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The Future of Money
Category: Economy | By SDR, 3-Jan-2020 | Viewed 224  Comments 0 | Source Peter Diamandis

Mobile Money - The evolution of  M-Pesa


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M for obile & Pesa is Swahili for Money

Editor's Note  While staying at a Bed and Breakfast in Kenya, Nairobi in 2010 we witnessed the power and ease of mobile money. It involved the costless transfer of Cell Phone Airtime. Peter Diamandis, in the article referenced below, discusses the importance of convergent technology including the evolution of microcredit. Ironically and completely independent of the Microcredit Summit we were attending in 2010, this evolving microfinance technology allowed the laundress at our B & B to (ask for and) receive her gratuity in unused airtime minutes, a win for everyone. The Airtime minutes would have been  wasted because as we left the cell phone coverage area, unused minutes defaulted to the credit of the provider without the opportunity for a refund.

Our laundress explained that she could transfer the cell phone time from our phones to her phone and then onward to her mother's phone some 200 miles out in the hinterland. From there Mom could exchange the Airtime for groceries, in fact; Mom would have supper tonight as a result of our generosity.

Diamandis explains how this and other cost effective technologies were effectively adopted by M-Pesa in producing a banking system that has grown to more than 30 million M-Pesa users in Africa and elsewhere. RAGM Newsletter Editor - Steve Rickard


A New Currency: Cell Phone Minutes



At the 2002 World Summit for Sustainable Development, Vodafone's Nick Hughes gave a presentation about risk.

His goal was a long shot: convince large corporations to help poorer nations by allocating research dollars for high risk / high reward ideas.

An official from the UK's Department for International Development was in the audience. Afterward, he approached Hughes with an even more unusual proposition.

The Department had begun paying attention to mobile phone usage and noticed that in parts of Africa, people were treating mobile phone minutes as a quasi-currency, trading them for goods and services that would normally require cash. They saw potential here and, more importantly, had a million dollars to invest. If Vodafone agreed to match funds, the Department agreed to finance a pilot project.

Since borrowing money is one of the largest problems faced by the unbanked, their initial pilot project idea was microfinance. A microloan for a cow, motorbike, or sewing machine - that is, the startup costs for a small business - is often the start of the end of the cycle of poverty.
By giving people a way to withdraw and repay their loan via cell phone minutes, the Department suspected they might jump-start entrepreneurship in countries that needed it most.
The result of this collaboration was M-Pesa, which was initially rolled out in Kenya in 2007. Without bank branches or ATMs, M-Pesa relies on an ancient technology: people. Individual agents sell cellphone airtime in local markets, trading minutes for cash and vice versa. Customers load the airtime to their SIM card, then to their phone, turning the minutes into money, which can be sent to another via text message.

While microloans initially generated this plan, remittances turned it into a force. Being able to transfer money without banking fees allowed workers in the city to send money to relatives in the countryside (aka, remittances)  which both saved them the 12% charged by the likes of Western Union and replaced the older method: giving a bus driver an envelope of cash and hoping for the best.

Eight months after launch, a million Kenyans were using M-Pesa. Today, it's nearly the entire country.

According to research done at MIT, with nothing more than access to basic banking services, M-Pesa lifted 2% of Kenya's population - over 200,000 people - out of extreme poverty.
Nor is it just Kenya. M-Pesa now provides banking services to over 30 million people in ten different countries. In places rife with corruption, it's become a way for governments to protect against graft. In Afghanistan, it's how they now pay the army. In India, it's pensions. And it's no longer just M-Pesa offering such services.

In Bangladesh, bKash now serves over 23 million users; in China, Alipay serves just shy of a billion. And like Good Money, Alipay has become a force for social good. More than 500 million customers play "Ant Forest," earning points for making environmentally friendly decisions in their daily lives. These points are then redeemed for real trees planted in the real world. And it's become something of a national obsession. To date, more than 1 million trees have been planted.

Importantly, these developments upend the traditional arc of technology. Typically, cutting-edge ideas pioneered in Silicon Valley move from West Coast introduction to East Coast adoption to European investigation and finally, eventually, into the rest of the world. But this process has inverted, with developing world innovation becoming developed world disruption. And more disruption is coming.660_640228430.png
Creative Disruption


Networks Disrupt Hierarchies



Banks occupy a rare spot in the economic ecosystem: All the infrastructure that money flows through belongs to them. As the trusted central repository, whenever anyone wants to move money around, - lend it, transfer it, even give it away - banks can insert themselves into that process. Or, at least, until blockchain came along.

With blockchain, since trust is built into the system, the system is no longer necessary.
Take a stock trade. Right now, to execute that trade, there's a buyer, a seller, a series of banks that hold their money, the stock exchange itself, clearinghouses, etc. - roughly, ten different intermediaries. Blockchain removes everyone but the buyer and seller. The technology does the rest.

In an attempt to hold on to their thinning slice of the pie, every major bank is rushing into blockchain. Yet arguably moving faster are the thousands of entrepreneurs using blockchain to disrupt these same banks.

Consider R3 and Ripple, two examples of developing world disruption impacting developed world businesses. In both cases, these companies are using blockchain to replace the SWIFT network, the standard protocol overseeing international banking transactions.

This inverted flow of disruption isn't going to end any time soon. Over the next decade, 4 billion people, the rising billions, will gain access to the internet. Since all of them will need basic banking services, the opportunity is massive. But thanks to converging technology, the downstream result of Nick Hughes's long shot is that nearly everyone but banks will end up capitalizing on it.

Final Thoughts



Our dollars and cents are being replaced by bits and bytes: ranging from cell phone minutes to crypto currencies. Evolving currencies will not only help lift developing nations out of poverty, but also disrupt developed economies.

Blockchain will eliminate the financial intermediaries who maintain trust in transactions, as the network itself verifies transactions that once required banking hierarchies.

In our last "Future of Money"  blog, we saw how ESG impact investing is disrupting traditional investment vehicles. In today's blog, we witnessed another form of social impact: the emergence of entirely new currencies that open access to entrepreneurship and upward mobility in developing economies.

By Peter Diamandis


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Peter Diamandis - Greek American Engineer / Physician

https://www.diamandis.com/
https://en.wikipedia.org/wiki/M-Pesa
https://www.blockchain.com/
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