Beyond Cash: How Blockchain-Based Wallets Are Powering Digital Payments in Crisis Zones
In this week's The Core Report: Weekend Edition, Nigel Pont, Senior Advisor for Humanitarian Affairs, HesabPay, talks about how HesabPay delivers stable digital payments in crisis zones like Afghanistan and Syria, overcoming trust, infrastructure, and regulatory hurdles.
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Nigel, thank you so much for joining me. So before we talk about HesabPay and how it's been driving the obvious, I guess, fintech revolution in Afghanistan and Syria, and we talk about digital payments and the role of algorithm within that. Tell me a little bit about yourself. How did you end up in fintech and on this venture?
Yeah, thanks. Thank you for having me. It's great to join you today. Yeah, so I'm a lifelong humanitarian. I started out doing various types of humanitarian work back in 93 in Afghanistan towards the, during the civil war in Afghanistan. And I spent until about 2020, 2021, I was working in the humanitarian space directly for various nonprofit organisations.
And then, but back in about 2017, I'd got into, started to get into crypto a little bit, exploring how it might be applied. And I got really fixated on how particularly stable coins could transform how aid got delivered in these really complex jurisdictions with really bad digital infrastructure, really bad payments infrastructure, really bad international payments infrastructure. So when I started looking for something else to do, I bumped into Sanzar Karkar, the founder of HesabPay.
And this was just after the Taliban took over Afghanistan in the autumn of 2021. And so we worked to build HesabPay, and that's how I got into it. And now about three years later, we're the leading mobile payments platform in Afghanistan.
Right, and tell us about how it works. I mean, in India has a fairly evolved fintech ecosystem, including for small payments, which is linked to obviously the existing transaction system which goes through the banking system or existing transaction architecture, which is sort of sits on the banking system. So earlier, if I wanted to make a payment to someone, I wrote out a cheque in someone's name and I deposited it in my bank account and it got transferred to that person.
Fast forward today, I can do all that through my mobile phone through what we call UPI or Unified Payments System. So how does this work in the context of HesabPay?
Yeah, so, well, firstly, as you say, India is light years ahead of where Afghanistan or Syria are in terms of digital payments. So if you're listeners, this will be like a trip to the distant past. But so Afghanistan has never had digital payments infrastructure that works and nothing that's worked interoperably.
So there have been a number of mobile money providers dating back about 15 years now, but the switch never worked particularly well in Afghanistan and there was very little trust in digital money, very cash-based society. And so the way it historically worked would just be sort of people would push payments to a certain number of recipients down one MNO's wallet and they would cash out in some remote location and that was it, halas. So the way that we've managed to get things going now is a combination of the switch working better than it used to, but still not great.
And then a lot of direct integrations. So we're integrated directly from HesabPay with all the MNO's, all the major banks and the major utility providers in the country with direct integrations there. So we have about 600,000 wallets nationwide right now and we process about 5 million transactions a year, about $500 million a year in the last 12 months.
So obviously not massive, but in the context of digital payments in Afghanistan, a huge leap forward from where we were a few years ago. Now every wallet on Hisapay is built on the Algorand blockchain. So every wallet is an account on Algorand and it's a custodial network.
So we hold the public and the private keys for the users. And users can interact with their account in a number of ways. So at one end of the spectrum, we've got an app for iOS and Android, which works how anybody would expect to sort of a good mobile payments app to work.
Then in the middle, we've got a USSD solution which works with all but one of the MNOs. And then at the very sort of bottom end of the spectrum for those without phones or where there's really bad internet connectivity, we have a very simple QR code card. It's not a chip, it's not a mag stripe, it's just a basic QR code card, which allows people to interact with their account with somebody else who's got the app on their phone with an agent or merchant.
So we've got a good solution that works pretty well across Afghanistan. We have branches in every province. But what we're struggling with and I appreciate sort of any lessons we can take from India on this is sort of building trust in the system.
Like people are very focused on cash. There isn't much of a desire to keep balances in wallets. So what we're seeing is that we have a lot of activity in the system where people, there's a problem that we can solve for them immediately.
So we see people buy e-money to pay electricity bills, for example. So sometimes up to 300,000 electric bills a month are paid through HesabPay. But people buy the e-money, they pay that bill and then they go back to a zero balance.
And so we see that across a spectrum of use cases. And so that's the situation that we're in now that we've built enough trust so that people are willing to solve specific use cases for aid payments, utility bill payments, airtime top-ups, some domestic remittances, payroll, et cetera. We see some people keeping a wallet balance but the majority of people wanna cash out pretty quickly because there's still limited trust in the system.
