I spent a year trying to make digital payments work in developing countries. My team and I aimed to create a global marketplace where digital creators from Nigeria, Pakistan, Ghana, Bangladesh, and dozens of other countries could sell their work alongside their US and European counterparts. PayPal was the obvious choice for payments - it's been around for ages, it's been vetted by banks and regulators worldwide, and it comes with a certain level of trust.
The Problem We Were Actually Solving
The problem that drove us was twofold. While many international payment systems don't support the local currencies in these countries, they did have something much more insidious: excessive fees. These fees were often higher than the actual transaction value and were crippling for our creators. As an example, when a creator in Nigeria sold a single item valued at $200, PayPal would charge them a non-exchange fee of $5 and then force them to exchange the money at a rate that would result in them getting $120, with $40 going straight to PayPal in fees.
What We Tried First (And Why It Failed)
Our initial approach to solving this problem involved using PayPal's API to handle the transactions. We would create a PayPal account for our creators, and they could send and receive money using the local currency in their respective countries. Unfortunately, this approach had two major issues. The first was that PayPal's fees still applied to our creators, and second, the foreign exchange rates used by PayPal were often unpredictable and unfavorable to our creators.
The Architecture Decision
We made a deliberate decision to move away from PayPal and instead adopt a cryptocurrency-based system for payments. We chose to use the USDT stablecoin, which is pegged to the US dollar and can be easily converted to local currencies in developing countries. This approach came with its own set of challenges, but we were convinced that the benefits outweighed the costs. For one thing, USDT transactions are instantaneous and have no foreign exchange fees, which means that our creators wouldn't have to worry about the unpredictability of exchange rates.
What The Numbers Said After
We measured the success of this change by tracking the fees our creators had to pay to send and receive money. Before we switched to USDT, our average fee was around $40 per transaction. After making the change, our average fee dropped to $0.01 per transaction. Not only did this make our platform more attractive to creators, but it also allowed us to increase our revenue without having to pass the costs on to our users.
What I Would Do Differently
In retrospect, I would have started with a more decentralized approach to payments from the get-go. Our decision to use PayPal's API was based on our desire to integrate with a well-established payment system, but it ultimately led to unnecessary complexity and fees for our creators. If I could go back, I would have explored more decentralized options from the beginning, such as using blockchain-based platforms for secure and transparent transactions. This would have saved us time and effort in the long run and would have provided our creators with a more seamless and affordable payment experience.
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