WIRED:Electronic cash is where real development is taking place at the lowest income levels, writes DANNY O'BRIEN
I HAVE written before about the fascinating events taking place in Kenya. Just a few months ago, it seemed to me (thousands of miles away from it, and with limited insight) that the place was tottering between two potentials.
There was an explosion in innovation, driven by widespread mobile telephony and a strong entrepreneurial spirit.
At the same time, I was concerned by high costs and the potential for single companies to dominate over open development. Now, in a matter of months, Nairobi has changed again.
Why is Kenya so promising in terms of high-tech innovation?
The most tempting answer is M-Pesa, the micropayment system based on airtime card sellers and mobile phones. Kenyans can deposit and withdraw cash, transfer money to other M-Pesa users, and pay bills (including for taxi-drivers and well water).
It is certainly the poster child, but it’s just an example, rather than the cause. The real drivers include sympathetic regulators, companies willing to take a chance and a blank slate of an economy.
The biggest worry, as an outsider poring over statistics, came from one fact, which I repeated ad nauseam to those buoyant regarding Kenya’s future.
Last year, the average Kenyan spent over 50 per cent of their disposable income on mobile technology – over 15 per cent of their entire income. M-Pesa is exclusively run by mobile company Safaricom, which, not surprisingly, has a market share of more than 80 per cent. Together, to my mind, they posed a double threat: a monopolist combined telecommunications and financial services provider using its position to chill the rest of the market.
Kenya, however, is changing faster than outside observers can keep up with. Last month, one of Safaricom’s competitors, Zain, started a price war in the mobile market, dropping the prices of SMS and phone time to close to an eighth of what they were at the start of this year.
Safaricom initially said it would not drop its prices in return, and continued to trust in M-Pesa. Kenya’s third provider, Yu, joined the price war, followed by Orange; then even Safaricom offered more low, value tariffs to compete.
The competition means more disposable income for Kenyans, but it has also accelerated innovation in how Kenyans can spend that income. Both Zain and Yu have created their own micropayment systems.
Safaricom hasn’t stood still either. Earlier this year it introduced M-Kesho, a micropayment banking system that allows M-Pesa users to save and to earn interest.
Safaricom chief executive Michael Joseph has said M-Kesho has led to over 250,000 Kenyans saving more than €3 million. Like the average M-Pesa user, these are not Kenyans who might otherwise have bank accounts, and this is €3 million that would not have existed in the traditional capital market.
Kenya isn’t the only place leaping ahead in digital cash – electronic cash can spontaneously emerge where even the local governments don’t want it.
China, which has excluded global credit cards like Visa and Mastercard from operating domestically, has found itself instead with an unofficial online cash economy based on “coins” minted by its largest instant message provider, QQ.
I don’t know when the next mobile price war will suddenly drop fresh income and greater telephony freedom to a particular country. I can see the potential, but I still have to squint to see what the contemporary cultural effects are (I read a lot of Kenyan blogs; I suggest you do too).
Most of all, I’m acutely aware, not for the first time, that in living in Silicon Valley, I am in precisely the wrong place to watch this kind of rapid innovation.
Electronic cash and mobile telephony appears to be two areas where the real development is taking place and being demanded, at the lowest income levels. I am sure it will transform the economy of those previously unattended sectors, and then go on to romp through the rest of our world’s socioeconomic groups. Fat and happy with our credit cards and five-digit incomes in chunky western currencies, we may well be the last to see this coming.
That said, I’m not the only one in Silicon Valley watching Kenya to see the future, and the valley is perfectly able to jump into a market it has ignored for decades and suddenly sprint to the finish.
The question is, by the time Facebook or Google or Apple turn their eyes to electronic cash, will a well-funded, canny and experienced Kenyan start-up already be there to face them?
