Kenyan – built fintech gets nod to run digital currency payments in Eswatini

By Steve UMIDHA

A Nairobi-designed digital wallet service is clutching at the heels of Eswatini’s mainstream banks and telcos, proving that African expansion can be a gainful strategy for fintech startups.

Just two years after its formal launch, InstaCash – a mobile money platform developed by Kenya’s Directcore Technologies continues to break the decades-long hold of traditional banks and telecommunications providers in Eswatini’s financial sector and the wider southern African market.

The firm is now angling for a rare break in what could be another first for the rapid – growing brand.

This is after Eswatini’s financial industry body announced the completion of an experimentation phase testing a ‘regulated liability network’ that would be able to make and settle payments in different forms of digital money, whether issued by central banks or private sector companies, including tokenized commercial bank deposits.

The Central Bank of Eswatini (CBE) opened its CBDC-platform, which is based on Giesecke+Devrient’s (G+D) Filia solution, to fintechs like InstaCash, who have already started test – runs to carry out payment transactions with the digital Lilangeni via a feature phone for the first time.

Instacash has since developed a proof-of-concept (PoC) for an application enabling integration of the digital Lilangeni into existing Instacash services.

In a statement, CBE noted that with the Instacash bid, for instance, it is now possible to use the digital Lilangeni to open a wallet, check the balance, access financial services or make transfers.

“InstaCash’s initiative underlines the enormous potential that the introduction of Central Bank Digital Currencies opens up for payment players,” said Dr. Raoul Herborg, Managing Director of the CBDC unit at G+D.

Adding that, “It is an excellent example of a customer-centric collaboration between Central Banks and private digital currency providers that also strengthens financial inclusion by integrating CBDCs into existing financial services.”

Speaking in Nairobi while reacting to the development, Francis Adunga, the Chief Executive Officer (CEO) of Directcore Technologies, noted that such a stride would upgrade the current Eswatini’s payments infrastructure to enable new functionality, while at the same time addressing the issue of financial inclusion.

“Financial inclusion is a common policy goal for CBDC projects, and such a development and CBDCs in general will in certain respects make it easier for regulators to fight money laundering, and key technical aspects of CBDCs will hinder some traditional illicit financial techniques. So, this is a timely innovation,” said Adunga.

Directcore Technologies is the solution innovators and integrators of the Instacash platform to G+D Filia – which is simply a token-based payment solution that allows for digital payments without an internet connection.

Filia can be used without a bank account, and it doesn’t require the disclosure of private data or consumer fees. It can be used through smartphones, smart cards, and other digital and hardware wallets.

Indeed, a growing number of Central banks across the globe are increasingly pondering whether to issue their own digital currencies to the general public, so-called retail central bank digital currency (CBDC).

The majority of IMF member countries for instance, are actively evaluating CBDCs, with only a few having issued CBDCs or undertaken extensive pilots or tests – akin to the eSwatini case.

The Central Bank Digital Currency (CBDC) is a digital form of money issued by a country’s central bank, similar to physical currency. CBDCs are designed to be more secure and less volatile than other digital currencies.

They are also seen as a potential way for central banks to improve financial inclusion and complement cash and in-person payments. CBDCs could be a credit risk-free form of digital money that could improve financial inclusion by being more accessible and lowering costs.

Closer home, the Kenyan version of the CBDC, whose introduction has been under debate for the last few years, prompted the CBK to issue a discussion paper in February 2022 but the feedback pointed to more threats than opportunities.

Respondents told the CBK at the time that the digital currency could become a threat to Kenya’s financial stability, especially if the regulator issues the currency directly to customers, making the regulator a direct competitor with the same entities it oversees.

Such a move, the stakeholders warned, would see customers dump their deposits and convert them into digital currency and therefore trigger bank failures.

“It was noted that CBDC may lead to CBK competing with banks, resulting in system-wide bank runs,” offered the CBK in the paper published last year, capturing public input.

Instead, Kenya’s Central bank has called for a measured approach that is consistent with that taken by major global central banks, with several of them having deferred the decision on rolling out digital currencies.

Yaya J. Fanusie, a former CIA analyst and the Director of Policy for AML & Cyber Risk at the Crypto Council for Innovation, says that CBDCs will in certain respects make it easier for regulators to fight money laundering, and key technical aspects of CBDCs will hinder some traditional illicit financial techniques.

“But CBDCs will nevertheless be a tempting target for bad actors, both state and non-state, who will adapt their methods accordingly.”

In particular, Fanusie says that the unique technical features that CBDCs will add to fiat money—such as wallet programmability and microtransactions (the ability to transact at volumes below a penny)—will enable more intricate money laundering schemes.