The latest wave of startups addressing, cross-border payment challenges is turning its attention to stablecoins—cryptocurrencies typically linked to traditional currencies or commodities to maintain price stability. This shift is fostering investor enthusiasm in the fintech sector.
One of the notable entrants is Cedar Money, a startup based in the U.S. that has recently secured $9.9 million in seed funding, spearheaded by the global fintech investor QED Investors, along with participation from Lattice, NIV, Stellar, and Wischoff Ventures.
Cedar Money, like many other stablecoin-based payment platforms, operates as a bridge. It enables businesses and individuals to transact through a fiat-centric platform, while stablecoin transactions occur seamlessly in the background. With the recent funding, Cedar Money has ambitions to expand its payment framework and address the inefficiencies associated with international transactions.
These inefficiencies are particularly pronounced in Africa, where businesses contend with high transaction fees and hidden charges linked to currency conversions, compounded by local banking risks. Banks often benefit from varied exchange rates, creating an additional financial burden. “Globally, the SWIFT network averages fees of around 2-3%, but in Africa, they significantly exceed that figure. It becomes even more burdensome in regions where people are financially strained,” stated founder and CEO Benjy Feinberg in an interview with TechCrunch.
Feinberg established Cedar Money in 2022 after nearly a decade at Behalf, an alternative finance provider. Prior to launching this venture, he explored potential “big” opportunities within the fintech landscape, ultimately honing in on payments and blockchain solutions.
While stablecoins have faced challenges gaining traction in the U.S. due to a scarcity of use cases and fierce competition from conventional systems like the dollar and SWIFT, Feinberg observed a different landscape in emerging markets.
In regions including Africa, the Middle East, and South America, businesses require U.S. dollars for imports, even when sourcing from nations like China. Countries such as Nigeria and Argentina present hurdles to obtaining dollars, largely due to unstable local currencies like the naira and the Argentine peso.
Cedar Money began operations in early 2024, commencing in Nigeria to assist businesses in that region with international transactions. “We aimed for locations where we could address significant challenges and where adoption would be more straightforward. That’s our reason for starting in Africa, where the need is most pronounced,” the CEO mentioned.
Nonetheless, despite their increasing popularity, stablecoin platforms must navigate limitations that could impact their scalability in different markets.
Feinberg explained that while creating payment infrastructures—converting fiat to stablecoins, facilitating transfers, and subsequent conversions—poses challenges, it isn’t a revolutionary undertaking. The core difficulty lies in establishing compliance frameworks that adhere to the diverse regulatory environments of different countries and the extensive documentation required by banks to verify legitimate transactions.
These regulatory hurdles can be particularly convoluted in African markets, where basic requests, such as providing a street address, can become challenging due to infrastructural variances.
According to Feinberg, the organizations that will thrive in this domain will be those capable of scaling operations while adeptly addressing complex compliance necessities, particularly in underserved areas.
“The most significant challenge is enlightening banks in developed countries that funds originating from less developed regions are legitimate. It’s a struggle, but we are actively engaging in it,” he stated.
Moreover, regulatory developments in the U.S. are creating a more favorable environment for digital assets, which could simplify compliance processes. Industry experts suggest that this, along with significant actions like Stripe’s acquisition of the stablecoin startup Bridge, may accelerate the broader acceptance of stablecoin payments and encourage banks and regulators—in both developed and emerging markets—to reassess their stances on stablecoin use.
This evolving acceptance is beginning to transform the global payments ecosystem. Research from a16z and other analysts highlights this trend: in 2017, stablecoin transaction volumes were minimal compared to traditional financial systems; however, they have now surpassed those of Mastercard, PayPal, and Visa. In Q2 2024, stablecoin transactions hit $8.5 trillion across 1 billion transactions, starkly contrasting with the $3.9 trillion volume spanning 50 times more transactions, as per an a16z report.
In its first year, Cedar Money has processed tens of millions in transaction volume by focusing on import-export businesses dealing in physical goods such as rice and shoes, backed by legitimate invoices. This strategy simplifies the underwriting process for banks since the transactions are supported by clear documentation and verifiable commodities, according to Feinberg, who declined to disclose specific client numbers.
QED Investors partner Gbenga Ajayi highlighted Cedar Money’s unique position in the fintech space, remarking that the firm is “particularly equipped to address the inefficiencies present in the global financial system.”
Cedar Money, which employs 14 personnel across Nigeria, the U.S., Israel, and Serbia, marks QED Investors’ fourth investment focused on the African region, following Moniepoint, Precium, and Remedial Health.
Cedar Money joins a burgeoning roster of companies like Conduit and Caliza, which cater to businesses in emerging markets by leveraging stablecoin-based payment solutions. Despite their increasing prominence, having reached a $205 billion market cap last year, Feinberg suggests that their collective influence on international payments is still minor, leaving Cedar Money with minimal direct competition for now.
“At present, two-thirds of international payments are processed via the correspondent banking network. The leading fiat innovators account for perhaps only 2-5% of the market. Thus, with two-thirds managed by banks, 5% by fiat innovators, and a mere 0.01% by stablecoin operators, the focus should not solely be on competing with others, but on identifying a niche, as there is plenty of room within this vast market,” he concluded.
Compiled by Techarena.au.
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