South Africa’s Crypto Landscape Amidst Upcoming Licensing Round
The Financial Sector Conduct Authority (FSCA) in South Africa recently completed assessments for 36 out of 74 firms initially considered. These 36 entities are set for presentation at the Licensing Executive Committee meeting.
By Anna B Kiwanuka
South Africa is witnessing a surge in cryptocurrency activity as it gears up to issue its first operational licenses for financial service providers. Payment and fintech sectors are leading this charge, paving the way for potential involvement from commercial banks. Notable developments include the ability for users to utilize cryptocurrency for purchasing goods and services and a new feature enabling them to withdraw digital currency as cash from automated teller machines (ATMs).
Stitch, a prominent payments infrastructure company in South Africa, has introduced an innovative payment solution named ‘Pay with Crypto.’ This groundbreaking method empowers customers to seamlessly use cryptocurrency in transactions denominated in the South African rand. Users opting for ‘Pay with Crypto’ can either deposit funds or directly conduct transactions using their cryptocurrency.
Reflecting on South Africa’s significant cryptocurrency adoption, Junaid Dadan, President of Stitch, remarked, “Cryptocurrency adoption in South Africa ranks among the highest globally. There’s a considerable audience eager to utilize their crypto for transactions.” Dadan highlighted the company’s commitment to engaging this crypto-savvy audience through the ‘Pay with Crypto’ method while mitigating volatility risks.
Another fintech player, Paycorp, has launched CryptoExpress, an app allowing users to convert their cryptocurrency into South African rands and withdraw cash at over 3,000 nationwide ATMs. This integration with various cryptocurrency wallets enhances user convenience, enabling withdrawals at Cash Express ATMs operated by Paycorp’s subsidiary, ATM Solutions. To complete a withdrawal, users convert their cryptocurrency within the app, authorize the transaction in their crypto wallet, and obtain a withdrawal voucher PIN generated by CryptoExpress, as per Paycorp’s official communication.
The Financial Sector Conduct Authority (FSCA) in South Africa recently completed assessments for 36 out of 74 firms initially considered. These 36 entities are set for presentation at the Licensing Executive Committee meeting, with 22 additional applications to be reviewed in February and the remaining 14 under consideration until March.
With 128 license applications received from crypto asset service providers as of November 30, 2023, South Africa will now mandate that foreign-headquartered crypto companies establish a local office, as per new regulations.
The FSCA emphasized the significance for offshore-based entities to establish a local branch, enabling effective oversight and accountability for activities conducted in South Africa. Most Crypto Asset FSPs in South Africa operate domestically, with only a minority based in foreign countries. The market study involving 47 financial service providers revealed that over half focus on retail customers, mainly revolving around crypto exchanges (49%). In November 2022, the South African cryptocurrency market peaked at over 8 billion rand ($427 million) in monthly transaction value.
Meanwhile, international cryptocurrency firms are expanding services across Africa, targeting countries with high crypto adoption and favorable regulations. The Open Platform (TOP), a Dubai-based investment platform, announced the global launch of Wallet, a Telegram bot facilitating crypto transactions. Starting in South Africa and Kenya in 2023, the expansion aims to tap into Telegram’s user base and escalating crypto adoption rates in these markets, with Nigeria slated for the first quarter of 2024.
In a related move, Kenya introduced the Capital Markets (Amendment) Bill of 2023 to regulate crypto transactions, defining crypto assets as securities and imposing capital gains taxes on them. The proposed legislation aims to tax cryptocurrency assets held in exchanges and digital wallets, requiring Kenyans to pay capital gains tax on increased crypto market values during sales or transactions. Additionally, the bill suggests imposing a 20% excise duty on all fees for cryptocurrency transactions.