Emerging Technology Sees Widespread Adoption Amongst Financial Institutions
Blockchain technology, once seen as a fringe concept largely associated with cryptocurrencies like Bitcoin, is rapidly gaining mainstream traction within South Africa’s financial ecosystem. As authorities grant more licenses and prominent financial institutions embrace the technology, blockchain is evolving from a speculative asset to a foundational component of the country’s financial infrastructure.
This shift towards widespread adoption has been bolstered by significant movements within the industry, most notably the granting of licenses by financial regulators. In July, Kotani Pay, a local blockchain fintech company, became the first to receive a Crypto Asset Service Provider (CASP) license from South Africa’s Financial Sector Conduct Authority (FSCA). This milestone allows businesses using Kotani Pay’s platform to conduct real-world transactions with cryptocurrencies, facilitating cross-border payments in US dollars at a faster and more cost-effective rate than traditional banking methods.
“Receiving the CASP license is a pivotal milestone for us, underscoring our commitment to compliance, transparency, and innovation in the crypto industry,” remarked 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.”
The CASP license not only reinforces Kotani Pay’s position as a trusted player in Africa’s burgeoning crypto market but also reflects a broader shift in the perception of blockchain technology. Wiehann Olivier, a partner and fintech and digital asset lead at Forvis Mazars in South Africa, emphasized this transformation. “Blockchain technology is merely another, more efficient railway for us to use in terms of executing transactions,” he said, noting that while Bitcoin initially captured the world’s attention as a decentralized peer-to-peer payment system, the technology’s potential extends far beyond.
One of the most promising developments in blockchain technology is tokenization—the creation of digital tokens that represent fractional ownership of real-world assets. This process is revolutionizing how assets are managed and exchanged, offering unprecedented transparency and efficiency. For instance, Mesh.trade, a financial markets platform utilizing blockchain, recently facilitated a R100 million capital raise for Die MOS, a network of Afrikaans-medium schools, through a tokenized bond offering. According to Connie Bloem, co-founder and executive head at Mesh, the process, which typically takes much longer, was completed “in just a few weeks.”
The tokenized bond offered a 10-year prime +2% floating rate, attracting retail investors who now own 17% of the notes. The minimum investment amount was R5,000, highlighting the accessibility of such investment opportunities. “The use of the technology is helping to shift how businesses manage and exchange real-world assets,” Olivier noted, underscoring the transformative impact of blockchain.
This growing acceptance of blockchain is also drawing interest from global financial giants. BlackRock, one of the world’s largest fund managers, has demonstrated the potential of tokenizing assets like bonds and credit on the Ethereum blockchain. The firm’s involvement has contributed to the swelling of the market for tokenized US treasuries, which now stands at nearly $1.3 billion.
The increasing adoption of blockchain and other financial technologies is attracting significant investments from major players. In April 2023, Convergence Partners, a private equity firm, invested $10 million into 42Markets Group, an incubator, investor, and builder of fintech companies. This investment is set to benefit companies like Andile, FXFlow, and Mesh.trade, further driving innovation in the sector.
As South Africa’s financial landscape continues to evolve, blockchain technology is poised to play a central role, offering new avenues for efficiency, transparency, and growth. The country’s embrace of blockchain reflects a global trend towards integrating digital currencies and technologies into the fabric of traditional finance, positioning South Africa as a leader in this rapidly changing field.
