The real competitors are not other similar companies, but cash and informal markets.
Source: Our Two Cents
【Introduction to the Broadcast】
Overnight, stablecoins have suddenly become a topic of conversation in every corner. What are stablecoins, and will they disrupt the traditional financial system?
Stablecoins are not a new concept that exploded overnight; they are a giant that has gradually grown alongside the industry's development. Recently, with the passing of the U.S. GENIUS Act and the listing of stablecoin issuer Circle, they have been thrust into the spotlight of global media and audiences.
Therefore, Hazel and her partner Ivy launched the podcast "Our Two Cents" focused on crypto payments, not as a whim, but because we firmly believe that a historical turning point has arrived at this opportune moment. From a niche game to an element that is indispensable in the daily lives of the global public, in the coming years, we will witness blockchain truly rewriting the global payment rules, giving birth to several unicorn companies in the payment sector, improving the efficiency of global value circulation, and providing financial tools that can reach the world for those overlooked by traditional banks.
Of course, in addition to payments themselves, we will also pay attention to related fields, such as RWA, AI Agent payments, and new innovations that may emerge at any time. In summary, we hope to focus on the integration of crypto and the real world, and stablecoins will undoubtedly be an important medium in this regard.
Hazel and Felipe met at a think tank conference in Moscow. Due to sanctions, Visa and Mastercard cannot be used within Russia, which made Hazel, who is from China and has lived in Europe enjoying payment conveniences, deeply experience the feeling of being "unbanked," a daily reality for many in Asia, Africa, and Latin America. Felipe founded Kravata because he saw the potential energy that stablecoin payments could unleash in a country where bank card penetration is less than 50% and credit card penetration is less than 10%, as well as a continent of shared struggles, to truly change people's lives.
1. Episode Introduction
In this first episode, we invited Felipe Montes, the founder of the Colombian stablecoin payment company Kravata, to give us a detailed introduction to the payment ecosystem in Latin America and what Kravata is doing.
Kravata.co is a company headquartered in Bogotá, Colombia, engaged in stablecoin fiat exchange and payment services in the Latin American region. It completed a $3.6 million seed round financing earlier this year, with investors including Circle Ventures, whose parent company Circle is the issuer of the compliant stablecoin USDC.
The podcast "Our Two Cents" explores the new frontiers of payments and how blockchain is reshaping global finance. This is the first English episode of the podcast.
Guest Felipe Montes
Founder of Kravata, X: @FelipeMontesJ
Felipe Montes is the co-founder and CEO of Kravata. Kravata is a Latin American cryptocurrency-as-a-service (CaaS) B2B payment company based in Colombia. He has been involved in the crypto space since 2013 and has a diverse background that includes academia, government, and consulting.
Host Hazel Hu
Host of the podcast "Our Two Cents," with over 6 years of experience as a financial media reporter, a core contributor to the Chinese public goods fund GCC, focusing on the practical applications of crypto. X: 0xHY2049; Jike: A heartless Yuyue
Host Ivy Zeng
Host of the podcast "Our Two Cents," previously worked in VC post-investment, involved in pop-up city and payments, currently responsible for growth in Latin America at a new bank. X: IvyLeanIn; Xlog: ivyheretochill
2. Background of the Latin American Market
Hazel: What is the current state of payments in Colombia? What are the most commonly used payment tools for people and companies in their daily lives?
Felipe: Colombia has a population of 48 million, with over 50% of people lacking bank accounts, leading to a heavy reliance on cash nationwide. More and more digital wallets are entering the market, such as Nequi and Daviplata (belonging to the largest banks), where people can pay and open accounts using just their phone numbers. These are gradually becoming the most commonly used payment methods. There is also PSE (Programa de Servicios Electrónicos), which belongs to the ACH group, similar to the ACH system in the U.S. PSE supports real-time bank payments and currently processes about 32% of e-commerce payments, although it is mainly used for cash-in rather than cash-out. Credit card penetration is very low, at less than 10%, which is a trend across Latin America, but debit cards are in use. A new government initiative called Breve is about to launch, which will be a real-time payment system capable of instant settlement between banks, supporting both cash-in and cash-out. Other methods include QR codes and mobile wallets, with about one-third of transactions digitized through payment gateways.
Hazel: What are your observations regarding currency devaluation in different markets in Latin America?
Felipe: A key factor in the Latin American market is the high fragmentation of the financial system. Each country has its own systems and KYC rules, leading to a lack of interoperability between countries financially. Different Latin American currencies do not hold liquidity; transactions often require first converting to U.S. dollars (usually through U.S. correspondent banks) and then converting to the target currency. This process can involve multiple steps and layers of intermediaries.
