By Gituku Ngene

When Frida Mwangi set out to pursue digital work in 2015, she was one of thousands of young Kenyans that were turning to the unexplored world of digital work. While this presented unchartered waters for workers like Frida, the local economy presented very limited opportunities for young Kenyans joining the labour force to get into decent work and make some income. Frida was one of millions of Kenyan youth under the age of 35, who now make up about 68 percent of the total population. These young people are entering the workforce at an unprecedented speed, but the formal economy is not meeting job demand – a trend that is mirrored across many African economies. According to the Africa Development Bank, 10 – 12 million young people entered the labour force in Sub-Saharan Africa, but only three million formal sector jobs were created. By 2030, these new entrants will be in the region will be 30 million.

On the backdrop of this complex challenge, digital work is offering the potential for millions of young Africans to find work outside their immediate geographies, be it their town, country or continent. This work, often gig- or piece-based, provides new and flexible income streams and can be accessible at many different skill levels, from highly specialised online freelancing to lower skilled microwork (a form of digital labour outsourced by global firms that breaks up complex technical projects such as data annotation for artificial intelligence into smaller and lower skilled tasks that can be distributed).

Problems cashing out

However, most young people that enter the industry are faced with the complexity of cashing in income generated from tens or hundreds of hours spent online. Research demonstrates that young people can undertake digital work with relative ease, but remitting their income has become one of the most complex challenges that they face. In large part, this is due to the cost and friction of cross-border micropayments. Transaction fees often require digital workers to forfeit a significant portion of their earnings (in some cases up to 30 percent of gross earnings as highlighted in a recent study by Mercy Corps), making some digital work opportunities like microwork uneconomical.

When Frida started out, Paypal was the only available intermediary that she could use to remit her payments from online work platforms – and even then, Paypal was yet to open up to the African market. This meant that Kenyan online workers would need to access their income through Equity Bank – the only Kenyan bank that had a partnership with Paypal at the time – in a process that would take anywhere between 10 and 21 days. She highlights that the lack of Paypal profiles often posed credibility issues, as potential clients would often perceive them (the workers) as fraudsters. Paypal has since built APIs with mobile money providers in Kenya like Safaricom’s M-Pesa, a move that eased the remittance burden for digital workers and other cross-border payment users, but the same luxuries to not exist in other markets in Africa, and workers point out that there’s still a long way to go.

Users are still required to provide complex verification and KYC details such as national IDs and utility bills, which can be challenging to get in countries like Kenya and create a significant barrier to access. Payment service providers like Payoneer still require workers to have US-type physical addresses which are absent in most African countries (many use the postal address system) for them to receive a payment card that they can use to withdraw their money. In the case of another service provider, Stripe, users are required to have US-based addresses and phone numbers, potentially locking out thousands of workers. 

But, it’s not just about these frictions. Experts notes that exorbitant commissions charged against small withdrawal fees coupled with prohibitive exchange rates offered by the payment gateways often hive off a significant chunk of the worker’s income. Further, workers risk having their accounts frozen when their accounts register higher than usual income. A sudden increase in earnings for instance could trigger a suspension of one’s account – a process Frida says could take even months to have rectified. In some cases, workers have had to forfeit their funds after the process of unblocking hit a dead end.

Crypto as the payment solution?

Frida’s experience highlights the challenging cross-border payment ecosystem for digital workers. However, recent research from Mercy Corps has found that cryptocurrency, and specifically stablecoins (a type of cryptocurrency whose value is pegged to a stable asset such as the US dollar), can remove this costly barrier making cross-border payments affordable, simple, instantaneous, and accessible to all. In 2021, Mercy Corps ran a three month pilot with partners Celo Foundation, Appen, Toca Labs (now Corsali), Kotani Pay, and Nairobits. The pilot (report here) tested whether digital stablecoins and mobile wallets could ease frictions and reduce costs in cross-border payments for un/underemployed youth completing digital work in Kenya. Some of the findings from this pilot include:

1. Stablecoins reduce the costs and frictions of sending and receiving cross-border micropayments. By leveraging easy-to-use mobile platforms, anyone with a phone can access a dramatic reduction in cross-border transaction fees: from 28.8 percent for a USD 5.00 transaction to 2.02 percent regardless of transaction value. This translates to a 93% reduction in fees from (USD 1.44 to USD 0.10)

2. Stablecoin-based digital wallets can unlock new digital employment and earning opportunities for un/underemployed youth by making digital employment a more lucrative, desirable work opportunity.

3. Stablecoin-based digital wallets can incentivize savings behavior for low-income or previously unbanked populations by building a user-friendly wallet with savings rewards into the payment process.

While just a small pilot, we’re excited about the potential of crypto as a tool to reduce barriers to access and enhance incomes for digital workers in Africa. The momentum is growing; Kenya is already leading the world in P2P cryptocurrency transactions, and ranks fifth overall in cryptocurrency adoption. As Frida, who now runs a social enterprise – Kazi Remote – which aims to recruit, train and connect thousands of young workers into the world of digital work, explained, “Web3 will not only be instrumental to building payment integrations that make it easy for African workers to access their payments, but it will also address challenges like poor financial practices and identity and verification of workers.”

Mercy Corps just launched the report explaining the pilot findings, which outlines a number of key regulatory questions needed to advance the uptake of stablecoins by digital work platforms, including trialing digital labor and stablecoin integration on a larger scale as part of Kenya’s “test and learn” environment under the Capital Market Authority’s regulatory sandbox. We’re actively seeking partners keen to take this further. Please get in touch if you’re interested to talk more!

The author is the Senior Advisor for Youth Employment and Innovation at Mercy Corps