Bitcoin Exchange Paxful Reveals Plan to Reach Venezuela's Unbanked
Paxful says business is surging in developing nations, where mobile phones are abundant and cheap, but access to exchange platforms remains scarce.
Peer-to-peer bitcoin exchange Paxful is doubling down on developing markets.
Revealed exclusively to CoinDesk, the startup plans to open an office in hyperinflation-ridden Venezuela in September and release an Android app, its first for mobile devices, in October.
According to Paxful co-founder Ray Youssef, the reason for both moves is that exchange use is surging in developing nations, where mobile phones are abundant and cheap but access to crypto remains scarce.
Youssef told CoinDesk:
Africa (the continent with the highest rate of unbanked adults, according to a 2010 McKinsey study) is Paxful's biggest market, he said. According to Paxful's internal data, June saw 772,000 bitcoin trades averaging $64 each in Nigeria and 50,000 bitcoin trades in Ghana averaging $56 each.
All told, Paxful has 2 million users. The company, with 65 employees, collects a 1 percent fee from the seller on each trade.
Aside from Paxful and the similar P2P exchange LocalBitcoins, Binance, KuCoin and Luno are among the few exchanges serving users in cash-strapped economies like Nigeria and Ghana, where U.S. dollars and South African rand are harder to find, said South African entrepreneur Thabang Mashiloane.
"Most African currencies are not [stable], there's a lot of volatility," Mashiloane, co-founder of the Johannesburg-based exchange Chankura, told CoinDesk. "You can't do remittances in that way [with bitcoin] if Ghana doesn't have liquidity."
In Venezuela, Paxful's new office will conduct market research focused on local users. Youssef thinks crypto could be both a more stable store of value and a more convenient medium of exchange there than what's available to residents right now.
"If you just want to buy some eggs or groceries for your family in Venezuela you have to go through this very painful, long and drawn out process," he said. "You can't use cash, because cash is scarce and if you're lucky enough to actually have cash you can get a 50 percent discount."
To address such situations, Paxful's upcoming app in October will include in-app calculators for volatile currencies like the Venezuelan bolívar.
"It would allow users and merchants to transact, for the local currency, but using purely cryptocurrency in the background," Youssef said. "So people can use it on a daily basis."
Checking ID at the door
Still, the demand for Paxful's services in these areas highlights the complexities of bitcoin usage in the developing world.
Communities where crypto represents a potential economic lifeline are often excluded from both traditional banking services and global exchange platforms. Exorbitant banking fees are one reason low-income users in Africa rarely use exchanges, as a bank wire is usually needed to get money to the exchange. Plus, many people in the developing world don't have government-issued IDs, which regulated financial providers, whether they're traditional banks or crypto exchanges, must check.
And Paxful itself hasn't been completely immune to these issues – starting in September, it will require IDs from buyers of bitcoin, a change Youssef said was necessary to fight fraud.
Up to now, Paxful required only the sellers of bitcoin to upload their IDs, because it didn't want to exclude potential buyers who were attracted to cryptocurrency for the same reasons they lacked access to banking.
"For a long time most Paxful users were actually female," Youssef said, speaking to the segment of the developing world's population who, according to World Bank statistics, are most likely to lack IDs and bank accounts.
But not requiring ID from one side of the trade can lead to problems when business is conducted wholly online.
Most Paxful users swap bitcoin for fiat wire transfers or online gift cards. The model is similar to LocalBitcoins in that open offers to buy or sell bitcoin are posted and traders contact each other and swap directly. But while LocalBitcoins focuses on swaps between people in the same area (who often meet face-to-face), Paxful mainly deals in small online trades among users who are geographically spread out.
Perhaps unsurprisingly, in the three years since the Delaware-incorporated Paxful's founding, the startup attracted a number of scammers and struggled to weed them out manually.
Beyond traditional IDs, however, Paxful will also accept the Nigerian BVN Code (a form of biometric identification), fingerprint scanning, or verifications through other know-your-customer providers such as NetVerify, Jumio, Onfido, and Veriff. The next version of the web app, coming in September, will also use artificial intelligence to detect suspicious behavior.
"Scams and frauds are the problem in peer-to-peer trading," Youssef said. "We're redoing our entire KYC process."
Bolivars image via Shutterstock
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