When you transfer to, suppose I had an e-wallet and I wanted to load it up, I would transfer from my bank account or I need not have a bank account to do that?
So you don't need to have a bank account. You can go to, you can set up a wallet for free. That's easy to do. And then you can either buy e-money from an agent or you can connect it to your bank account if you want or you can go to one of our branches and buy e-money.
So there are transactions, I mean, once the money is loaded into the wallet and let's say if it's a peer-to-peer transaction then the banking system does not come into the picture. Is that right?
Correct, the banking system is not involved. So we're licenced as a EMI in Afghanistan. And so the transactions are peer-to-peer.
So we have a, like all EMIs would, we have a trust account with matching fiat to sort of e-money circulating in the system. The one difference for us is that because our ledger is the Algorand blockchain, we mint what is essentially a sort of an Afghan e-money stable token on the Algorand blockchain, the Hesab Afghani. And that's fully reserved with our trust account but that's the sort of the coin of the realm.
So if you're making a peer-to-peer transfer, it's going from my account on the blockchain to your account on the blockchain.
Right, so tell us a little more about how the blockchain system itself works and how is that linkage created between my wallet and the central blockchain repository, if that's the correct term, and then how the transactions are triggered and how it actually lands up into my account or vice versa.
Yeah, so I mean, it's pretty straightforward in that when we create an account for you, we generate both a public and a private key for your account. Your public key, anybody can see, it's sort of like your email address and the private key, which is used to authorise a transaction, we keep encrypted in the background. And then when you look to approve a transaction with your PIN, we unlock that securely in the background and use it on-chain to sign the transaction on your behalf.
So that's basically it, you know, funds, tokens will move from your account to another account and then we have then on a central level, all those integrations I was talking about. So that happens centrally, but then there are wallets assigned by us that we control, on-chain wallets that are assigned to each of these different, you know, be it a government utility or an MNO for airtime purchases. And we settle things instantly there.
And, you know, this was one of the big things for us when sort of deciding which blockchain to use, because obviously we needed, you know, for microtransactions, we needed something that was very fast, very reliable, always on, never down, et cetera. So we, you know, we reviewed a lot of the L1 and some of the L2 chains as well. And ultimately we landed on Algorand just because of the way it performs very, very reliably, very fast, very cheaply.
And, you know, and it's ideal, maybe it's not the sort of the sexiest thing in the world, but in terms of reliability and performance for real world applications, it was the best. And we, you know, we haven't had a single problem with it since we started using it.
And how does the scalability work in this kind of a system and in your own experience in Afghanistan? And what could be the pressure points? You know, could it be a sudden jump in number of transactions at a particular point of time or a particular day, let's say payday and everyone is paying bills, or could it be something else?
Yeah, honestly speaking, we're not too worried about the performance of the blockchain in that regard. I mean, it's been tested to over 10,000 transactions a second. So we are a long way from encountering issues with that.
I mean, I think some of the issues that we face are more prosaic and related to electricity and the internet and also sort of some of the trust factors that I mentioned, just in terms of adoption. So technologically, you know, it's pretty robust for any foreseeable scale that we have on the horizon. But, you know, the sort of the political and economic environment of Afghanistan and Syria are pretty challenging. And that's where more of the challenges tend to lie.
So when you say trust, I mean, would you want people to keep money in wallets? And I'm assuming there's no interest earned if money is left in the wallet. So is that a reason why maybe trust levels are low or put differently, there's no real incentive?
Yeah, you're right. I mean, because we have to be careful about being Sharia compliant with how we work in both Afghanistan and Syria, there's no interest on accounts. But there again, people aren't earning interest anywhere.
So that's not really an issue. So it would be a good sign for us, a proxy for trust, that, you know, if people did keep balance in their wallets, rather than cashing out and putting the money under the mattress, so to speak. So we would like to see that happen.
But, you know, we're not yet at a point where we're seeing a lot of day-to-day retail transactions. You know, people are not buying e-money to go to the store down the street to buy groceries. You know, they're taking money out from under the mattress to go and buy groceries.
They're buying e-money to solve sort of longer distance and more sort of complex transactions, which are less convenient right now.
There are many societies, including in Western Europe, where let's say the use of cash is quite high. And despite there being a fairly robust, let's say, financial, digital financial architecture. So, I mean, is there any sort of lesson in that, that maybe such systems have limitations and they work to drive efficiency at certain levels, but maybe are not meant to go beyond, at least as things stand?