One major reason for adopting stablecoins is that it simplifies this process into two steps: converting local fiat currency to stablecoins through an on-ramp, and then using local liquidity to convert to another fiat currency through an off-ramp.
Another key reason is to hedge against currency devaluation. For example, over the past 10 years, the Colombian peso has depreciated by more than 50% against the U.S. dollar (from 2000 pesos/1 dollar in 2014 to currently 4170 pesos/1 dollar). People need alternatives for saving, as dollar accounts are unavailable in most Latin American countries. Converting to stablecoins like DAI, USDT, or USDC through an on-ramp helps achieve this. The only way to purchase physical U.S. dollar cash locally is to go to exchange points, but cash is difficult to spend locally. Stablecoins provide availability, allowing for easy sending or conversion back through an off-ramp.
In Colombia, there is a large inflow of dollars from exports and remittances, leading to a supply of dollars exceeding demand. The official exchange rate through banks is settled with the government. However, unofficial cash dollars from remittances and exports do not participate in this settlement, resulting in cash dollar prices being 2-3% lower than the bank rate. This is similar to the opposite of the "kimchi premium." This creates a market for crypto arbitrage: people buy stablecoins P2P at prices below the official rate, exchange them for dollars on exchanges, and then send the dollars back through official channels, earning a profit of 1-2% after costs.
Regarding the cost of living, although the exchange rate is 1 dollar to 4000 pesos, in small cities, its purchasing power may be closer to the concept of 1000 pesos in the U.S. Large cities are experiencing gentrification due to an influx of foreigners, causing prices to rise. A Big Mac burger costs about 5 dollars. The minimum wage is about 400 dollars/month. Those earning over 4000 dollars a month belong to the wealthiest 1%. Despite high levels of inequality (the seventh highest globally), Colombia is also rated as one of the happiest countries.
Across Latin America, currency devaluation is a common trend. Countries like Ecuador and El Salvador have fully dollarized. Uruguay is a smaller, wealthier, and more stable country. Argentina is facing an annual inflation rate exceeding 276% in 2023. In Venezuela, the use of the bolívar has decreased, with people turning to dollars (through U.S. bank accounts like Zelle), stablecoins, or cash. Stronger economies like Mexico and Brazil have also experienced devaluation of about twenty percent over the past decade. The COVID-19 pandemic has also impacted the economy, with government monetary overissuance exacerbating this devaluation. The dollar is widely seen as an asset for hedging and saving, similar to gold, but stablecoins also offer additional usability advantages.
3. Kravata's Business Model
Hazel: What is Kravata? Can you describe the customer process for our listeners? For example, if I am a merchant receiving USDC in Latin America, can you walk us through the entire process?
Felipe: Kravata is an infrastructure company that provides APIs. This allows any application, super app, bank app, digital wallet, or business platform to offer stablecoin-based services to their end users.
For companies that need to exchange currencies between countries, they can access Kravata through a web application or API to exchange between their stablecoins and fiat currencies, or to exchange fiat to fiat (using stablecoins as an intermediary in the process).
Another model is third-party payment capability. A company in Mexico wants to pay a company in Colombia but has no account or relevant knowledge in Colombia; it can send Mexican pesos to Kravata, which will then pay the recipient in Colombian pesos. In the background, Kravata will convert the Mexican pesos into stablecoins through an on-ramp and then convert them into Colombian pesos through an off-ramp.
Recently, Kravata has focused on deploying its infrastructure to banks, super apps, and neo banks that want to use stablecoin channels but lack expertise or systems (due to reasons such as compliance teams, legacy channels like SWIFT, or overly localized business). Kravata provides a widget that can be directly embedded into their applications. Through this widget, users can convert their local fiat currency balance (e.g., Colombian pesos) into dollar stablecoins, usually USDC, through an on-ramp. They can then convert back to fiat through an off-ramp. USDC is frequently used because companies consider it more compliant. Users can save in dollars and convert back to pesos through an off-ramp when the dollar appreciates.
Kravata has also added a virtual account feature. Users within the app, using their existing KYC information, will receive a U.S. bank account number and a European IBAN (International Bank Account Number). This allows them to directly receive international wire transfers, one-to-one into their app's USDC widget. This gives the app cross-border payment and remittance capabilities. With the received USDC, users can make payments to third parties internationally or convert to local fiat through an off-ramp. Kravata can also provide a prepaid debit card funded with USDC, allowing for spending anywhere.
