QED Seeds Invests $9.9M in Cedar Money

The Rise of Stablecoins in Cross-Border Payments

A new wave of startups dedicated to improving cross-border payments is increasingly utilizing stablecoins – cryptocurrencies designed to maintain stable value through pegging to established currencies or commodities. This approach offers the potential for faster and more cost-effective transactions compared to traditional financial systems, fueling significant growth in fintech investment.

Cedar Money Secures Seed Funding

Recent activity in this space includes Cedar Money, a U.S.-based startup that has successfully raised $9.9 million in seed funding. The investment round was spearheaded by QED Investors, a prominent global fintech investor, with additional participation from Lattice, NIV, Stellar, and Wischoff Ventures.

Cedar Money, like many platforms leveraging stablecoins, functions as an intermediary. Users engage with a traditional fiat-based interface, while the actual transactions are executed using stablecoins in the background. The company intends to utilize this funding to expand its payment infrastructure and address the existing inefficiencies in international money transfers.

Addressing Payment Inefficiencies, Particularly in Africa

These inefficiencies are especially pronounced in Africa, where businesses often encounter elevated transaction fees and concealed costs associated with currency conversion. Increased risk and the expenses linked to local banking contribute to these challenges. Banks capitalize on exchange rate discrepancies, adding further to the overall cost.

“Globally, SWIFT network fees average 2-3%, but in Africa, they are considerably higher, with even greater markups in regions where financial resources are limited,” explains Benjy Feinberg, founder and CEO of Cedar Money, in an interview with TechCrunch.

Feinberg launched Cedar Money in 2022, building upon his prior experience of nearly a decade leading alternative financing provider Behalf. Prior to this venture, he dedicated time to identifying emerging opportunities within the fintech sector, ultimately focusing on payments and blockchain technology.

Stablecoins in Emerging Markets

While stablecoins have faced hurdles in gaining widespread acceptance within the U.S. due to limited applications and competition from established systems like the dollar and SWIFT, Feinberg identified a contrasting landscape in emerging markets.

Businesses throughout Africa, the Middle East, and South America frequently require U.S. dollars to finance imports, even when sourcing goods from countries like China. Securing access to dollars can be particularly difficult in nations like Nigeria or Argentina, where local currencies such as the naira or Argentine peso are comparatively weak.

Cedar Money initiated operations in early 2024, beginning in Nigeria, and facilitating businesses in the country to both receive and send funds internationally. “The key is to target locations where you can address a significant problem, and adoption will be more readily achieved. We chose Africa as our starting point because the need is most acute,” states the CEO.

Compliance and Regulatory Challenges

Despite their growing popularity, stablecoin platforms encounter limitations that could hinder their scalability across diverse markets.

Feinberg clarifies that while constructing the payment infrastructure – converting fiat currency to stablecoins, transferring them, and converting back – presents challenges, it isn’t fundamentally novel. He emphasizes that the primary difficulty lies in establishing robust compliance frameworks to accommodate the unique regulatory requirements of each country and the extensive documentation demands of banks to ensure transaction legitimacy.

These requirements are particularly complex in African markets, where infrastructural disparities can make even seemingly straightforward requests – such as providing a physical street address – considerably more challenging.

Feinberg contends that success in this domain will be determined by the ability to scale operations globally while navigating intricate compliance landscapes, particularly in underserved regions.

“A major hurdle is convincing banks in developed nations that funds originating from developing countries are legitimate. It’s a challenge we are actively addressing,” he adds.

Favorable Regulatory Trends

Positive regulatory developments in the U.S. regarding digital assets are poised to simplify compliance procedures. Industry observers anticipate that these changes, alongside events like Stripe’s acquisition of stablecoin startup Bridge, will foster broader acceptance of stablecoin payments and encourage banks and regulators globally, including those in emerging markets, to reconsider their stance on stablecoin adoption.

Reshaping the Global Payments Landscape

This increasing adoption is already transforming the global payments ecosystem. Data from a16z and other sources demonstrates a dramatic shift: In 2017, stablecoin transaction volumes were minimal compared to traditional systems. Today, stablecoins have exceeded the transaction volumes of Mastercard, PayPal, and Visa. In Q2 2024, stablecoin transactions totaled $8.5 trillion across 1 billion transactions, compared to $3.9 trillion in volume across 50 times more transactions, according to an a16z report.

Cedar Money, established just a year ago, currently processes tens of millions in monthly transaction volume, focusing on import and export businesses dealing with physical goods like rice and shoes. This approach is supported by legitimate invoices, which simplifies underwriting for banks due to the clear documentation and tangible nature of the transactions.

Investor Confidence and Future Growth

Gbenga Ajayi, a partner at QED Investors, highlights the firm’s investment in Cedar Money, stating that the fintech company is “uniquely positioned to address the inefficiencies of the global financial system.”

With a team of 14 employees spread across Nigeria, the U.S., Israel, and Serbia, Cedar Money represents QED Investors’ fourth investment focused on Africa, following Moniepoint, Precium, and Remedial Health.

Cedar Money joins a growing number of companies, including Conduit and Caliza, that provide stablecoin-powered payment solutions to businesses in emerging markets. Despite increasing relevance and reaching a $205 billion market cap last year, Feinberg believes their collective share of the international payments market remains relatively small, meaning Cedar Money currently faces limited direct competition.

“Currently, two-thirds of international payments are processed through the correspondent banking network. The largest fiat innovators control approximately 2-5% of the market. Considering this, with stablecoins representing only 0.01%, the primary focus isn’t necessarily competing with other players, but rather identifying and serving a specific niche within this vast market,” Feinberg concludes.