money, so you go from Vodafone Kenya to Vodafone Tanzania, it’s over six percent. Same company, right across the border. You have some really crazy corridors, like Rwanda to India is over 20 percent. So specific corridors where there’s not a lot of competition, it gets very expensive. Now, why isn’t there a lot of competition. Well, is a Rwandan bank going to have a direct relationship with every Indian bank? And every Canadian bank? You know, Rwanda’s a small country. Is it the responsibility of those banks to go around the world and develop direct relationships? What if they use a different management information system? What if they have IBM, and everybody else has Oracle? Forget IBM. A lot of them have a smaller one called M2 or Emerge, OCTOPUS, these are small companies that make small bank microfinance management information systems. Large banks won’t be able to integrate with that.
Laura Shin:
So, who are your clients?
Elizabeth Rossiello:
Our clients started out as tech people. Early adaptors who were very excited. They knew what bitcoin was, they were following bitcoin online, they were just excited to be able to use bitcoin to take over whatever their transactions were in Kenya. These techies would say, well I’m paying my cousin, I’m living in Canada, I’m a software designer, I know about bitcoin because I’m in the tech world, but I do have to pay my family member once a month, and actually I pay three family members 100 dollars each, so I’m going to send you 300 dollars-worth of bitcoin, and you’ll pay it out to three different people, and it was within minutes, three percent as opposed to what he was paying before, over seven percent, and seamless.
Laura Shin:
Yeah. And actually, when you say it’s near instant, and you give the examples of money being moved from Africa to the US to Asia, how would that compare in terms of how long would it take previously?
Elizabeth Rossiello:
Again, it depends on what method he was using before. There are now some apps in some companies in certain markets, specifically Kenya where you have M-Pesa, where you can pay with a debit card in the US and it goes pretty quickly to Kenya, and it’s getting competitive there, but Kenya’s the best version of that, and you have to wait, if you’re going through M-Pesa, you have limits, you can only go up to 700 dollars, so businesses don’t really use that. So, then we said, well actually, it’s businesses that really need us. We have a jewelry company which is a social enterprise, so they employ a lot of women in Kenya making jewelry, a lot of really cool, young designers in their headquarters, and they sell the jewelry wholesale online and to stores in the US. So, every month they have quite a lot of money, then you’d succumb from our company in the US to their company in Kenya. An intra-company-transfer. Now this is their cash, this is their business, they’re a small growing business. When they would send the transfer via bank, it could take up to 12 days, and they didn’t really know what day it would arrive. So, if you’ve got to wait for a big payment, when do you make the order? Well we don’t know when to make the order because we don’t know when the money’s arriving. So, your cash is tied up for half the month, and your staff can’t really plan systematically because maybe this month is came three days earlier, and that month two days later, and goodness for bid, you missed the telephone call from the security check from the US bank, which will call you on the phone in the middle of the night, Kenyan time, that says, are you the person that initiated this wire? The checks are still pretty old fashioned, and then you start the whole process again, and you don’t also always know what the price is until it arrives. So, with large transactions the margins get tighter of course, if you’re able to negotiate that, if you don’t negotiate, it still can be quite expensive, but the speed and the ease and the customer service are the real problem, so that’s what we kind of take care of for these customers.
Laura Shin:
And so, you’re delivering the money, like you know, since it’s on a bitcoin watching presumably on average within 10 minutes?
Elizabeth Rossiello:
Yeah. It depends on the last mile, so if the bank that we’re putting the money in has closed for the day, you know, then we can’t do business. We just did a trade with BitOasis in Dubai and their weekend is slightly different than our weekend, so we had passed the cut-off on Friday for delivering it, so they had to wait until everything opened up again, and so there are those limits. There’s still pretty pedestrian limits on what you’re using, however, it’s not weeks.
Laura Shin:
Yeah. And they’re limits from the traditional banking system, not from this technology.
Elizabeth Rossiello:
Exactly. So, those limits were already there, plus there were extra inefficiencies on top. So, you can get a receipt of payment instantly.
Laura Shin:
Okay. You were saying that you’re now you’re seeing a lot more corporate customers. Who are they?