In addition, the balance in the account can be connected to yield protocols. This will generate returns, which can range from very conservative (like government bonds) to high yields from DeFi protocols (currently with annual percentage yields (APY) of 4% to 8-9%), depending on the agreement with the client (i.e., the application). Kravata takes a small portion of this, but gives most of the returns to users to make the product more attractive. This represents the full suite of API services offered by Kravata.
Ivy: Does Kravata exchange USDC for local fiat currency? How does the exchange process occur? Do you work with banks?
Felipe: Kravata can handle different stablecoins and tokens, but they have a close relationship with investor Circle. They have accounts with Circle in various corporate entities in Colombia, Mexico, Chile, Poland, and the United States. Kravata obtains licenses in regions with clear regulations and partners with third parties to obtain liquidity in regions with unclear regulations.
In Colombia, they primarily use an internal liquidity book. Their B2B cross-border payment business generates off-ramp demand, while the embedded application widget solution generates on-ramp demand (for savings). They internally settle these cash flows, using USDC/USDT from off-ramp users to pay on-ramp users, and vice versa, which reduces costs. When there is an imbalance in demand on both sides, they seek banks for foreign exchange. They can convert local fiat currency to dollars and mint USDC when needed, or redeem USDC and conduct local foreign exchange to obtain more fiat currency.
Kravata's operations are built on four key models:
Compliance: A team responsible for KYC, KYB (Know Your Business), transaction monitoring, customer segmentation, and blockchain analysis using algorithms.
Liquidity: An operations team composed of Python programmers and neural networks, responsible for managing settlements and finding the best exchange trades.
Custody: Providing clients with isolated wallets and offering flexible fee structures (based on assets under management (AUM), transaction volume, or active wallets).
Hyper-localized payment methods: Capable of cash deposits and withdrawals (cash-in/cash-out) using traditional fiat channels through APIs. All their products are based on these models developed since 2022.
Ivy: Besides the Colombian peso, what other currencies does your on/off-ramp service involve? And different chains?
Felipe: Currently, Kravata's services involve the U.S. dollar, Mexican peso, Venezuelan bolívar, Colombian peso, and euro, as well as stablecoins like USDC and EUROC. They support all combinations of exchanges between these currencies and stablecoins.
For stablecoins, USDT supports Ethereum, Tron, Solana, and Polygon networks. USDC can be used across multiple chains.
Ivy: What is the latest transaction volume or annual on-ramp/off-ramp service volume for Kravata?
Felipe: Over the past two years (2023-2024), Kravata has processed a cumulative transaction volume of $260 million. Their highest monthly transaction volume exceeded $50 million. This volume mainly comes from on-ramp and export services.
Ivy: As you mentioned, some of your clients are cross-border merchants. What types of businesses do your clients have?
Felipe: Kravata initially served crypto-native clients, such as exchanges, over-the-counter (OTC) desks, and digital wallets. They then shifted to serving traditional payment companies. Their end users include companies engaged in service imports and exports (more than physical goods), payroll companies, franchises that need to transfer funds to pay fees (like Visa/Mastercard fees), lending protocols that raise funds internationally for local lending, and food companies purchasing supplies in different countries.
With the launch of embedded widget solutions, they are now onboarding banks, neo banks, and new brokers.
Overall, our client base is divided into four main sectors: crypto-native companies, fintech companies, retail companies, and traditional financial institutions (incumbents).
Hazel: What is your main source of revenue? How many employees does the company have?
Kravata has 28 employees. Since the beginning of 2023, they have generated $2.2 million in revenue. Revenue comes from multiple channels in their infrastructure business model:
On-ramp and off-ramp fees
KYC service fees
Custody fees
Virtual account fees
Card fees
Yield service fees
4. Competitive Landscape
Hazel: We have to talk about competition, as the payment competition is very fierce. Recently, I saw news that Stripe opened its stablecoin financial accounts, and I also saw that Bridge is collaborating with Visa. So I’m curious, does this trouble you?
Felipe: No, it does not trouble us at all. Our strategy is to collaborate with these large players, leveraging their technology, while Kravata handles the localized operations. This business requires localized expertise to deal with compliance, banking relationships, cultural understanding, corporate structures, and addressing the informal market (which accounts for 50% of the entire market). Large companies find it difficult to accomplish this alone, as we see with foreign banks like Citibank and Scotia Bank struggling in retail banking in Latin America.
The real competitors are not other similar companies; they are cash and informal markets—people store their savings in physical dollars. This represents the huge market opportunity. Companies that understand this will grow.
Kravata positions itself as a participant that helps banks and fintech companies quickly adopt stablecoin services, acting as middleware, enabling clients to integrate stablecoin channels in six months or less, avoiding the years required to reinvent the wheel. Kravata provides licenses, integration solutions, channels, white-label services, compliance frameworks, and educational support.
