Luno, the popular crypto platform, was founded by four South Africans — Marcus Swanepoel, Timothy Stranex, Carel van Wyk and Francois Paul. The company, which was incorporated in Singapore in 2012 and launched the following year, now has offices in London, Cape Town, Johannesburg, Singapore, Sydney, Lagos, Jakarta and Kuala Lumpur catering to more than 9-million users worldwide.
Thanks to a recent $700m capital raise by its parent, Digital Currency Group (DCG), Luno also plans to launch in the US in 2022. GM for Africa, Marius Reitz, chatted to Business Day about the company’s rapid growth in Africa, the role of regulation and why the platform has never been hacked.
Q: Luno is expanding into the US in 2022. How will that fundamentally impact the company given its emerging market origins?
A: We have had a presence in the UK and Europe for many years now as well as recently launching in Australia, so we do not consider ourselves solely an emerging markets business. The presence across all our markets has helped us strengthen our service and our offering to customers and this will continue to be our priority as we expand.
Q: What is Luno’s most significant market at present in terms of number of users and the dollar value of trading volumes?
A: Of the 40 countries in which Luno operates, SA has the largest number of users followed by Nigeria and Malaysia.
Q: Tell us about Luno’s presence in Africa and its plans on the continent.
A: Africa is one of our strongest markets and we have a growing customer base of over 5-million across the continent as well as trading volumes of over $7bn. We recently reached a company milestone of 9-million customers across more than 40 countries and over 45% of the 1-million new customers added since June are based in Africa.
Currently, we’re operational in three countries on the continent [Nigeria, SA and Uganda]. However, we’re planning to expand to more countries and are actively building relationships with authorities and regulators ahead of launch.
Q: Crypto exchanges are often in the news for the wrong reasons, notably when there is a hacking event. How significant are Luno’s security challenges and how safe are user wallets?
A: Security is a top priority at Luno, which is evidenced by the fact that we have never been hacked. We have a number of security experts working at Luno and we conduct security audits, proof of reserve audits like the one with Mazars. To aid our security efforts, most crypto is stored offline, not connected to the internet and cannot be hacked.
In terms of information security, Luno is ISO 27001 certified. This is a globally recognised standard for an information security management system. In short, achieving ISO 27001 certification confirms that Luno has all of the necessary systems and processes in place to ensure the information we hold is safe.
Q: Luno users can currently trade six crypto assets — bitcoin, ethereum, Ripple, bitcoin cash, Litecoin and USD Coin. Are there plans to make more crypto assets available on Luno?
A: Luno keeps a close eye on all new developments in the space and we’re 100% open to the possibility of adding more cryptocurrencies in the near future. There are over 10,000 cryptocurrencies in the market, most of which are scams. We take our role as a trusted platform very seriously and that means ensuring our customers’ crypto is secure, and that we don’t offer them something that is unscrupulous. This is one of the main reasons we’ve limited the number of cryptos available on our platform. When we add a new cryptocurrency to the Luno platform, our customers can transact with the same level of confidence they have in the current available coins.
Q: Do you think SA regulators are keeping pace with the rapid innovation in the crypto universe and the increased interest in this asset class from retail investors?
A: The regulatory space doesn’t always move at the same pace as technology. Many regulators are struggling to define bitcoin; it has properties of an asset, a payment mechanism, a currency, and therefore new or regulation unique to cryptocurrencies has taken some time. In many jurisdictions, it will take many years to be properly regulated. We have seen the same in many other fast-moving industries which were regulated over time.
SA is ahead of its peers, particularly on the continent, in terms of regulators engaging with industry and tabling regulatory proposals. Of course, we’d like it to progress at a faster pace, but also recognise that regulators are in uncharted territory.
Q: What is Luno’s view on proposed draft amendments to Regulation 28 that seek to ban pension funds from investing in any crypto assets?
A: Allowing pension funds to invest in cryptocurrencies will give investors exposure to a largely uncorrelated asset class. It will give investors exposure to crypto price movements without holding the crypto assets themselves, similar to how investors in the US now have access to bitcoin ETFs. Cryptocurrencies, despite their volatility have proven themselves as a particularly effective hedge against inflation; this is exactly why pension funds should have access to cryptocurrencies.
The blanket ban highlights the need for fit-for-purpose regulation in SA. For now, South Africans who are planning for their retirement or long-range goals and who believe that cryptocurrencies and their underlying blockchain technology will form part of our future, can, however, still invest a small percentage of their high-risk investments directly through Luno.
Q: The Reserve Bank has said that foreign-exchange controls will soon apply to cryptocurrencies and that all crypto asset service providers will need to apply for a special licence from the Financial Sector Conduct Authority (FSCA). How does this affect Luno?
A: Luno welcomes the draft declaration of crypto assets as a financial product announced by the FSCA. We are pro regulation and especially an activities-based approach focusing on the intermediaries which provide crypto related services to the public. It will now be easier for the public to distinguish between licensed and unlicensed crypto service providers and find a safe place to store and buy their cryptocurrencies.
Regulations will also raise standards and barriers to entry and weed out bad actors or service providers with low capability to safeguard customer information and money. Clear guidelines in SA (and globally) could lead to wider adoption by enhancing stability and trust in the market.
Luno is registered with the Financial Intelligence Centre (FIC) in SA and already complies with the same rules and regulations that apply to traditional financial institutions such as banks for the on-boarding of new customers and the monitoring and reporting of suspicious transactions. We are licensed in certain of our other international markets such as Malaysia and have the operational capabilities and expertise to comply with regulations in SA.
Q: How soon do you think it will be before being able to make payments for everyday items with cryptocurrencies becomes a regular occurrence in SA?
A: We are still in the asset phase. The reality is that most people still buy crypto for investment or speculative reasons, but a lot of work is going on behind the scenes to address slow transactions, high network fees and price volatility linked to cryptocurrencies.
Companies such as Visa already make it possible for people to spend their cryptocurrencies. Visa has furnished dozens of crypto companies globally with crypto-backed Visa cards, making it possible for people to spend their crypto while merchants still receive fiat currency for payment, which is still preferred by most due to the price volatility of cryptocurrencies such as bitcoin. Stablecoins such as USDC (one US dollar equals one US dollar coin) make payments possible.
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