Elizabeth Rossiello:
It differs depending on where we’re talking about. In East Africa we have a lot of social entrepreneurs. That’s the testing ground for a lot of social enterprises because mobile money is there, so it makes micropayments easier, more financial services, there’s a lot of funders, Nairobi Kenya is one of the six UN headquarters globally. It’s just the hub of a lot of that kind of activity, and it’s very easy to travel and work between Tanzania, Uganda and Kenya, so a lot of our first businesses there were social enterprise and doing cool things like that. Solar, fashion, real estate, micro-lending even, and even some remittance companies, payment, digital advertising. In Nigeria, you see much larger volume, so almost triple the average transaction size in Nigeria, and there you’re seeing larger scale importers. People bringing in plastics and selling plastic furniture, or plastic casing, plastic boxes. Lighting, lighting for theatres, lighting for our showrooms, much bigger import export happening in Nigeria. While they might have already solved that payment in East Africa, that’s still a major problem in Nigeria.
Laura Shin:
Okay. There was something very interesting that you said earlier, which I didn’t quite follow, but you said that there’s a collection of Nigerian ______00:25:52 in Texas that pays in bulk? What was that about?
Elizabeth Rossiello:
Yeah. We have, some of the way that we do business development is we go…I don’t want to give away all my secrets here for all my business development team would get quite upset for our competition, and so maybe I’ll just be vague. But clearly when you’re dealing with the diaspora population, often religious units and networks are really helpful, so we go through a lot of the church groups when we enter a new market, and we talk to them about how they send money back, and not only for P2P remittances but you also see private investment clubs and circles sending money back quite frequently, and Goodwill, so houses, churches, correspondent church buildings, there’s a lot of financial transactions happening between these networks, so one of our great clients is a Texas company that collects and sends a lot of money back to Nigeria.
Laura Shin:
Okay. In terms of examples of some of the bigger clients you also said, some of the biggest breweries, and there were some other…
Elizabeth Rossiello:
Yeah. I don’t want to give away, nothing to share publicly yet. But we’ve been talking with a lot of much bigger, blue chip fortune 500 companies. When we started, they said, oh you’re just some kind of bitcoin company, and I said, no we’re a company that you can buy and sell African currencies, so are you working in Africa? Yes. Well do you have payments or collections in African currencies? Yes. Do you have a team that thinks about how to buy them at a good rate and settle them, and do you have a treasury department? No. Well, why not? These currencies are volatile, they move around, they’re hard to access, the banks close at odd hours, the desks are difficult to deal with, nothing’s digitized. Well, we just haven’t thought about it. Well, do you see how much your FX, expose your FX risk is costing your company? That’s something we’d always look at as a rating analyst, which is the FX loss that you’re not managing. A lot of them would say, oh well we buy our African currencies in London, we buy them in New York if we need to. We break down the rates and see what they’re actually losing doing that kind of business, or you know, we haven’t entered that market because we don’t know how to get local currency, we don’t have a local bank account.
So, it’s taken a lot of education, and even seeing if this solution exists, and then once they say, oh well your name’s BitPesa or you’re just dealing with bitcoin, we say we use it for efficiency, we use it for a lot of different ways, but that’s not who we are. When banks started using email, imagine the first bank went to its regulator, and the regulator says, so what, you’re an email company now? No, we’re still a bank, we just use email. Well, no if you’re using this technology, you’re clearly an email company, you know? Now all kinds of companies use email. But in the beginning, a lot of people would say to us, oh you’re that bitcoin company, we’d say, well, being a bitcoin company is not a business, so we’re a foreign exchange solution, we’re a payments company and we use bitcoin to make prices more efficient.
Laura Shin:
Okay. So, another thing that interested me was, during the course of this gathering, you’ve spoken about how your businesses enabled businesses within these markets, like in Nigeria, or in South Africa, it’s opened new opportunities for them that they didn’t have before, and you made an example about ads, Nigerian ads in South Africa, there was something…
Elizabeth Rossiello:
We met a South African company that does digital advertising across the continent, and they were struggling to collect their ad revenue from their customers in Nigeria. Since it wasn’t so easy to make a payment from Nigeria to South Africa, they would have to wait, and then the FX price might change and then by the time they received it, they had an FX exposure. So, if they could just collect more easily, then they could do it more frequently and they would reduce immediately their FX loss. So, suddenly we said to them, well you can make a trade every 10 minutes, you know, and they said, wow would we have to use a credit card? No. What do I need for that? We talked through that and that solution, and it makes it easier for them to do business, and now they’re not going to hesitate when they’re taking on Nigerian customers because now, they know they can collect that payment. Another company we worked with, they always show us a list of all the countries they’re operating in, and they say, where are you on this list? How many more have you opened? They were really excited to take a customer in Tanzania because they knew that they could then collect payment from them using us.