Ivy: Besides global competitors, let’s return to Latin America. What is the current landscape of fintech crypto payment startups in Latin America? Are there many companies in this field?
Felipe: There are not as many companies in this field as there were a few years ago. In the early market, there were mainly large exchanges like Bitso, Binance, Ripio, Mercado Bitcoin, and Buda, which are now expanding. The second phase saw the emergence of market makers and OTC desks serving crypto arbitrageurs and traders needing off-ramps. Around 2022, consumer applications focused on saving digital dollars (like DollarApp, Lithio) began to grow. Recently, large financial institutions and neo banks (like Bancolombia partnering with Wibmo, Lulo Bank) have started embedding crypto options in their applications. This signals to regulators that cryptocurrencies and stablecoins are becoming part of the financial system.
Kravata's role is as middleware, enabling other financial institutions and fintech companies to quickly integrate stablecoin services without requiring extensive development time.
Hazel: All the systems we are discussing are still based on Visa and Mastercard systems, right? Will the entire system still be based on this old system?
Felipe: To be completely independent of traditional systems, the entire supply chain needs to operate on stablecoins, such as farmers being paid and payment suppliers also using stablecoins. Currently, converting to fiat is necessary because existing regulations in most countries require traceability and payments to be made in fiat. The debate around local stablecoins and central bank digital currencies (CBDCs) is related to this.
Visa and Mastercard are expected to exist for the long term. They are already entering this space, using systems like Visa Direct and B2B Connect, which use blockchain-like layers to transmit cross-border settlement information, although they do not necessarily use stablecoins.
However, in regions like Latin America, Southeast Asia, and Africa, there is a huge market among informal, unbanked populations, as well as in cross-border transactions that do not use cards. Stablecoins can play an important role in this market. As mentioned earlier, the real competitors here are not necessarily cards, but cash.
5. Regulatory Environment
Hazel: What is the local regulatory situation like? For example, for Kravata, do you know what licenses are actually needed to operate this business in Colombia?
Felipe: Local regulations in Latin America have changed significantly since 2021.
Brazil has a comprehensive crypto law, and the central bank supports blockchain initiatives.
Chile has implemented a fintech law that provides financial intermediary and custody licenses; Kravata has applied for these licenses. Chile is considered the most advanced country in Latin America in terms of regulation.
Mexico has an earlier fintech law that includes money transmission licenses and has established a vulnerable activity registry for cryptocurrency companies.
Bolivia initially banned cryptocurrencies but has now lifted the ban and is under regulation.
Peru recently authorized its largest bank to custody and sell digital assets.
Argentina is becoming more open to regulation.
El Salvador offers VASP (Virtual Asset Service Provider) licenses, and many Latin American companies are obtaining them. Bermuda also offers various licenses.
Generally, three types of licenses need to be considered:
Emission license: For issuing tokens or stablecoins.
Fiat deposit and withdrawal (VASP) license: For exchanges between crypto assets and fiat.
Money transmission license: For payments.
Kravata is obtaining fiat deposit and withdrawal licenses and money transmission licenses. They are currently not applying for an issuance license because they focus on distribution and transmission rather than issuing their own tokens.
Ivy: How do you establish relationships with all these financial institutions and regulators? They are completely different from web3.
Felipe: Building relationships in the Web3 space is often more open than in traditional finance. In banking, if you are not originally part of that circle, an open mindset and networking referrals are crucial. Kravata has advisors who were former bank executives. I previously served as the Deputy Minister of Education and established connections with the president of the banking association and government officials who can facilitate referrals. Building relationships with these contacts requires face-to-face meetings and lunches to gradually establish trust.
The key is to demonstrate that the company is managed by mature, business-minded individuals who understand the importance of compliance and risk, rather than just young tech developers. Compliance officers play a critical role in banking relationships. Kravata sponsors and participates in risk and compliance activities, sometimes collaborating with international organizations to position itself as a highly compliant local partner.
Banks often perceive new transaction businesses like crypto/payments as small-scale compared to their large credit and loan operations. The challenge is to convince them that collaboration will not jeopardize their core business. This requires demonstrating strong standards, compliance procedures, risk management, and service level agreements. Building this trust takes time, but once established with some banks, it becomes easier for others to follow. Important milestones include embedding services in regulated neo banks and collaborating with large traditional banks.
Hazel: What questions do they typically ask?
