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Crypto exchange’s plan to disrupt the payments market kicks off

VALR has just launched an instant payments system that allows customers to send rands via mobile or email – at no charge.
AI is used to validate the identity of recipients to get them signed up within minutes. Image: David Paul Morris/Bloomberg

In what promises to be the start of a shake-up in the SA payments sector, crypto exchange VALR announced this week that customers can now send rands free of charge to anyone via their mobile phone or email.

The payment is instant and costs nothing, but requires the recipient to open an account with VALR, which also costs nothing. A key advantage is that VALR customers can send rands to friends and clients without having to enter bank account details.

“We see a huge market here,” says Farzam Ehsani, VALR co-founder and CEO.

“We decided to launch VALR Pay because the costs of traditional banking payments in South Africa are way too high.

“Our system is fast, easy to use, and free.”

Ehsani says he expects to see a boost in sign-ups for VALR, not all of them interested in buying cryptos.

“We do expect some cross-over between those who want to use the payments system and those who want to trade cryptos with us, but I expect many people will want to sign up just to use the payments system.”

Fully compliant

Ehsani says the company has had discussions with regulators and senior legal advisors, and is fully compliant with the SA laws and regulations.

“We were very careful in designing this product to make sure it was fully compliant with the law,” says Ehsani.

Payments are made in rands rather than stablecoins, which are a crypto equivalent of fiat currencies.

The first phase of the VALR Pay rollout targets the peer-to-peer market, while the second phase will focus on merchants who will be able to save 2-3% in card fees.

VALR.com was founded in 2018 with the backing of former FNB CEO Michael Jordaan and US crypto exchange Bittrex to bridge the gap between the traditional financial system and the new world of cryptocurrencies. It launched bitcoin-rand trading in June 2019 and has since processed over R60 billion in crypto trades.

Read: Cryptocurrency banking potential in Africa

In the past two years VALR’s customer base, comprising individuals and institutions, has grown to more than 150 000 accounts. It offers low trading fees and more than 55 cryptocurrencies from which to choose.

VALR customers are able to send rands to any mobile number or email address, even if the recipient does not yet have an account with VALR.

The recipient will receive an email or SMS with an invitation to sign up to VALR for free to claim the funds.

VALR uses artificial intelligence and machine learning technology to validate the identity of customers to get them signed up within minutes.

Badi Sudhakaran, VALR co-founder and chief product officer, says a rewards programme is being launched to boost sign-ups. “We will be paying R20 each time you VALR Pay someone not yet on VALR.”

VALR has raised R79 million in funding since its launch three years ago, attracting high-profile investors such as Jordaan and 4Di Capital in South Africa, as well as Bittrex and HDR from the international investor community.

Listen to Ciaran Ryan’s interview with Xago founders Jurgen Kuhnel and Mark Chirnside:

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So what does VALR get out of this?

Also, how do you get the cash out? So someone pays you, then what? Transfer to a normal bank account?

No you open a new VALR account. It’s an internal transfer hence it can be done so cheaply.

Yes, obviously. But now how do you take that money someone sent you and pay for petrol or groceries? Transfer out of your VALR into bank account?

@supersunbird – you can’t. I assume that you would still need a bank account, so this isn’t a solution for the unbanked, just a cheap way to transfer some value. It isn’t super useful in its current form to me, but what will be interesting is if they introduce a linked credit/debit card to this…

Great.

Now the other exchanges must follow.

Is VLR a TPPP and if so who is their sponsoring bank? If not are they a System Operator? Otherwise, how do they get past the Payment Systems Act?

Its cheap, safe available to anybody and fast. Did I say cheap? ITS FREE.

Much needed and time for “regulators” to Regulate without protecting their fatcat banking friends.

I suppose its much like sending money via your cellphone?

Time to change for the better.

I wouldn’t trust any South African crypto company, rather just stick to the large international ones, at least you know you’re safe.

Nothing new here and the headline is misleading as it only applies to transfers between VALR customers. It is free as these are simple ledger entries but the trick is to attract new VALR customers.

Only existing VALR clients (Client A) can transfer funds and these funds can only be received by persons that have signed up as a VALR customer (Client B). The funds deposited by Client A are held in a VALR bank account held with a licensed banking entity. The critical questions is whether the funds deposited by VALR are segregated from the assets of VALR and held in a designated client money bank account?

VALR earns a higher rate of interest on the funds than it pays, thus making a profit whilst attracting customers.

If you want the cash you have to withdraw it from VALR to your designated bank account for a withdrawal fee.

So I sign up and my daughter signs up and I email R500 to her account after depositing cash from my normal bank account to this crowd.

How does she get the ten R50 notes????

or does she effectively have R500 shopping voucher to use at specific shops making this a coupon clearing house???

John in your example she would transfer the money from the VALR wallet to her Capitec or FNB account etc.

I think this system is quite cool for the millions of people that transfer money at a FEE currently around SA and even outside SA. It’s not for everyone and it’s not intended for everyone. The money transfer business and small business payments systems are generating huge revenue at clients expense currently. Our banks are no better than the rest of the world and specialize in relieving you of your money in tiny increments. They are more corrupt and dishonest than the government they just wear suits and call it an honest mistake. (generally speaking).

KevJones:

Thanks but I still don’t get it : I still have to ETF from my bank account so why not just direct to my daughter?

I like how simple PayPal : PayPal is for both receiving and paying USD. For some reason I pay no fees at PayPal but it is 21y old US account. One anyway earns no interest on USD so they can keep that 😉

End of comments.

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