Laura Shin:
So, tell me how you got BitPesa off the ground? You started, and you were mostly dealing with retail customers, and then you said eventually you moved on, or found that there was more work with enterprise. How did that evolution happen?
Elizabeth Rossiello:
When we first started, we were really looking at the largest chunk of egregious fees, and that was remittance fees coming into Kenya. There was a lot of interest from the world bank, and CGAP which is a microfinance think tank and body, and we said, let’s target that. When we first did our pilot, and we’re two years live now this month, and we went up to the UK and we met with immigrant groups there and ______00:31:25 groups there and we talked to them about, and we tested the product and we said, okay this will be used for a P2P service, sending money home. But people’s behavior was difficult to change. Yes, they were saving some money, but it was still difficult for them to get used to the new behavior, and they still needed to have a way to change their British pounds into bitcoin. We weren’t going to be able to do both ends, otherwise that would mean me being Allie and Susie at the same time. I’m Susie, I need to find my Allie, you know, I need to find somebody in those markets. It was very easy to start a business doing that, but you didn’t have as many people doing it. There was a lot of hype about bitcoin, a lot of companies saying they were going to do these things, but when it came down to it, and I had my team call them up and say, let me see your API, let me see your platform, what is your KYC and AML look like, you know, let me see your policies and procedures and let’s have a relationship, they just weren’t ready.
So, we found ourselves working really hard to make sure we were ready in our markets, but it was difficult for us to find those brokers. At least brokers that were very easy to use from individuals. But when you went up a little bit and you looked at businesses that were really struggling, they had a lot of incentive to change their behavior, and the brokers that were serving those big businesses were much more professional. They were licensed, they had great treasury desks, they would settle on price instantly, you know, as the margins and the sums get bigger, you suddenly find more professionalism earlier on. I would still love to serve that P2P space, but I think the whole ecosystem has to mature a bit more, and we’re doing that in some markets, and that’s coming around. For the last two years, what we really wanted to focus on is building an easy, seamless, frictionless way to get access to the currencies in the markets where I operate, and anybody who wants to link into that can do it easily, and even for free.
Laura Shin:
Did that mean creating, establishing banking relationships in every country that you operate in?
Elizabeth Rossiello:
That’s our model. It’s a little bit heavy on the infrastructure but coming into a country and let’s talk about that second part of regulation, which is approaching a regulator and a government and saying, listen we’re using this new kind of technology, but don’t freak out, we’re just like the other businesses in your country. We’re going to be either a payment institution or a foreign exchange ______00:33:50, or a money service business, you know, depending on the different regulatory differences between each market, we’ve got to be one of these three. Maybe we’re a commodity exchange, but just because we’re using this technology doesn’t mean you have to create a bucket called bitcoin company. What is a bitcoin company? What if you use bitcoin to label water bottles? What if you use bitcoin to…one guy was sending satellites up into space. What if you use bitcoin to buy and sell currencies? Those are three very different businesses. Should you have a regulatory bucket just for that? But a lot of regulators got distracted and said, if you’re using email, you’re an email company. No, we’re not an email company, we’re still a bank. So, some markets we went into, and the regulator just said, well we don’t really know what to do with you yet, so we’re not going to even deal with you. You’re not illegal, but you’re not licensed, so you’re in limbo.
Laura Shin:
How long would it take them to come around?
Elizabeth Rossiello:
Well, we’re still talking to a lot of them. I mean, even in the US and in Europe, you’re just seeing now regulators become much more clear. The US was the first to make very clear statements saying, you are definitely an MSB. Anybody using this technology to do what BitPesa is doing, would be considered an MSB. In the UK, we’ve received a license from the FCA as a payment institution. We’ve seen Japan come around, Luxembourg come around, you know, a lot of other countries make clear statements. Unfortunately, we still don’t have an African regulator that’s made a very clear statement. Now, there’s many, many shades of gray and we could sit here and talk all day about all the different ways the different regulators in the region have approached us and talked to us, and how they’re looking at the topic. It’s sad to say that in some markets, the regulator is really just not investing the time to really understand it and realize this is just a piece of technology that can be used by all the businesses here.
Laura Shin:
It sounds like you have really established relationships within ______00:35:52 even in African countries, and yet you’re doing that without clear guidance from regulators there?
Elizabeth Rossiello:
Well, some of the regulators have spoken to us, spoken to the banks, given us guidance, told us that we have to consider it a KYC, which we do. That we have to register, we pay our taxes, we’re registered in all these countries, so we’re actual incorporated businesses. We follow the rules, we pay taxes, we have work permits, we have a physical office, we submit KYC and AML, we have bank accounts. There’s many ways to kind of run a business. When we’re over certain local laws, like 10,000-dollar transactions, you have to submit to a whole different point of rules. Those all happen even without a license. That’s just being part of following the law of a lot of these countries. Now, going above and beyond that, we don’t hold deposits. We don’t have wallets, so we couldn’t do that without a license.
Laura Shin:
So, one thing that I was curious about, is when you were talking about those really high fees, like 20 percent and stuff like that. You had mentioned something earlier about a study that talked about how if Western Union or Money Bank enter a market first and make a deal with the postal service, then they will end up not only with the lion share of the market, but then the prices in that country will be rather high. What are the stats on that, and is that the reason for those high prices that you mentioned earlier?
Elizabeth Rossiello:
I will send you the links, you can look at the stats yourself because I don’t want to recite them, and I will send you the two economists, Sonia Plaza is one of them at the World Bank that published that report, but essentially what it was is that cornering the postal service, the post banks in a market, and getting an exclusivity agreement with the postal banks of a market severely affects the average rate of remittances into that country going forward. So they did a really great study with it, it went across Southeast Asia, Africa, South America, and they looked at all the different markets with really expensive remittance corridors and they said, well is there an exclusivity arrangement with one of the big two? With Money Gram, so that means that every post office bank in Ecuador has a Money Gram sign, and no Western Union, which means it’s an exclusivity agreement, and usually there’s like a price floor because they have to pay a fee back to those banks for every transaction, so now you’ve suddenly set the price of the market. So, I mean it just distorts it, those exclusivity agreements are quite damaging because when you have a new company come in and we say, hey we can strike a deal, we can give your customers better service, they go, why I’m getting all these kickbacks, all these fees from this exclusive arrangement, I’m not going to ruin that, so you don’t get to enter this market.
Laura Shin:
Wow. Has that been an obstacle for you?
Elizabeth Rossiello:
Well there certainly originally when we approached a lot of banks and they said, we’re already working with these three companies, and they give us a per-transaction fee, so why would we work with you who has less fees? Then we talk about, well actually you know, we’re bringing more money into the country so do you want your customers bank accounts to have more money in them, you know, they’ll actually transact more money if the fees are lower. So, just different kind of perspective on what would help grow their business in volumes, you have to kind of align your interests.
Laura Shin:
Oh, I like that argument. In general, what are some of the bigger obstacles you have tended to face, and how have you gotten around them?
Elizabeth Rossiello:
Regulation is the number one obstacle we face where, in the region where you’ve had the least clarity from regulators, and if you look at a map of the world, and you look at countries colored by what the regulators have said, so clarity, or non, green, red, yellow, you just see a gigantic gray space for Africa. So that hurts every time I see that, you know, not to get emotional, because without the regulatory clarity, you really struggle to have market entrance, and you know, we do a lot of things to get through that. We have a lot of communication with the central banks, we have meetings with them, we’ll bring our investors down and we’ll sit down with them, we talk about where they will be going when they finally get there, what’s the timeframe, how they view it, what are the other ways that we can transact, can we partner with a regulated entity, we’ve done that sometimes, but it takes a lot more legwork and a lot more intimate knowledge of the market to know…even if the regulation is not there, you have these five other signals that tell you how the market will go and what it will look like, kind of understand what your risk ______00:40:36 is in that market.
Laura Shin:
Okay. So, what keeps you up at night, like what are you worried about? What do you think would be kind of something that could really potentially impact your company in a negative way?
Elizabeth Rossiello:
We’ve already seen the worse that can happen 400 times. I mean, we’ve seen systems we rely on crash. Suddenly we had one system that we relied on and it stopped working for a few days.
Laura Shin:
Wait, I’m sorry. You’re saying a system that BitPesa relied on?
