Paxful sees huge crypto demand in developing markets

April 29, 2019 15:11
Paxful founders Ray Youssef (top left) and Artur Schaback. The crypto trading platform has seen a significant growth of trading in Africa. Photo: Paxful

While cryptocurrencies are on the rise, their susceptibility to speculative activities and resulting price volatility have reduced their appeal to investors, particularly in the United States, Europe and China.

However, some crypto startups believe that emerging markets, where huge portions of the population are unbanked and unconnected, offer a more fertile ground for their growth. 

In an interview with EJ Insight, Paxful founders Ray Youssef and Artur Schaback showed how the peer-to-peer crypto trading platform is accelerating its growth in Africa.

Established in 2015, Paxful enables users to buy and sell cryptocurrencies with each other using more than 300 payment methods, such as multiple currencies, online payments, gift cards, etc. Known as one of the world’s largest peer-to-peer Bitcoin marketplaces, Paxful has more than 2 million users globally and a weekly trading volume of US$20 million.

Investor sentiment toward cryptocurrencies dropped significantly after their prices plunged in early 2018. However, trading demand for Bitcoin in Africa has remained robust, Paxful chief executive Ray Youssef said.

Paxful is seeing significant growth in Africa, which accounts for the largest number of people buying and selling Bitcoin on our platform," Youssef said, adding that average monthly transactions in the continent have reached US$64.5 million.

In fact, African countries are among the most active regional markets for Paxful, with Nigeria and Ghana being the second and third largest markets respectively.

At present, 45 percent of the active users of the trading platform are from Africa, with a daily turnover of more than 17,000.

Paxful users can post their trading demand and quotes on the platform, allowing the buyer and seller to contact each other and trade directly. The seller is charged a fee for each successful transaction.

Paxful has observed that electronic gift cards for Apple Inc. and other online shopping platforms are the most popular payment methods adopted by Africa-based users.

The choice of payment method reflects the huge demand from people who hold no bank accounts.

Artur Schaback, Paxful's chief operating officer, said the startup is on a mission to help the unbanked or underbanked.

"This ecosystem we are building, where there are no banks or capital control, gives them the freedom to control their finances their way,” Schaback said.

“After experiencing the seamless Bitcoin transactions, people will instantly notice Bitcoin’s superior functionality compared to their local banking system, basically allowing anyone to control their finances.”

Aside from the lack of access to financial services, hyperinflation in many African countries is also stimulating demand for cryptocurrencies. Countries like Zimbabwe, Ghana and Nigeria have experienced severe inflation, even economic crises, for years, and this has resulted in the drastic depreciation of their legal currencies.

Despite the drop in its price after reaching a peak in early 2018, Bitcoin has performed better than other assets, including cash, in protecting wealth and purchasing power.

“Bitcoin can help them hedge their assets against severe depreciation in African legal tenders,” said Schaback.

“Not many people realize this but bitcoin and peer-to-peer finance are being used throughout the world, especially in developing countries and countries with declining currencies,” he said.

Another advantage of cryptocurrencies is the low entry barrier for mass users, as they only need a smartphone and install the crypto wallet application. They can also use bitcoin and other cryptocurrencies for daily transactions, especially on e-commerce platforms.

On the other hand, the use of cryptocurrency fits the need for cross-border payments for the African population, according to Youssef.

Traditional online payment methods may not be easily accessible in many African countries. On the other hand, bitcoin allows users to conduct fast cross-border remittances and payments at a much lower cost, thereby raising locals' interest in cryptocurrencies.

Youssef believes that bitcoin and peer-to-peer financial service can help solve many of the problems encountered by users in developing countries and emerging markets around the world.

“Paxful is expanding aggressively,” he said. “We have plans to strengthen our current footholds in Asian countries, such as India, Thailand, Vietnam, etc.”

On the company's desire to expand globally and step up growth in trading volumes this year, Youssef said he is optimistic about the prospects in the Chinese market.

Since 2017, Chinese authorities tightened crypto-related regulations in a bid to put the brakes on initial coin offerings and virtual currency trading sweeping the country.

But Youssef said the platform saw an increase in trading volumes in China in 2018, and there are no signs that volume growth in the country is slowing at the moment.

“We can see the Chinese community of Paxful getting larger, and expect to achieve strong growth this year,” he said.

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EJ Insight writer