Yeah, I mean, I think if you look at places where people try not to use the digital payments infrastructure, where it works really well, it tends to be probably, I'm guessing, to do with the tax infrastructure and people are using cash to try and avoid some of those challenges. And there may be something related to that also in the places where we're working, where people don't want to have their financial transactions in a place where the regulator or maybe the authorities might ultimately have access to them if they put pressure on a provider. So that may be a feature, but I think more right now, it's to do with a fear of their money being taken or disappearing.
I mean, I think there's been enough examples of the banks limiting how much cash you can take out or banks just running away with people's money and then people losing their savings. I think it's probably a more sort of really basic fear of losing my money than it is about anything else right now.
To a normal person, particularly in Afghanistan, I mean, where you work, do they care or know what the system behind it is like? I mean, is there, I mean, the concept of a blockchain, is it abstract? Is it something that they ask about? How does that work?
Now, a few people, sort of younger, more educated, sort of middle-class urban users are sort of interested in that, but the majority of users don't care. They just want a good, reliable system that works every time reliably. You know, they don't particularly care whether it's centralised or decentralised.
If you were to look at any such complex environment, whether it's Afghanistan or Syria, do you feel that this is a way to set up a new financial sort of payments architecture or system? I mean, the approach that you've used, or are there any, I mean, would you do some things differently if you were to start again?
I mean, I think there's always lessons, but I think if you're looking to establish like an international digital payments infrastructure in an area that doesn't have digital public infrastructure, you know, where IDs are bad, internet is limited, phone ownership is low, and the formal financial sector doesn't have a footprint, particularly in the remote rural areas. What we've found is that it's really, it's a very fast way using this type of architecture to get a system working. So for example, we've recently got a system up and running in Syria with sanctions being loosened in the past weeks.
So we're now up and running in Syria, and you know, our wallet works. Anybody can download it across the country. They can receive international remittances or aid payments into their wallets.
They can cash out through a nationwide, we've managed to sort of figure out a nationwide network of cash out agents across the country. And we've been able to set that up in the period of a few weeks. Yeah, obviously with good local partners, et cetera.
But you know, if you imagine trying to do that with a sort of a more formal financial system, then obviously there's sort of limitations there. So it's not a silver bullet. That's definitely not the case.
There's still plenty of challenges. But for us, we're trying to enable like aid payments and remittances to move fast across borders into these really complex jurisdictions that don't have good digital public infrastructure. And, you know, custodial wallets on a highly performant blockchain makes a lot of sense.
Tell us a little more about the cross-border side of payment. So what you've talked about is incoming, which is money coming maybe for aid or via aid agencies into the country. And if you can walk us through the pathway and where it connects with the banking system and so on. And equally, what's the reverse, is there a reverse flow possible?
Yeah, so firstly on the reverse flow. So the reverse flow is very interesting to us because obviously sort of the business community in these countries is incredibly constrained by their ability to make international payments, to pay importers, et cetera. So we would love to serve that sort of segment of the market.
We really would. Our experience has been that the regulators and the sort of the official authorities in the country are very nervous about stable coins being used for capital flight in these situations. So, so far we haven't had much traction on that front or being able to roll too hard with that because obviously we need to respect the desires and the interests of the regulators in that situation.
The inbound payments, it's pretty straightforward because once you open a wallet in Syria, for example, it's very easy to send funds from another blockchain wallet into that wallet. And it arrives within a few seconds and it's all trackable and transparent. The challenge becomes a little related to how to on-ramp in a different jurisdiction to convert funds from fiat to stables.
And there's masses of on-ramps coming online globally for all sorts of use cases. There's a new one every day, it seems, to serve some particular use case. But the types of jurisdictions that we're focused on, such as Syria, obviously they tend to make the sort of compliance officers at any on-ramp or the bank that controls the risk appetite of the on-ramp.
Their hair goes on fire when they think of trying to sort of sell somebody's stable coins to work on Syria. So for individual remittances, this is okay because somebody can buy USDC on Algorand on Coinbase or Kraken or Crypto.com and they can send it to a relative and it'll arrive free and fast. And that's fantastic.
For organisations working in these jurisdictions, in the aid space particularly, there's a few more challenges with on-ramping from fiat to crypto because of all the sort of the AML, CFT type concerns. So we need to get the compliance right. But yeah, the inbound corridors, sort of the biggest challenge is probably sort of the on-ramping piece, but sort of coming into country, et cetera, that works pretty well, as long as we get the due diligence right on the in-country off-ramps.
