How blockchain can help refugees in Africa

The millions of people displaced by war, famine and other hardships face distinct challenges and dangers when accessing and using money, and these pain points are being addressed by a blockchain-powered payment app that is part of Western Union's accelerator program.

“Migrants don’t have to take their savings across borders, which can be dangerous,” said Nat Robinson, co-founder of Leaf, a Nashville-based company that has operations in Rwanda and other parts of Africa. Leaf has been in development for about a year and just launched.

Leaf is part of an accelerator program Western Union operates with Techstars, a Boulder, Colorado, firm that provides mentorship, workspace, funding and other services to support startups in the Denver region and other cities such as New York and London. Western Union hopes the accelerator program will expose it to new ideas as fintechs make cross-border payments a more competitive market.

“The accelerator is another way for us to innovate,” said Tyler McPherson-Wiman, head of strategy and innovation for Western Union. “We look at external ideas that are new and different and maybe not constrained by being part of a big corporation with an ongoing business to run.”

Leaf's platform is accessible through a mobile device, and a migrant or refugee’s family and friends can transfer funds to the refugee’s account. Leaf uses Stellar, a public distributed ledger that specializes in developing markets, to allow migrants to convert cash to a digital format and access funds when reaching a safe location. Stellar, whose advisors include Stripe CEO John Collison, has also worked on a cross-border remittance app with TransferTo, a Singapore-based fintech.

Leaf has partnerships with local fintechs in Africa and is attempting to forge a partnership with a mobile money operator in East Africa. “The mobile money system in Africa is growing faster than banking, so it’s a good way to build a network,” said Tori Samples, another Leaf co-founder.

Leaf makes revenue through a transaction fee, the foreign exchange spread between currencies and the opportunity to invest in the savings float while the consumers are in transit. It has raised non-dilutive capital from organizations such as the Catalyst Fund, which is backed by JPMorgan Chase and the Gates Foundation.

Western Union has invested in Leaf through the accelerator along with Techstars, as well as the other firms in the accelerator class. Western Union is exploring opportunities to partner with these startups, including Leaf.

There is a substantial addressable market for Leaf's use case. The United Nations estimates there are about 71 million displaced people globally, including more than 25 million refugees and 3.5 million asylum seekers.

For Western Union, the exposure to startups such as Leaf and the other members of the accelerator class is an opportunity to spot new payment innovations from outside its traditional corporate structure. The recently concluded Western Union/Techstars class has 10 startups, including Andia, a mobile and web-based facial recognition platform for authentication; and StoreCash, an app that allows unbanked teens to manage funds on a mobile device.

Through its participation with Techstars, Western Union looks for developers that specialize in cross-border money movement, digital delivery, compliance and the point of sale.

“These companies in the accelerator are all interested in engaging with us on some level,” McPherson-Wiman said. “We look at this as a pillar of our innovation platform that we're building with early stage technology. These are young, excited entrepreneurs.”

In working with external developers, Western Union is joining other established companies in the payment industry to respond to the growth of startups over the past decade.

PayPal, for example, has made several changes to improve its ability to reach new innovators, including its acquisition of Braintree years ago and a series of developer events around the world.

Visa in 2016 opened its technology platform to third-party developers. Visa followed that move with a "business challenge" that included funding for startups. Recently, Apple acquired Stamplay, an Italian startup that uses APIs to build commerce experiences. Stamplay had come out of Visa's external API program.

Western Union faces competition from a market of fintechs that have sprung up in the past few years, using new cloud and blockchain structures to execute international payments while requiring fewer intermediaries.

That’s created alternatives to existing models, such as the correspondent banks and large brick and mortar networks to execute remittances and other P2P transfers.

Western Union still relies on its traditional network of more than 550,000 agent locations to support transfers, but it has expanded its use of emerging technology.

Western Union also recently began working with Ripple, the blockchain company that supplied the technology that many cross-border payment startups have used to work around their relative lack of a brick and mortar network.

“We still innovate internally but this accelerator is a way to see a different set of innovation and a different perspective on the work,” McPherson-Wiman said.

Techstars' collaboration with Western Union includes a co-working space at Serendipity Labs in Denver, access to Western Union technology experts over a three month program and the ability to demo their product to investors.

There are more than 1,700 companies tied to Techstars, including Remitly, sales technology company Outreach, blockchain company Chainalysis, and e-commerce company Bluecore. These companies have raised more than $7.2 billion in seed funding over the past 12 years.