Elizabeth Rossiello:
Yeah. I mean one of our bank accounts, the online banking crashed, so no transactions in or out. Customers came to us and what we were still relying on the local bank, so everybody in that market had a problem with it, but you know, when you’re doing business in developing markets where all the people you do business with are struggling, you know, you have a lot of weak spaces, so imagine how often a US online banking platform goes offline for three days.
Laura Shin:
Almost never.
Elizabeth Rossiello:
Yeah. Okay, that happens quite a lot. That’s just part of doing business. But everybody’s dealing with that, not just my company, so it’s not like our customers are extra angry, but when I’m looking at a company like mine operating in the US, they don’t even have to worry about that infrastructure problem, or you know, you have blackouts or power outages and all sorts of things, or elections, or random holidays nobody announces. I mean, still a lot of bumpy roads to go down, but it’s getting less, and I think the demand from the customers for a simple digital product that’s user centric is high and so that’s been exciting.
Laura Shin:
The reason that you keep your money in the local currencies is to protect against volatility in terms of the price of bitcoin?
Elizabeth Rossiello:
I mean, we’re a dollar company, so we have our accounts in dollars. We also have our accounts in local currency for sure, but we use bitcoin for a settlement, that’s it. We use bitcoin as a debit card almost, we don’t have a debit card, we pay people with our bitcoin debit card. We trade it into bitcoin to make a payment, and then we cash it out. We keep local currency because our consumer’s need payouts instantly and the only way for that to happen is us to have the local currency there.
Laura Shin:
Okay. What’s a customer success story, like a story from one of your clients that has really touched you?
Elizabeth Rossiello:
We have a few actually we just put up on the website. We have this company that was growing in Nigeria, and they suddenly were struggling to make salary payments abroad. The way they had been making payments before were with third party PSP, like a payment service provider, it wasn’t working anymore pricewise, their system was down, and they really were just like, what do we do? They knew nothing about bitcoin. Their friend somehow knew our employee in ______00:43:31, and they come to us, they go, I don’t know what you’re doing, but I just need to make these salary payments, and they were getting desperate and their employees abroad were demanding that they make those payments, and they just came to us and said, what can you do for me? You literally don’t have to know anything about bitcoin, I’ll just show you what to do, you’re going to send me a Nigerian bank transfer, and I’m going to make that payment. They said, well what did you use, did you have a Visa card? I said no. Did you make a big bank international wire? No. How did you do it? Did you use PayPal? No. So, here’s a solution and it’s actually quite simple, and that gets us excited that we’re helping companies solve problems that they have, and every kind of company will have this problem.
Laura Shin:
Okay. What have I not asked you that you’d like our listeners to know?
Elizabeth Rossiello:
I think the size and the opportunity in the African market is constantly underestimated. There’s still this aura of, scary, or oh so crazy and wild, and maybe I haven’t done a great job by telling you extreme stories, but it’s a beautiful, diverse, enormous continent, you know, and everybody says, you know, what’s happening in Africa…and there’s this great Facebook page called Africa is a country, that like makes fun of the idea that Africa is just one place, so it’s small. I mean, I lived in Kenya all the way in the east of Africa, for almost 7 years, and now I’m in Senegal which is all the way on the west, and it’s like, I’m on a different planet, and I’ve lived and worked in many, many countries in between, so I’m just constantly surprised how many big global companies are just now thinking about how to enter the market. Now you have some really big ones that have been there, Uber for instance, has expanded rapidly across Africa, and thank you so much Uber because it makes my life a lot easier when I come into a country to be able to use my Uber account to kind of consolidate all my expenses really easy, no matter where I’m traveling, so I mean, that’s been awesome, and they’ve done great. I think there’s just this fear factor, you know, people don’t travel there as much on vacation, they don’t have relatives there as much, they don’t hear about it as much, so there’s not a lot of African owned media coming out that reaches the global space, so stories are really tinged upon disease and war and all that nonsense, so people don’t really think, well this is a market I want to expand to. So, we’re really excited to be part of a movement, making it easier for people to do business in the region.
Laura Shin:
Great. Well, thank you so much for coming on my show. It’s been such a pleasure.
Elizabeth Rossiello:
Thanks Laura.
Laura Shin:
Thanks for joining us today. If you’re interested in learning more about Elizabeth and her work, check out the show notes which are available on forbes.com, and please review, rate, and subscribe to the show if you like what you’re hearing. Thanks again.