The bigger challenge really though is the outbound transfers, which would be huge for the private sector. And we would love to make the system work for them, but we have to sort of be very sensitive to the requirements of the central bank.
So you would need one, let's say, one mother bank in-country which would in turn talk to, let's say, the bank from where the money is being sent from overseas?
No, we don't need the banks talking to each other at all. I mean, that's part of the beauty of it. So at the on-ramp level, sort of in a Western jurisdiction, Northern, another jurisdiction outside, be it India or be it Germany, the organisation needs to be able to wire money from their bank account there to an on-ramp to mint stable coins or to purchase stable coins to be able to send.
So that's the banking relationship that has to work in sort of the on-ramping location. In the off-ramping location, we may partner with banks, but it doesn't have to be a bank. It can be a money changer who's a licenced business, but doesn't have a formal banking licence.
And as long as they pass the due diligence requirements that we have to make sure they're fully compliant, then we can work with them. And there's no need for banks across borders to have any relationship at all. So you're doing away with the requirement for correspondent banks into these jurisdictions because correspondent bank de-risking is the biggest problem for international financial banking transfers into these jurisdictions.
What you've explained now is the architecture and how it works in countries which have had some sort of trouble or emerging from strife. Now, if you were to apply this in, let's say, a more mature environment, what would be the advantages compared to an existing, let's say, banking system or a banking digital payment infrastructure? And would there be any benefits? If so, what?
Yeah, so I think that if you take somewhere that's sort of as advanced as India, and I don't claim to know a huge amount about India, but the digital payments infrastructure is super advanced. And so I think sort of the comparative advantage of a solution like HesabPay in India compared to Afghanistan, marginally, it may not be entirely advantageous. I think the ability to do direct cross-border transfers I think is a big one.
And I think sort of in any market which is heavily dependent on remittances, we all know the cost of remittances and there's all sorts of businesses obviously trying to bring down the cost of remittances around the world. But that's one big obvious use case that you can send directly from out of the country to a user's wallet in the country. It all depends on the local regulations in that country, obviously.
But that is a big one. I think the other thing is particularly in the aid space, there's a huge push right now for greater transparency and accountability when it comes to aid. Like, where did our money go?
Did it really get to the people it was meant to go to? And that's a very hard question to answer right now given any other type of payment system other than blockchain. I mean, you can obviously, you can do it on centralised systems, but you need to trust the data that the centralised providers are providing you with.
What you can do on a blockchain obviously is people can verify for themselves, be it an auditor, a donor, or even individuals, that the money got exactly where it was meant to go and how quickly it got there, et cetera. So I think in that sort of the particular case around sort of aid and building trust that aid is getting where it's meant to go, then I think there's a definite advantage there still.
Right, and just to go back to the Syria example, how long did it take to go from, let's say zero to whatever number of people that you're serving? And what's the, I mean, where does it sort of start accelerating? Is it maybe a few people who use it and they start talking about it, or is that sort of more aggressive marketing and push?
Yeah, so I think what we tend to do is we tend to try and pilot a couple of places to sort of test the hypothesis about all the different bits that need to fit together. And that can take a few months to put together and to run those tests to sort of challenge all the assumptions about sort of how the, both sort of the local political social systems will work as well as just getting the tech to work. And then once we've got that, we really just focus on, okay, how do we put in place the sort of the off-ramp infrastructure so that it'll work nationwide at scale?
How do we find the right people, get the right compliance pieces in place and the right sort of partners and staffing? That takes another month or so. And then really we're about to enter a phase now where we're gonna go full on marketing and offering the service.
We're not gonna be looking initially any way at domestic payments or sort of domestic retail payments. We're not really aiming for that market, but we'll be focussing particularly on international remittances and aid payments for which there's no existing digital payment rails into Syria for those two inbound use cases. And we can make it significantly cheaper and faster than it's ever been done before.
So we're sort of, I'd say from, to answer your question, probably from like zero to full on marketing, maybe four months, something like that. So it takes a bit of time. Obviously more investment would make it go a bit faster.
But we're hoping by the autumn we'll be up and running at a better scale.
So one of the things about the UPI system in India is that it is subsidised. So as for at least, I mean, small payments, when I, if I were to transfer, let's say a hundred rupees to you or pay a hundred rupees to a street vendor to buy something, there is no charge on anyone. So how does your system work?
So peer to peer transactions digitally are free. So, you know, the gas fees on Algorand, the transaction fees are super low and we just, we eat those from our side.
