Sarah Boone Martin is founder of Rock the Coin, an organisation that engages in grassroots community outreach about bitcoin. She is also CEO of Boone Martin, a global communications firm that focuses on social impact investing.
Many of the greatest challenges faced by bitcoin today – adoption, scale and regulation – mirror those of its predecessor: mobile money.
When launched in 2007, mobile money was just as foreign and raised as much alarm as bitcoin. Though it has since spread to 60 million active users, mobile money was not an overnight success. However, we now have seven years of data about its achievements and failures that we can learn from and use to shape the choices made by those in the bitcoin sphere.
Emerging markets
Research on mobile money focuses on emerging markets, where use is concentrated and most people don’t have formal bank accounts. Digital finance has proliferated in these regions because it’s easier to roll out mobile networks than shore up information and communications technology (ICT) infrastructure.
Kenya has become the paragon of mobile money. Today, more than two-thirds of Kenyans use M-Pesa.
Why did this work and what are the lingering issues and opportunities for bitcoin?
Why M-Pesa worked
The M-Pesa phenomenon is a product of a unique regulatory environment. The service’s developer, Safaricom, understood that partnering with the Central Bank of Kenya (CBK) was paramount to its success and actively engaged regulators as part of its go-to-market strategy.
Since nothing like mobile money had ever existed previously, and there were no relevant guidelines, Safaricom designed its own AML/KYC and consumer protections. It then coordinated with the CBK to secure a non-banking license. These early efforts ultimately paved the way for a long-term working relationship.
Tanzania adopted a similar ‘test and learn’ approach to mobile money and today processes $1.8bn in transactions each month. By contrast, mobile money has lagged in India and Nigeria, both of which are known for their more complex bureaucracies.
Collaboration is the takeaway here. Creating a flexible, but safe regulatory space made the difference in Kenya and Tanzania. We’ve seen this type of engagement in the US (New York, CFTC) and around the world (the UK, Australia, Canada). Continued coordination with policymakers and openness to partnership may foster more enabling environments.
How long it takes to make money
Mobile network operators (MNOs) make little profit on mobile money (0.5% total GSM revenue) during the first two years. This is when operational expenses for marketing new products and supporting agent networks can be crushing.
From years three to five, MNOs yield modest profits (2–5% total revenue). At this point, companies have enough users to cover costs and can start promoting digital wallet-based services.
After year five, MNOs produce healthy profits (15–20% total revenue). By then, customers graduate from basic peer-to-peer transfers and immediate cash-outs, and begin using more lucrative services, like salary disbursements and bill payments.
Clearly the message here is that mobile money is a long game and most bitcoin startups accept this applies to them too. Note, however, this data depicts trends in one industry and is not necessarily predictive of outcomes for any other.
Why ‘KYC’ determines success or failure
Research shows that MNOs often miscalculate country context and overestimate financial and product literacy. Customers report problems navigating menus, which can shift across phones and may be written in formal, instead of colloquial, language.
Researchers also find that customers forget PINs and readily give phones or passcodes to agents to withdraw their cash. Tech problems like frozen screens, session timeouts and denial of service are all also big issues. Combined, these failures not only frustrate customers, but also lead to system mistrust and more frequent cash-outs.
For bitcoin businesses, knowing your customer takes on a different meaning here. Understanding what the customer wants and how the service will benefit their daily lives is essential; so too is piloting a product on the ground.
Connectivity in emerging markets can be spotty and statistics about mobile use can be misleading. For example, women typically have less access to mobile phones, but control the family finances and make the spending decisions. Overlooking this group means missing out on the primary money managers.
Bitcoin benefits from greater familiarity with digital money and mobile banking today. However, to increase financial literacy, the industry could adopt new guidelines, such as those developed by the GSM Association. These set basic standards for consumer information and education.
The biggest problems
Hot topics include interoperability, digitization, and regulation. MNOs typically run closed systems, but operators are having trouble scaling and cannot cross borders.
Indonesia was the first to interlink schemes in an effort to expand the overall consumer base and promote in-network transactions.
Cash-outs are costly and research shows that electronic payments are more secure and efficient. Despite these findings and high-level support for a digitized economy, however, regulators still struggle to keep pace with new multiparty systems and product developments.
Interoperability and international transfers are immediate advantages for bitcoin. But we also share common issues with regulators as well as an interest transitioning to a cash-lite society. To improve our outreach efforts, we could join larger research and advocacy coalitions, like The Better Than Cash Alliance and GSMA, which maintain productive relationships with key decision makers.
The bottom line
Research shows that there is clear demand for faster, cheaper, and more transparent financial services. But it also underscores that products have to be easy to use and work all the time.
Bitcoin startups benefit from auspicious timing when world leaders are eager for better banking ideas and tech-based solutions. The truly innovative will be those who see the whole picture and build new products from the bottom up.