Cryptocurrencies, Mobile Payment Systems, and The Third World

M-Pesa is an electronic payment system popular in the third world.  It lets people send and receive payments with their cell phone.

It is a roaring success because A: mobile phones are a roaring success and B: most banks, payment products, and financial networks are a roaring failure in the developing world.  M-Pesa succeeded where banks failed.  Weird.

One might almost get the idea that the third world didn't trust banks.  Another theory might be that the poor in the third world were just too poor to nickle and dime to death with fees like the poor in the US, because they remained unbanked for a long time.

However, the poor in the third world were wealthy enough to buy some cell phone time, and began bartering that time in the early 21st century, effectively inventing their own electronic currency.  Smarties.

Seeing an opportunity, mobile phone provider Safaricom invented M-pesa, a mechanism for value exchange on their network.

Safaricom did some neat things with M-pesa, including innovating in microfinance, and involving entrepreneurs as M-pesa Agents - like little one-person bank branches.

Before M-pesa, Kenya was probably typical of African countries - more than 80% of the population was unbanked.(2)  None of those people used credit cards.

Now over 70% of households use M-Pesa, and many are getting traditional banking services through the M-Pesa system.  They still don't use credit cards.  Smarties.

All of their small electronic transactions are in M-pesa.  In June 2010, amazingly only three years after its intro, M-PESA transactions amounted to about 70% of the volume of electronic transactions in Kenya by volume, but only 2.3% by value. (1)

So it appears the third world is getting a good system for daily transactions that in many ways leapfrogs our dated credit-card-based system in functionality.

There are numerous advantages to their system.  Two obvious ones are that it's more convenient for lots of transaction types - you always have a phone and never have a bank or ATM when you need one; and the fees are more reasonable than most of the previously established systems for electronic funds transfer(3)(4)(5).

There are less obvious advantages, and much more interesting ones.  Take the case of the introduction of M-Pesa into Afghanistan:

"In 2009, the Afghan National Police began a test to pay salaries through mobile telephones, rather than in cash. It immediately found that at least 10% of its payments had been going to ghost policemen who didn’t exist; middlemen in the police hierarchy were pocketing the difference. Salaries for Afghan police and soldiers are calculated to be competitive with Taliban salaries, but beat cops and deployed soldiers had been receiving only a fraction of the amount paid by US taxpayers because of corruption in the payment system. Most Afghan cops assumed that they had been given a significant raise, when, in fact, they simply received their full pay for the first time--over the phone."(6)

Interestingly, the spread of M-pesa from Kenya to other third world countries appears to have introduced a reliable ledger and payment delivery system to organizations who did not have one.  Now they have one.  They pay their workers directly.  So do most employers who use M-pesa.  Pretty much everywhere it's used.

This makes me think it's just the tip of the iceberg for Safaricom.

I also think this level of prevalence of mobile payments creates a different mindset in it's users.

What happens when you want to pay one of your workers in the US?  You do it the old fashioned way.  The process gets touched by HR, Accounting, Legal, and probably by a payment processing corporation like ADP before the federal, state, and local agencies even look at it.  Eventually it ends up as a paper check in your employees hands or in their bank, a little lighter than you or your employee might have liked.

An entrepreneur in the US would expect to go about improving that system by incrementally relieving a pain point within it.  Entrepreneurs growing up with M-Pesa see this as a feature of a mobile app - they would expect the addition of a "this is for payroll" checkbox during a transaction would be enough to add a note to the transaction log - further accounting to be handled by any number of third party applications, or by themselves, or by Safaricom itself.

While the third world advances, the first spins it's wheels.  Numerous abortive attempts have been made to build similar or superior infrastructure to M-pesa (5).  Established players in banking and payment systems are scrambling to compete (see PingIt, Square, etc), but all are clunkier than M-pesa, and nothing has taken hold.

Part of the reason is just momentum, once dipped in the warm water of broadband and credit/debit cards, we see no reason to stop buying on Amazon with our laptop, or with our credit card at the grocery store.  We have a familiar, working solution in broadband and credit cards, although they cost us dearly.  As a group, we don't care all that much that merchants and expats get screwed by fees, and we just can't measure the impact to ourselves at the register.  Anyway, nuff' said.  We're missing another wave.  We'll get there, but we'll be toting the baggage of our old industries across the finish line in last place.  Back to the people who are doing it right.

I see a couple things happening: Mobile payment systems rapidly spreading across the third world, and, longer term, mobile payments system users getting heavily into cryptocurrencies.