On the remittance side, we charge about a percent and a half for an inbound remittance, which, you know, people are currently paying in fees, three to 5%. And then in Forex, probably another 5% at least. So they're paying an effective rate of about 10% right now.
So that will be paid by the user. So, you know, you send a hundred dollars and your cousin in Aleppo is gonna get 98 and a half dollars and you'll pay that. For the aid use case, we charge that fee to the aid organisation.
And so the user gets the full value and they, you know, you give them a hundred dollars, they can redeem a hundred dollars.
Right. And this, I mean, so both in the case of Afghanistan and Syria, these are, let's say a payment architecture that is in play. I mean, you're setting up and then it will be in place with a sense of continuity.
Is this solution also workable or applicable to one-off cases, like something happens and then you want to disperse aid and you wanna, you know, help people and then maybe pull out?
Yeah, I think that's, I think there's a lot of talk about how this type of technology really helps for disaster response. So I think there's a couple of ways people are thinking about that. One is sort of preparedness.
And so there's some really interesting applications of smart contracts within sort of blockchain payment solutions. So there's a number of people working on sort of pre-positioning wallets in the pockets of recipients in a known flood, quake, volcano, hurricane zone. And then be it manually or be it based on parametric payouts, you know, wind speed is over a hundred, volcano ash cloud is over a certain height, earthquake is beyond a certain magnitude and funds held in a scroll in these smart contracts automatically pay out based on, you know, getting the confirmation from a third-party Oracle and they make those payments.
So we're seeing a lot of people starting to play in that space with pre-positioned wallets. It's obviously, it's also possible to do it pretty quickly if you don't have the pre-positioning, but everything really does depend on having a good off-ramp network in that jurisdiction. So it's pretty easy for me to send an SMS or a WhatsApp to everybody, you know, in the disaster area saying, download this app and receive assistance directly.
And you can do that. They can open the wallet, they can receive payments into it, but is there an existing sort of acceptance, agent network in that area that you can plug into? So I think that's one of the sort of the biggest limiters to using it in that context, if there isn't already some sort of a pre-positioning plan in place.
All right, last question. So regulation plays an important role here and that would typically be the reason why you can set up or how you can set up and how you can grow or can't grow. And I can sense why maybe this is not priority for let's say financial sector regulation right now, but it could be.
So what are the challenges on organisations like yours to keep in step with regulation and ensure that regulatory authorities, as in when they start looking at these things closely are comfortable with this architecture and obviously, you know, give their blessings and so that it grows further?
Yeah, well, clearly, you know, crypto regulation sort of as part of broader sort of the financial regulatory environment is moving fast. I mean, you know, obviously big talk in the States for the past few years and sort of not yet passing the, you know, hopefully maybe the Genius Act gets passed in the coming weeks. So it's moving fast all over the world.
So it really matters a huge amount, as you say. So in Afghanistan, for example, the authorities have banned crypto per se. They haven't banned our use of blockchain as a ledger, but we don't use any exchange traded tokens on our system.
People can't buy, you know, Bitcoin or Ethereum or trade Dogecoin, you know, those sorts of things aren't possible on our system. But what we feel is a great loss in the Afghan context is that we're not allowed to do US dollar stable coin payments, which we believe would be really transformative for the Afghan economy. It would be a huge, a huge blessing for the Afghan economy, I think, to be able to figure out how to incorporate that.
So we're working closely and very respectfully with the Afghan Central Bank to see if we can find a way for them to fit that in. So, you know, it's a case in point that we've got the platform, but the regulator isn't yet comfortable with adding that as a sort of a regulated tool in the national toolbox. On the other side of the spectrum, say in Syria where we're working, you know, we would, well, in Afghanistan, so we're fully licenced yet.
In Syria, we've been speaking a lot with the relevant regulators and authorities in the new Syrian government about, you know, our desire to get the licences that we want and that we need in order to do what we've got planned. And so they are, on the other hand, very crypto friendly. They're very supportive of, and you know, very familiar with stable coins in particular, given how ubiquitous they were in the areas of the Northwest where they were operational before they sort of took over the rest of the country.
And so what they've told us is, look, we've got regulations coming. We, you know, we'll seek your input into them. In the meantime, go ahead and keep us posted on what you're doing.
And we'll try and sort of grandfather in whatever you're doing as we go forward. So that's, you know, it's a delicate balancing act because we don't want to, you know, obviously fall foul of anything, but we also want to move quickly because there's real needs to move fast to support the economic recovery in Syria.
Nigel, thank you so much for joining me.
Thank you. Thanks. Thanks for the great questions.
You're welcome.
