Nigerian Crypto Startup Canza Raises $3.27 Million For Its International Payment Service

Canza Finance, a Nigerian crypto startup, has completed a $3.27 million seed round financing to offer crypto-based financial services to businesses in Nigeria.

Blockchain-focused venture firm Fenbushi Capital led the round with participation from Dominance Ventures, Hashkey Capital, Boxing Ventures, Consensys, Protocol Labs and others.

Founded by former AT&T employees Pascal Ntsama and Oyedeji Oluwole, Canza aims to become a crypto neobank that connects African businesses vitally with the global economy. Its current offerings include cross-border settlement and treasury management. Cross-border settlement is currently the company’s most advanced offering, with roughly $1 million in weekly volume sent to Canada, China, Turkey, United Arab Emirates and the United States, according to Ntsama, who serves as the company’s CEO. The treasury management service is scheduled to launch later in the year.

By focusing on cross-border settlement and treasury management, Canza is looking to solve some of the biggest challenges facing Nigerian enterprises that do business internationally.

Foreign exchange (forex) reserves in emerging market countries tend to be on the rise primarily because they’re exporting more value and therefore earning more from other countries. That used to be the case in Nigeria until circa 2008, when the country’s foreign reserve peaked at roughly $60 billion. It has since been oscillating between the $25 billion and $40 billion marks. This is largely a result of Nigeria’s over-dependence on the volatile oil market for its foreign earnings.

The ensuing forex crunch has created a host of financial challenges, including a raft of currency devaluations and inflation (owing to the country’s high dependence on importation). The Central Bank of Nigeria, in response, routinely introduces measures to preserve its foreign reserves. For one, the Bank started discouraging the importation of certain goods and services by disqualifying them from access to the Nigerian forex market.

It also introduced limits on the transfer of foreign currencies, depending on the account type. For instance, Naira-denominated accountholders cannot make international payments above $50 in a month. Domiciliary account holders aren’t allowed to make transfers exceeding $10,000 for accounts funded by cash lodgment as opposed to funding by wire transfer.

These measures make international payments difficult, leaving many Nigerian businesses in need of foreign exchange reliant on informal agents who operate the Hawala model. Hawala is an informal remittance system that runs parallel to the formal market. It originated in India before the introduction of Western banking.

Hawala runs via a network of partners (called hawaladars) who help one another to fulfill payment requests. Here’s an example of a simplified hawala arrangement:

Onome, an iPhone supplier in Computer Village, Lagos, wants to import $1 million worth of iPhones from Jabri in Dubai. The FX challenges in Nigeria make it difficult to wire $1 million to Jabri directly. So Onome engages Garba, a hawaladar in Lagos, to deliver the payment to Jabri, agreeing on an exchange rate. Garba initiates contact with his partner Asem in Dubai with details of Onome’s transaction. Asem proceeds to deliver the $1 million to Jabri, who, on receipt, ships Onome’s order.

One of the challenges here is that, for large transactions, it can take anywhere from 24 hours to a week to source the foreign currency since Asem may not always have $1 million idling away.

Canza has set up to be a crypto-based hawaladar, which partners with on-ramp/off-ramp companies in different countries to help Nigerian businesses and FX agents settle international transactions. In this case, an FX agent or businessperson goes to Canza with the Naira equivalent of the payment they want to complete. Canza then transfers the dollar equivalent using a stablecoin like USDT to its on-ramp/off-ramp partner in the destination country, who delivers the payment in fiat to the seller.

Canza is looking to take things a step further by offering some sort of treasury management services to businesses to mitigate the effect of frequent devaluation.

“With treasury, we’re targeting B2B customers, who pretty much on-ramp with us, and instead of just holding their crypto in a wallet, they can basically stake it in DeFI staking pools where they can earn interest that is a lot higher than what your traditional banks would offer you for holding your assets,” Ntsama said.

DeFi, short for decentralized finance, refers to a new financial system that doesn’t rely on central authorities to function. It uses blockchain-based programs called smart contracts to enforce financial processes, agreements and rules.

Many businesses in Nigeria have lost a lot of money to currency devaluation over the last ten years because they’ve held their reserves in Naira. The treasury offering provides a new way to manage liquidity and protect businesses from currency risk, Ntsama said, adding that his company has received interest from oil companies in Nigeria and asset managers looking to start offering crypto services to their clients.

Canza isn’t the only Nigerian company leveraging crypto to solve these problems. Helicarrier, the parent company of local crypto exchange Buycoins, also offers cross-border payment services via a service called Desk.

Also, a growing number of FX agents operating in the informal market are learning about crypto and have started using it as a tool for cross-border settlement.

Canza plans to channel its new funding in three directions: hiring, compliance, and working capital.

“We’re investing heavily on legal, bringing on a compliance manager working, working with a combination of legal firms in different territories, and going after specific licenses, such as a PSSP license in Nigeria and a money transmitter license in the US,” said Ntsama.