Paying with your cellphone is still a novel concept in most of America. But this has been the norm in Kenya for years. M-Pesa, a SMS based payment system, was launched in 2007. When I visited Kenya in 2010 I was surprised by how prevalent M-Pesa was across the country. It was ubiquitous – from the slums of Kibera to the rural villages of Western Kenya. After spending a few days there it became clear why mobile banking took hold – bank branches and ATMs were not prevalent. When conducting business you would much rather use the safety of an electronic payments and avoid carrying large sums of cash with you.
M-Pesa operates entirely over SMS, which means it doesn’t require a smart phone or expensive data plan. Kenyans can use M-Pesa to send money, pay bills, or even get a loan.
Lately I’ve been thinking about how long until bitcoin starts to be a core part of financial systems in emerging markets.
Bitcoin, unlike M-Pesa, would decouple a Kenyan’s savings from the Kenyan Shilling. With news stories popping up about the volatility of bitcoin you might wonder why someone would want to remove their savings from the local currency. Well, Venezuela provides a pretty good example.
Hyperinflation has taken hold in Venezuela. Most of the population will probably lose their life’s savings due to economic mismanagement. The kilo of rice that cost just a few bolívares last year is on track to cost over a million before 2016 ends. Some Venezuelans have traded their bolívares for dollars or euros at this point. But most Venezuelans don’t have an easy way to get their savings out of the bolívares, and those that do have to risk keeping large sums of (increasingly valuable) cash on hand.
For now M-Pesa and the Kenyan government are keeping bitcoin out, but the need for a block chain based payment system in the developing world is growing.