Not being based in the third world, it's not a safe bet for me to predict anything about it, but I feel pretty good about those two bets, as they are already happening.  Kipochi is a bitcoin wallet that already integrates an M-Pesa-bitcoin gateway.  (9)  I'm sure there are others in the works, but I haven't looked.  M-Pesa is profitable (13) and fueling competition. (14)(15)

Why would an M-Pesa user be interested in Bitcoin?  Well, have you ever run an online store?  If you have, your anti-fraud software probably made it difficult for the third world to buy from you.  For good reason.  Statistically, you never want to accept a credit card from someone you don't know in the third world.  Those transactions are fraud 90% of the time.  The transaction cost is ridiculous to sell to Nigeria, because you personally have to talk to the person, and somehow work out whether they are honest before you can sell to them.  The lack of security inherent in credit card transactions creates enough friction to price the poor right out of the online transaction world for all but the largest, highest touch transactions (which they are not going to make, so they're out!).

Since Bitcoin solves the third worlds international fraud problem(10), someone in Africa using Kipochi can buy something from any online vendor that accepts Bitcoin[B].  A whole new world is about to open up to them.  Bitcoin will catch on in the third world (or some cryptocurrency will).  It might eat into Safaricoms transaction fees, but not too much.  It only makes sense to use Bitcoin for larger transactions.  Besides, the mobile carriers need something that will push all transactions onto the web eventually.  They are in the business of selling broadband, too.  If all their customers want to create online websites and sell product to one another for Bitcoins, it's a huge win for them.  Who knows, Safaricom might even strike a deal with Amazon to have their M-pesa Agents hold packages for people.

Obviously, Africa has to fix a few other things, but Amazon.com might be in there sooner than you think.

I'm serious.  Bitcoin, or something like it, by taking the fraud concern, friction, and transaction log concerns out of international commerce, fits M-Pesa like a glove, and could help to bring the third world into the first.  Bitcoin, plus rapid innovation in mobile payments, could even put the third world in an enviable position compared to the first with regard to financial technology. 

So who's killin' it in the third world?  Mobile carriers.  Did I just say that?  I know, it just seems nuts to anyone in the US.  The average US consumer knows that mobile carriers and banks will fight to the last breath to keep the status quo and kill innovation.  Innovation is pretty tough to kill...hmmm...excuse me while I grab some popcorn and watch that fight.  Keep fighting innovation mobile carriers and banks!  When the dust settles maybe we can get M-Pesa. [C]

(1) http://www.cgap.org/blog/10-things-you-thought-you-knew-about-m-pesa

(2) http://www.businessweek.com/articles/2013-03-06/what-africa-can-teach-us-about-the-future-of-banking

(3) http://www.safaricom.co.ke/personal/m-pesa/m-pesa-services-tariffs/tariffs

(4) http://www.mit.edu/~tavneet/M-PESA.pdf (page 7)

(5) http://usa.visa.com/download/merchants/Interchange_Rate_Sheets.pdf

(6) http://smallwarsjournal.com/jrnl/art/one-cell-phone-at-a-time-countering-corruption-in-afghanistan and http://en.wikipedia.org/wiki/M-pesa#Afghanistan

(7) http://www.fiercemobileit.com/story/nfc-mobile-payments-flop-says-gartner/2013-06-04

(8) http://www.mit.edu/~tavneet/M-PESA.pdf

(9) http://www.kipochi.com

(10) I'm going to cop out and refer you to this, which you should read and understand: http://bitcoin.org/bitcoin.pdf

(11) http://www.gsma.com/mobilefordevelopment/programmes/mobile-money-for-the-unbanked/mmu-examples/m-pesa

(A) 1 US Dollar is about 85 Kenyan shillings and about 1 milli-bitcoin.  At those ratios M-Pesa limits money out of a phone wallet to about one bitcoin per day.

(13) http://www.gsma.com/mobilefordevelopment/safaricom-m-pesas-h1-fy13-results-a-portrait-of-a-maturing-mobile-money-service

(14) http://techloy.com/2012/12/24/paga-reports-790-user-growth-in-its-first-year-faster-than-m-pesa-in-kenya-and-tanzania/

(15) http://www.businessdailyafrica.com/Corporate-News/Airtel-targets-MPesa-with-Equity-Bank-agency-deal/-/539550/1931908/-/93q174z/-/index.html

(16) Also interesting: http://www.gsma.com/mobilefordevelopment/programmes/mobile-money-for-the-unbanked/mmu-examples/m-pesa

(B) Yeah, I'm assuming that most major vendors will start to accept bitcoin and/or the gateway cost will approach zero.  Right now that's possible with Bitcoin Anything, etc., and it should get cheaper over time.