Felipe: Banks ask all sorts of questions. For example, they may question the risks associated with users holding USDC. This requires explaining USDC's reserves, where the dollars are held, audits by companies like Deloitte, and mentioning familiar names like Bank of New York Mellon or BlackRock. Nevertheless, they often still perceive this as high risk.
At the same time, you need to educate banks about blockchain analysis. Many are unfamiliar with blockchain explorers. You need to explain that blockchain is not anonymous, wallets can be blacklisted, and there are software solutions like Chainalysis and TRM Labs. Demonstrating Kravata's compliance processes is a frequent topic. Sometimes, banks even propose using Kravata as their compliance provider, but if Kravata also handles their transactions, it creates a conflict of interest.
6. Financing and Future Development
Hazel: You received investment from Circle, and I know you also secured investment from a Chinese crypto investor named IOSG, right? I think people in China are quite familiar with that name. I'm curious how you established contact with them?
Felipe: I was introduced to the IOSG team through an angel investor from Angel Dao, who had previously invested in Kravata. After an initial online call, I had the opportunity to meet some of their team members in person. I believe IOSG appreciated our explanation of why Web 2.5 (embedding payment and savings services into existing applications) is the right path for Latin America at this time, as the market is not yet fully prepared for complex Web3 activities like DeFi using MetaMask. They see that Asian venture capitalists value under-penetrated markets and capital-efficient growth models, and Kravata's infrastructure model aligns with this while addressing market fragmentation in Latin America. The decision-making process for IOSG's investment was quick, taking about a month.
Hazel: You are also looking for Chinese or Asian investors for the next round of financing.
Felipe: Yes, Kravata is definitely looking for Asian investors for the next round of financing. There are two main reasons:
Market Understanding: Asian investors have a strong understanding of the Latin American market because Southeast Asia shares similar characteristics, and they can provide valuable insights based on their experiences with companies in that region.
Connecting Worlds: There is significant growth and potential in connecting business and transactions between Asia and Latin America. Building these connections between the regions is crucial for the future.
Ivy: After you complete the next round of financing, what will be your top priority for development?
Felipe: The top priority after the next round of financing is to embed their widgets into applications that cover about 100 million users in Latin America. The goal is to connect Latin American users to stablecoins through applications they are already using and familiar with.
Ivy: My final question is, what advice do you have for Chinese crypto/fintech companies considering entering the Latin American market?
Felipe: Advice for Chinese companies entering the Latin American market:
Find Local Partners: This is crucial for understanding the market, obtaining necessary infrastructure and channels, and navigating the regulatory environment.
Understand Currency Volatility: Do not simply replicate Asian models; understand the drivers of local currency volatility.
Consider Infrastructure: Investments in infrastructure may be more defensively positioned in the long term compared to B2C applications, which require a deep understanding of local consumer behavior.
Clarify Market Strategy:
If your strategy is cost-based (as some Chinese applications/products often are), you must understand the informal market to reach the truly large market.
If your strategy is high value/high quality, you need connections to access affluent niche markets.
Prioritize Relationship Building: In Latin America, personal relationships are very important. Doing business alone is challenging; you need partners or players. Due to fewer established pathways, lobbying and meeting influential people may be more difficult than in other regions.
Hazel: Do you have any recommended individuals or projects that you think we should interview? Or do you have any questions you would like to ask others?
Felipe: I have many questions about the Chinese market. I am very interested in understanding how Alipay grew and developed, especially the blockchain technology they applied to business. I feel that the "Western" market has not fully grasped these cases. I also suggest paying attention to other successful Chinese companies that may not be as large as Alipay but are still important players, such as Reap.
For Latin American guests, he recommends individuals involved in local stablecoins, B2C applications (like Lithio, DollarApp, El Dorado), and infrastructure providers (based on blockchain or APIs).
Suggested topics for future podcasts include:
The growth of Chinese payments/fintech: How did Alipay and Reap achieve this?
How do banks view stablecoins, whether in Latin America or in places like China and Hong Kong? He is curious if the situation in Hong Kong is similar to Latin America, where only a few banks are interested.
How do traditional companies (large e-commerce, food, retail companies, similar to Walmart in Asia) view stablecoins, are they willing to use them, and what methods are they currently using to manage funds? Understanding this can help the ecosystem identify areas for growth.
Hazel: It's hard to say goodbye, but our conversation ends here today. Thank you, Felipe, for taking the time to join us and share insights on Kravata and the landscape of crypto payments in Latin America. If you are an investor looking for a crypto payment portfolio in Latin America or a project looking to enter the Latin American market, I hope this episode has been helpful, and feel free to reach out to us to connect. You can find our contact information at the bottom of the screen.
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