M-Pesa > Bitcoin, but it shouldn’t be
Bitcoin and M-Pesa each spawned their own massive payment industries over the last ten years. Cryptocurrency, the industry of Bitcoin, reached a market cap of $822B in 2018. Mobile money, the industry of M-Pesa, processed an average of $1B per day in 2017. Both Bitcoin and M-Pesa remain the market leaders in their respective industries.
Comparing their impacts over this last decade, it is indisputable that mobile money today exhibits much greater product market fit than cryptocurrency, which has almost zero utility in the daily lives of its users. Crypto’s primary function is to accumulate wealth, transfer wealth in stealth and protect against future mismanagement of the national treasuries. The utility of these functions is niche. Until cryptocurrency solves regular people’s immediate financial problems, it will remain in the realm of hobbyists and speculators at best (and hucksters and criminals at worst).
Mobile money, on the other hand, has found widespread use in regular transactions for 690 million people, primarily East Africa. Its popularity is enabled by the ease of its “cash in/cash out” system, known as the “Wakala” network. In 2017, mobile money transacted over $1 billion each day, on average. As someone who has regularly used mobile money since its inception, I assure you that the M-Pesa UX has been even lousier than that of Coinbase. Nonetheless, mobile money took off much faster because it solves an array of real and pressing problems for its users.
M-Pesa was massively innovative. But it was built for a nearer future than Bitcoin. M-pesa also had the team to implement the vision, as it was a department within a huge international telecom conglomerate. However, described less generously, M-Pesa functions like a less slick Venmo. Consider the chart below:
Clearly, cryptocurrency will absorb the mobile money markets over time. Either cryptocurrency will penetrate the mobile money market, or the mobile operators will launch their own cryptocurrencies. The potential for either is tremendous. Yet there has been no significant overlap between the two sectors thus far.
Most of the crypto world has little knowledge of or stake in East Africa. Thus the low hanging fruits of this market wither as arbitrary regulations are enacted. Funding is difficult to amass for Africa as well, as most blockchain investors do not have the mandate to invest here. The investments in the region are relegated to the low expectations and non-economic interests of “aid” and “impact investment”. Africa deserves better. It deserves the commitment of self interested investors managing a big risk towards an even bigger upside.
Meanwhile, the billions of VC dollars invested in blockchain development are aiming at ludicrously high targets, like competing with powerful Federal Reserves and banks throughout the developed world. That’s a worthy and noble mission, but the thing is, those institutions are enormously successful. They created more prosperity than the world has ever seen. As flawed and corrupt as these institutions may be, they are deservedly entrenched and powerful. The advent of cryptocurrency is stalled because it is not serving the needs of markets which currently and desperately need it’s benefits.
If you were strategizing the rollout of a currency that was to be adopted worldwide, would you start by competing in the most powerful and stable financial markets? Like America and Switzerland? Or would you move quickly through the politically volatile, digitally savvy and economically weaker markets? Crypto investments have pursued the former strategy, most likely because crypto investments have no cohesive strategy.
On the other side of the planet from those rebellious and promising Bitcoin conferences, a handful of cell phone companies became bigger than the big banks of Africa. In Tanzania and Kenya, the two dominant markets for mobile money, 58% and 77% of the nation’s GDP is transacted through a mobile money provider, respectively.
M-Pesa took off simply because it was solving a more immediate problem — transferring money securely, safely and affordably — at the right time. In much of East Africa, less than 15% of the population is formally banked. Taking a multi-day bus trip each month to hand deliver money home was routine.
Now, compare those financial conditions with America, where roughly 93% of the population has a bank account. Your American grandparents had bank accounts; banking is engrained in western culture. Furthermore, the dollar is one of the most trusted currencies in the world. Despite the volatile economy and political upheaval, between 2009–2018, Americans did not need cryptocurrency. And that’s why almost no one has adopted it as a currency.
Back in Africa, mobile money may be more secure than cash for small transfers, but its not a secure store of value. These transfers are still fiat and regulated by corruptible humans. Should disaster strike, mobile money will not protect the wealth of citizens who face governmental collapse or are forced to flee as refugees. There are 100 trillion reasons why the Bitcoin price surpassed the $10K mark in Zimbabwe months before it did on Coinbase and Bittrex.
Thanks to its inherent privacy protections and distributed infrastructure, a blockchain-based currency has great potential to protect users against these threats to their wealth. And with a population that is largely unbanked, has been using mobile money for over a decade and is quick to adopt financial service innovations, East Africa is poised to be ground zero for cryptocurrency adoption. I am betting, that before 2023, cryptocurrency will have become exponentially more important than mobile money, so long as serious capital, rather than aid / charity, is invested in the region. The Rift Valley is the cradle of civilization, digital currency and hopefully soon, our universal blockchain currency.