(C) That seemed like a nice way to end this blog post.  In reality, it's more complicated than that.  M-Pesa is dragging all other payment networks into the third world to compete.  What will happen in the first world is that we will need an equally innovative system to move our entrenched markets about.  I will make the popular contention, (among the other two readers of this blog) that some good old fashioned free market competition is in order to eliminate friction and grease the wheels of innovation.

Artificial intelligence: smart, in ways we neither intend nor understand.

Yet another commentary on the Atlantic article in which Chomsky clarifies the now obvious. (Photo from one of the many glorious scenes in The Presidents Analyst)

Robots as Mirrors

Evidently, I'm using my wiki to post writing and memoirs, google plus to blog, and google plus to store photos.

My most recent blog-like post on google plus is about emotions, or Robots as Mirrors:

https://plus.google.com/u/0/113618457816978698704/posts/2Qh8PsZWoLt

Anyway, rather than deprecate my blog and smugmug account completely, I'll keep posting some of the more interesting blog-like stuff here.


But I'll also drop a link to all my google plus postings here, just in case you want to see the less interesting stuff as well:

https://plus.google.com/u/0/113618457816978698704/posts

Here's one of the pictures I took recently - Cape Flattery in washington state - taken during toorcamp:

I wrote some stories: http://richbodo.pbworks.com/w/page/53769251/Short%20Stories

Got a bunch more in the pipeline.

Auto-autos - a little less biology in the loop

What I hear at the water cooler

I recently visited the Silicon Valley Open Source Automotive meetup at HackerDojo. Ostensibly required reading ahead of the meeting was the wired article on auto-autos. You kind of have to read that one as a backgrounder, but the summary: google already has dozens of robotic cars on the road driving around with you, and they are better drivers than humans. Been that way for a while. Yeah. I was surprised too. But wake up and smell the robotic equivalent of coffee, whatever that is. (Or just watch these robots make breakfast instead.)

Anyway, had a nice chat with some knowledgeable people. Some similar opinions to what I heard from electric car junkies at CES. Consensus at the meeting was in line with the wired article concerning the timeframe for commercial availability of auto-autos - 10 years or so.

What seemed to be totally unknown was the business model. Even the little baby steps of car automation, auto-parking, nicer computing systems with heads up displays, etc. are out of reach of the average consumer due to price concerns. Actually, I can't immediately think of any future car technologies that would save money on the initial purchase price of an automobile. So although everyone seems to accept that self-driving electric-hybrid robotic cars are the future, no one has a clear grasp on the business model that will enable that future. FWIW, from what I hear, that is the consensus at all the clued in major auto makers.

What we are on the cusp of is a form of transportation with a 10X advantage over what exists (at a higher initial price). You park it anywhere, and you can let it automatically drive you. It's safer, cheaper on energy, and frees up your time. It's like having a driver pull up when you want him, and chauffer you around. With luck, an auto-auto can drop you and park itself somewhere convenient (seriously, who wants spend their time parking or paying someone to drive you). Rich people will just buy these things outright, but the rest of us need another model.

A cursory amount of research reveals that big rental car companies are already renting electric cars. Local government intervention and purchase of advanced vehicle fleets occasionally pushes clean car tech as well. Without conflating electric cars with auto-autos too much, I believe that the markets and challenges are similar for both technologies.


Spin we're likely to hear

Briefly I'll mention psychology. There is, of course, fear - range anxiety, and any other anxiety that you can whip up in people about new car technology - this will definitely kill individual purchases. Certain segments of the American market which are primarily driven by fear are ... unretrievable. Those people will buy only what they are told to. But with a 10X value advantage the rest of us will get over that fear. Interesting thought - corporations are motivated to uncover the facts behind the FUD to improve the bottom line - corporations are FUD creators, not FUD consumers! Corporations are not easily scared away from value.

The energy industry has to be considering which side to weigh in on. Oil demand destruction is not in line with oil company interests. Interests that can afford the best congresspeople money can buy. Exxon predicts 60% of cars will be gas-only, 40% hybrid, by 2040, with a negligible sprinking of fully electric vehicles. Not in line with what I've been hearing elsewhere. Interestingly, though, they expect all oil demand increases to come from the commercial sector. On the other hand, it seems at least some public utilities might stand to gain power through charging and other infrastructure. They are also fleet customers.

Finally, there is no legal framework for robots driving cars, particularly without a human in the loop. However, everyone seems to be looking the other way right now. This is where the opponents will hit hard and fast, buying congressmen like it's black friday.

