Crypto Startup Wala Is Reaching Africans with Ethereum Micropayments

In several countries throughout Africa, citizens are spending an average of 27 cents to top up their mobile airtime, and they're using a crypto token to do it.
That might sound strange to many in the crypto industry, since the vision of today's blockchains allowing the movement of millions of microtransactions across the globe has proven a challenging one to reach.
Yet, a South Africa startup, Wala, is proving that a little ingenuity and an effective embrace of a nascent technology can make cryptocurrency a better payment mechanism than any of the traditional options many citizens of African nations currently have.
"We really believe cryptocurrency is what is going to drive a financial revolution in Africa," said Tricia Martinez, the CEO of Wala, which raised $1.2 million selling ethereum-based "dala" tokens in an initial coin offering (ICO) in December.

And it seems like that is starting to play out.
Revealed exclusively to CoinDesk, Wala is now facilitating roughly 6,300 daily dala transactions for more than 57,000 wallet accounts across Uganda, Zimbabwe and South Africa. The vast majority of those transactions are micropayments under $1.
As such, the startup is displaying that, not only are blockchain micro-transactions possible, but also that the narrative that cryptocurrency is better suited for people in developing countries is right on the money.
Because before the token sale, Wala was facilitating customer transactions via its mobile app with the existing infrastructure in these African countries. To support their business models, though, local banks charge high fees – not just on transactions but for nearly every function, including customer inquiries on fraudulent account activity, Martinez said.
This was hurting Wala's customer base and the company's business model.
"Zero-fee is the solution, but banks could not support this," Martinez continued.
Cryptocurrency offered an out by allowing them to facilitate payments across a peer-to-peer network with lower fees.
And with 100,000 merchants offering goods and services through Wala's platform, the startup has created a small-scale circular economy – something crypto enthusiasts have long vied for.
"They can buy airtime, data, pay their electricity bills or their kids' school fees," Martinez said, adding:

Microraiden for micropayments

So how is Wala facilitating these microtransactions on the ethereum blockchain, which has been dealing with growing scaling concerns as of late?
Sure enough, according to bitinfocharts.com, this year ethereum transaction fees have ranged from between $0.17 to $4.15, which would make sending microtransactions like Wala users are facilitating too expensive.
But by using a technology called microraiden, Wala is able to get around those transaction fees.
Microraiden is a slimmed down version of raiden, a technology similar to bitcoin's lightning network, which pushes transactions off-chain in an effort to increase scale. Unlike raiden which facilitates multiple channels and payments hopping bidirectionally, though, microradian allows decentralized app developers to set up a channel that only receives payments.
As such, Wala takes in all user payments through that channel and then batches those transactions at some point to settle them onto the ethereum blockchain.
While that settlement process does incur a transaction fee, Wala is currently able to absorb that cost because of the money it raised through the token sale and its venture capital investment ($2.2 million total).
Still, even though the system functions for Wala now, the company is looking at other options should scaling become a problem.
"We're also actually exploring the opportunity to work with a few different blockchains simultaneously,"

This is a strategy other token issuers that have launched on ethereum, have taken recently based on concerns over scale.
As Saab envisions it, multiple blockchains and scaling solutions could provide a "buffer between consumers, people who are actually engaging with the blockchain via dala, and the effects that might be happening at the base layer."
Centralized for now
Until then, though, another way Wala is getting around the costs and delays of transacting on blockchains is by centralizing their operations somewhat.
As mentioned, Wala acts as the intermediary party between dala users and the ethereum blockchain.
And for now, being that custodian – one that understands user habits because the team has lived and worked throughout Africa for years – for customers is useful.
"At the rate at which our users lose phones, delete the app, share phones, do these things, it would be very difficult," Martinez said. "You can't solve these problems unless you are living amongst your customers."
Still, Martinez said the company has plans to slowly decentralize themselves out of the equation.
"Our plan for decentralization is dependent on how ethereum scales in the future," she said, adding:

Alongside this effort, Martinez is also looking for ways to make dala more attractive than cash.
"Our biggest competition isn't the banks, it's cash," she said.
One way Wala is enticing new users is adding rewards they wouldn't get from using cash. For instance, users can earn dala by recommending the app to friends, plus later this year, the company will launch a 'microjobs platform,' which will offer dala for simple tasks like filling out research surveys or taking pictures.
"We're trying to make a continent-wide currency," Martinez said.
Partnering with the incumbents
This year, Wala plans to expand to 11 countries, including the United Kingdom, through various partnerships.
Cross-border payments from expats in countries like the U.K. are an integral part of many African economies. But such remittance services are expensive and are often bogged down by delays.
According to the World Bank, Africa is the most expensive continent in the world to send money to. And Quartz reported remittance payments to sub-Saharan Africa can cost more than 9.7 percent of the sum received. That's where the global dala network comes in.
"Consumers can receive remittances and then go purchase products in the app, or in person. So it's a fully functioning financial product a consumer can use instead of cash," Martinez said.
Even though Wala can afford to take on the costs of operation, for now, long-term plans require monetization at some level.
For now, the startup brings in revenue by buying commodities – like airtime – in bulk at a discount, then selling smaller chunks of these commodities to users at the market price.
But above and beyond that, Martinez said the company will have several new partnerships to announce this year. For instance, Wala is partnering with the British trading firm Block Commodities to provide the equivalent of $10 million in dala loans for subsistence farmers in sub-Saharan Africa.
The startup will reap a small percentage of those loan payments.
Wala plans to partner with a bank in Zimbabwe and the global microfinance bank FINCA to offer similar loan products, and possibly also savings services.
Whereas the U.S. dollar in the U.S. is a strong currency to invest, Martinez said currencies like the Ugandan shilling or the South African rand are not as stable and so could lead to problems when invested.
As such, Martinez concluded: