We caught up with Jurgen Kuhnel, CEO, and Co-founder of XAGO, a South Africa-based startup enabling individuals and businesses to trade, send and accept XRP.
In this interview with Kuhnel, we discussed Xago’s decision to adopt XRP, dissected the cryptocurrency space, the advent of Facebook’s Libra cryptocurrency, and discussed at length about doing cryptocurrency business in Africa.
We love Bitcoin and also love what Bitcoin stands for, but for retail payments Bitcoin in its current form is not suited to the task. The purpose of our exchange is to build liquidity for XRP in the countries we will be expanding to. -Jurgen Kuhnel
On October 9th, your startup Xago, launched its Ripple Gateway and custom-built XRP Exchange in the business hub of Africa, South Africa, what is the motivation behind it? Why are you concentrating on XRP?
Our initial aim for starting Xago was to develop a platform that would bypass traditional payment rails and card processors and therefore build a new payment rail from the ground up, enabling settlement with retailers utilizing their existing hardware and software. We firmly believed the existing payment rails could be improved using blockchain technology.
We did this by utilizing a user’s phone number with USSD messaging integrated with a card terminal. We initially believed that Bitcoin was the solution we required to bypass the card networks, however, we decided Ripple’s blockchain technology was the perfect solution because of its speed, low cost, and number of transactions per second it enabled. This technology is purposefully built for financial transactions where large volumes can settle in under 4 seconds.
It certainly seemed like the most competitive product for a retail payment rail. We engaged with the market, received positive feedback on Ripple with the use of XRP and then forged ahead to build our proof of concept demonstrating how to effect a Ripple payment, using a phone number at a retailer and having settlement finality in a few seconds.
The world is talking about Bitcoin, being the first digital currency, do you have plans to include Bitcoin on your exchange. Or do you think XRP outshines Bitcoin in everything?
We love Bitcoin and also love what Bitcoin stands for, but for retail payments Bitcoin in its current form is not suited to the task. The purpose of our exchange is to build liquidity for XRP in the countries we will be expanding to. We need XRP liquidity in every currency pair to perform the full end-to-end payment rail we envisage and cannot rely on third party exchanges for this.
Our gateway and exchange run on the Ripple ledger and all transactions are finalized this way. For our payments to work at the speeds we require, we cannot utilize a 3rd party processor, as the time lag would slow down our end-to-end product and we would not be able to work within the required timeframes that retailers need.
What differentiates Xago platforms from others?
Mainly that we are directly integrated with the XRPL. Each transaction, send, receive, deposit or trade is confirmed on-ledger for the reasons explained above. What is also unique to Xago is our pegged ordering system, which pulls price data from the largest USD exchanges and latest exchange rates to determine the correct ZAR price for XRP.
This can then be used to peg or buy or sell order to the international XRP price to eradicate the premium people who are willing to pay for XRP in South Africa / Africa. Our exchange still has a free-market price, but this is an important function and the first step in creating price parity between the different regions in Africa.
In your release on the newly launched XRP-centric exchange, you mentioned that Xago designed a mobile number based identity system that gives users the opportunity to transact at the point of sale with their mobile and mobile number. When are you unveiling that? Is it for XRP users alone?
To get to the second part of the question, we are utilizing the XRPL and need XRP liquidity for our system to function, but do not see a future for XRP payments alone.
When users sign-up the process is similar to a mobile money system in that the identity service identifies users by their mobile number rather than email or username. We also use USSD to verify the phone number and authenticate the user to prevent fraud. The process is designed to fit into our upcoming payment rail that will be based on mobile numbers and PIN codes.
For example, transacting with retailers by paying, depositing or withdrawing, you will be able to just enter your phone number and pin on the pin pad. For peer-to-peer payments, and on an even later date, cross border payments will be done via phone numbers. We aim to launch the payment rail sometime in 2020.
To get to the second part of the question, we are utilizing the XRPL and need XRP liquidity for our system to function, but do not see a future for XRP payments alone.
For example, we built a proof of concept showing how we could integrate with a local bank’s sandboxed API to debit a customer’s bank account and credit a mobile phone company in seconds through the XRPL to purchase airtime. This way we can save on fees and reduce settlement time. Although our local banks do not have the API’s ready yet, we see a future, sooner than later, where this will be available.
What do you envisage with your upcoming payment switch?
The payment switch is already partly built and is based on ISO8583 protocols to integrate directly with current retail and banking infrastructure. We proved a full end-to-end payment with a large retailer in South Africa and integrated into their test environment with the payment concluding in under 5 seconds. The process was seamless and we believe we will unlock new avenues for retailers to create new innovative products.
Another use-case we see is to potentially be a crypto-processor and act as an aggregator for crypto payments. However, we do need regulatory certainty from the South African Reserve bank and other regulatory bodies in South Africa to proceed.
Now, you are working on RippleNet, is there any blockchain firm you are planning to partner with in the future?
The short answer is no. We have chosen our technology stack and are running with it for now.
Could you please share us the stats of Xago?
We have only been live for 1 week, so we are not able to give any meaningful stats as of yet.
Cryptocurrency regulation is still not very clear in the United States, how far have you gone with regulations in South Africa? Is there a solid ground for cryptocurrency in the country and Africa in general?
Regulation differs quite dramatically from country to country with each central bank taking their view and approach to crypto, and whilst we try to keep informed of the role regulation is playing with regards to crypto globally, at present we are focused on South Africa and Africa as these are the markets we will serve.
In South Africa, our Central Bank has been quite progressive, and though there is no formal regulation, we have had papers published by the Central Bank to guide what regulation will most likely look like, what will be expected of exchanges and the requirements we will need to meet.
The most important of these being KYC requirements and customer due diligence to comply with strict AML/CTF policies.
When the regulation comes out, we expect that it will incorporate all these policies and therefore have built our business platform and procedures so that we will be ready for it. We are engaging continuously with the Central Bank as we believe that working closely with them can only be beneficial for the long-term vision of our business.
A study from We Are Social and Hootsuite indicates that 10.7% of internet users in South Africa own crypto — the highest ratio in the world. Another recent Statista survey shows that South Africa, Turkey, Brazil, Colombia, and Argentina are among the highest cryptocurrency ownership countries, with almost 20% of respondents reporting that they have used or owned crypto assets in 2019.
So we certainly feel that there tremendously interested in cryptocurrencies in South Africa.
You started in South Africa, are you considering other African countries especially Nigeria due to its huge population, and the fact that it’s one of the giant economies in Africa?
Yes, we have shortlisted 5 African countries based on our in-house metrics. Unfortunately, Nigeria is not one of them at the moment.
How is cryptocurrency business-like in Africa?
We see huge potential for Africa and cryptocurrency rails. Right now each country differs in the regulatory approaches and we will have to face these as we enter these territories. The biggest problem in Africa is exchange control and exotic currency pairings.
Example: Zimbabwe’s local currency has completely imploded and therefore people started using the USD as their accepted currency.
Now that Zim-Government has banned the use of USD it is creating all sorts of problems for the local population. The price of crypto sky-rocketed and had a premium (% above the USD price) of over 25% in Zim.
It is just crazy that poor people are usually the ones suffering the most. If we can create price parity between African territories it would create an opportunity to move money cheaply and quickly via your phone.
Any plan building more projects on Ripple Ledger?
We have only one project and that is Xago, but we will build many more features on our platform in the future.
Libra is the talk of the town at the moment, what is your stand on Libra, is it not going to outshine Ripple’s XRP?
I think Libra is great and it just showed the governments and banks of the world how big the concept of cryptocurrency is. With Facebook’s massive user base, Libra could skyrocket to become the stable currency of the world and become a competition to fiat USD.
Libra coin will be backed by real assets, according to the white paper and fiat is backed by nothing. This big user base would open the financial eco-system to proportions we cannot even contemplate right now.
The XRPL has been built to do various things and is really an open-source cryptocurrency switching platform and XRP is there to protect the ledger for DDOS attacks and fuel the ledger by charging small fees which get burned during each transaction.
Each transaction burns around 0.000012XRP and therefore supply is continually getting diminished. Because Libra is backed by assets that will continually issue more and more coins as the demand increases and effectively keeping the coin at 1 dollar so to speak.
A truly borderless currency can’t be based on assets that sit within borders. Therefore, in my opinion, XRP would prove to be a better solution in the long run.
Cryptocurrency exchange battles hacking almost every time, what technology are you employing to fight hacking head-on?
We have designed our system where 2FA is mandatory and believe that other crypto providers should do the same. We would much rather enforce security, slow down adoption and bring security to the font of mind of all users, particularly given that settlement is final with crypto.
As a consumer, you need to understand that there is no recourse once the transaction has taken place. We also believe that we should follow similar processes set out by banks to protect your assets and 2FA plays an important role in protecting the user’s assets on our exchange.
Blockchain is a nascent technology generally. In Africa, blockchain is not being talked about in as it’s in other continents. What is Xago putting in place to spread blockchain evangelism?
Agreed, Africa lacks behind in some respects, however, in other ways, we are also very advanced. For example, Africa’s use of mobile technology to power payments and money send has proven to be in many ways more advanced than in the western world.
Let’s go personal this time around. What is it like co-creating Xago and where do you see Xago in the next few years?
A definition of a company is: a group of people pursuing the same purpose or sharing a common fate. This is true to Xago, as every shareholder and person working for us had a contribution to Xago in some sort of way.
Whether it is a legal, marketing or development role, where we are today is because of this group of people sharing a similar vision and passion. The culture we have created at Xago is one where people feel free to voice their ideas and make their role their own. This is especially important as we continually work in uncharted waters and are doing something that has not been done before.
Therefore we don’t have a frame of reference to go by. The first and most important part of any business is the people, whether it is shareholders, advisers or staff members and if we can continue to hold onto these quality people working with us, I can only see the sky as the limit. We are extremely excited to be doing what we are doing and are motivated by what the future holds. Isn’t it fun, building something that could impact the lives of many people? This could improve the flow of money to bring relief to those who need it most in Africa?
I see Xago in the future being used at retailers where consumers buy their groceries seamlessly using our technology without having to understand how the payment rails work. I see companies using our platform and gateway as a cheaper and faster option for making payments to suppliers and sending money across jurisdictions.