Smarmy smarty-pants ill-informed theory

It seems that fleets are the current wedge by which electric vehicles and auto-autos are entering the market. And since even electric car nuts won't pop for the first auto-autos, renting from fleets makes sense, ala the carsharing models of zipcar, u-car-share, philly-car-share, hertz on-demand, etc. etc. Auto-autos actually make perfect sense for these fleets from an insurance perspective as well as an efficiency perspective, especially if the law will look the other way to driverless auto-autos.

Cab companies will love them as well. Cabbies will not. If there is any middle class left in the US in 10 or 20 years, they will probably be more likely to call an auto-auto to get to work than a cabbie.


First we replace the horse, then the rider.

We used to ride horses around. That lasted for what, 1000 years? It's still cool to own a horse and ride it around, for fun, I mean, but it's getting rare. Farming is done by robots, self-flying planes are almost there. Automatic cars are so close we can taste it. Tastes like robot.

Also see Brad Templetons stuff:

talk slides

website

We are all Agnostics now.

David Brin recently spoke at the Singularity Summit, a place where the attendees are, for the most part, transhumanists. They are there to discuss the creation of "small" gods - things just a little better than humans in some way, that will improve themselves.

I know that Mr. Brin recognizes that even these small gods, once self-improving, will be beyond detailed human understanding. He counsels the would-be creators of small gods that they should learn to better understand those who worship "large" gods - gods that create universes like ours, such as mentioned in the bible. To that end, his primary weapon is interpretation of the bible.

This creates a room full of agnostics.

No one who believes we can make a small god should believe we can understand a large god. As long as these people interpret the bible, they represent a belief in their interpretation, and therefore create a non-overlapping-magisteria. Basically, Brin removed the conflict between science and religion for those who will take his advice.

Brin is saying we need to rationalize in order to associate in order to survive. As it turns out, any suitable rationalization makes us nicer, more accepting people. I am proud that David Brin is one of us.

His final point discusses science as appreciation of God. He proposes that when children perform scientific experiments, their wonderment is a finer, more true appreciation of Gods creation than a wrote prayer or words extolling his greatness without really *appreciating* his great works. Scientific revelation is like someone saying to God, "I truly understand you, and I am truly impressed." and then proving it.

On the topic of appreciation, I have often thought that the universe is a self-organizing system that learns to appreciate itself.
But only for a moment. We are that spark of insane emotion burning brightly.
Humans are the love and the insanity in the universe, quickly extinguished.
Love oneself, respect others, a natural state of affairs, the best that can be hoped for, independent of scale, among parts of a whole.
The dream of a cohesive, thinking universe isn't a bad one. Better to be a cooperating part of any vastly superior force. No? Why not think of ourselves as the love in the universe?

What can I say? Humans rationalize compulsively.

Robot Arms Race

Continuing to catch up on Robot Futurism - I re-read Bill Joys article in Wired of over 10 years ago, Why the Future Doesn't Need Us - along with numerous rebuttals, references, and relevant discussions.

The central premise of Joys article is that we are creating dangerous stuff, and maybe we want to think about regulating ourselves. As GNR (Genetics, Nanotechnology, Robotics) tech advances, it gets easier and easier to destroy all human life. We need to considering slowing development of GNR tech, until we can properly defend against it's destructive potential.

Most of the rebuttals to his paper suggest that:

A) It's not that easy to create world-destroying stuff with GNR.
B) If the good guys don't figure out GNR tech, the bad guys will, so we need to go full steam ahead with fundamental research.
C) GNR applications are a moral imperative for quality of life reasons and the advantages outweigh the risks.
D) I don't like Bill Joy because he quoted the unabomber.
E) Anyway, you're right, we need to figure out how to regulate ourselves.

Most GNR sits precisely in the camp of biotech as a threat. Development cost will continue to shrink for weapons that could kill humans and spread quickly with total disrespect for borders.

My conclusion is that labs that study these technologies need to be reasonably careful. The threat isn't huge now, but it will be someday. As with Brains article on Robot Economics (see my last post) the threat is vastly more serious if we are looking a dislocation in the face, rather than a very gradual ramping up of world-changing technologies. No one seems to know which we are looking at. A "Center for Nanotech Control" should probably be funded at a level commensurate with the threat. Depressingly, that's not happening (I hope I'm wrong, I hate being depressed, so please feel free to correct me).

In fact, relatively little has been written on the topic of nanotech defense in the last 5 years. There was a flurry of activity around Joys article, and that was that. It may not have been helpful that most of the predictions that were made publicly by prominent futurists around that time were significantly off. People just seem to have gotten disinterested.

I guess we're just going to have to be happy with the amazing benefits of GNR and not think too hard about the dangers for a while. We'll live forever until we're dead. Wait...