Blockchain-based technologies and applications are gaining traction in SA’s finance ecosystem, with authorities granting more licences for its use and growing adoption from mainstream finance institutions.
This technology, powering cryptocurrencies such as bitcoin, had previously been seen as fringe and associated with finance scams. But in recent years, the market has seen more mainstream adoption, driven in part by large fund managers such as BlackRock.
Sensing the shift, central banks and finance authorities are helping to increase credibility for fintech operators.
In July, local company Kotani Pay became the first blockchain fintech to receive a crypto asset service provider (CASP) licence from SA’s Financial Sector Conduct Authority (FSCA).
This means businesses using its platform can receive and settle real-world transactions using cryptocurrencies. In addition, the platform allows for cross-border payments to be settled in US dollars, usually at a faster and cheaper rate than traditional banks.
Kotani already had SOC II compliance and registration with the Financial Intelligence Centre, and the FSCA licence helps to boost its position as a trusted and secure partner for businesses and individuals in Africa’s growing crypto market.
“Receiving the CASP licence is a pivotal milestone for us, underscoring our commitment to compliance, transparency and innovation in the crypto industry,” said Felix Macharia, CEO of Kotani Pay. “We believe that regulation is essential in building trust and confidence in digital finance, and we are proud to lead the way by setting a high standard for our clients.”
According to Wiehann Olivier, a partner and fintech and digital asset lead at Forvis Mazars in SA: “Blockchain technology is merely another, more efficient railway for us to use in terms of executing transactions.”
While much of the initial hype around the blockchain was centred on bitcoin, the market has evolved into other uses.
“The idea with bitcoin as a whole was to facilitate peer-to-peer payments over the internet, without the need for an intermediary such as a central or commercial bank. Because of Bitcoin’s decentralised nature, it turned into more of a speculate asset class, as opposed to a medium of exchange.”
In addition to payments, tokenisation — a process that involves creating digital tokens that represent fractional ownership of real world assets — is also taking off.
Imagine owning a stake in an office building. Tokens, or digital representations of ownership in the property, are created on the blockchain. Each token corresponds to a determined fraction of ownership. These tokens can be traded, and further accumulated — if resources allow — to increase one’s ownership stake.
In June, Mesh.trade helped raise R100m for Die MOS, a network of Afrikaans-medium schools, through a tokenised bond, offering a 10-year prime +2% floating rate.
The raise was completed in “just a few weeks” according to Connie Bloem, co-founder and executive head at Mesh, who told Business Day that such processes tend to take much longer. In addition, 17% of notes from the capital raise are owned by retail investors.
The minimum amount to invest was R5,000.
Mesh is a financial markets platform for cross-asset issuance, trade, investment and management of digital and financial assets. The platform makes use of blockchain to deliver services to clients.
Olivier said the use of the technology was helping to shift how businesses manage and exchange real-world assets.
While new, the concept has been helped by adoption by large global investors and fund managers including BlackRock, whose tokenised offering on the Ethereum blockchain has demonstrated a case for tokenising assets such as bonds and credit, drawing interest from both digital asset firms and traditional finance giants.
This process, particularly evident with US treasuries, offers benefits such as faster settlements, increased operational efficiency and greater transparency, says the finance executive.
The market for tokenised treasuries has swollen to nearly $1.3bn, partly driven by BlackRock’s entry.
That mainstream attention in areas around financial technology, including the blockchain, is also attracting investment from big players.
In April 2023, private equity firm Convergence Partners invested $10m into 42Markets Group, an incubator, investor and builder of fintech companies. Its portfolio companies include Andile, FXFlow and Mesh.trade, which will receive the bulk of the funds.
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