What on earth am I doing?. As a startup founder you have to refine…
By: Mautinoa Technologies
Tags: Financial Inclusion, Startup, Humanitarian, International Development, Fintech

In that emergency, we ended up making mobile phone credit fungible back into cash at face value, unblocking the liquidity (cash is the most liquid asset for those not in the financial services business) problem and enabling people to paid on time and without having their money stolen.

In Sierra Leone, to get mobile money to work at national scale, the government and international community had to subsidise the ecosystem and the networks themselves. This obviously isn’t ideal, and wasn’t sustainable, the ecosystem collapsed after the emergency and subsidies stopped. The system also never had to contend with a rainy season, which often disabled bits of the network for days on end. Workers would withdraw all of their money from the system at once, even though the amounts were relatively huge compared to local incomes. When asked why, one reason given was that people weren’t confident their money would always be available, so they took it all out into a form they knew they could use, even if it meant stashing huge amounts of cash in a box under the bed.

What this experience taught me is that electronic money is only useful if you can use it all the time even in the middle of a howling gale or tropical downpour, and mobile money fails completely when the network vanishes which happens when networks are poorly maintained and it rains a lot. App based systems like AliPay have the same problem. If the network is down, they don’t work. If it’s not available, money is useless. Therefore I came up with a key design goal:

When all other technologies fail, our platform must keep working.

What traction can we show?

We do have an up and running deployment and it is set to get quite big. National state scale big.

Our first “At Scale Demo” deployment is “Kartaun Bele” (KB) in East Timor. This project sees us partnering with a consortium comprising World Vision, one of the largest INGOs in East Timor, and local investors to bring digital finance to the poorest country in SE Asia.

KB’s secure digital currency deployment is a radical departure from traditional development programmes which historically overlooked finance as a key enabler of poverty alleviation. Aiding people to safely trade and save their way out of poverty. Australia’s Dept of Foreign Affairs and Trade estimates that for every dollar spent in Aid to enable Trade is equivalent to twenty dollars in conventional development aid.

Not having to rely on constant internet and data connectivity KB overcomes the limitations of the telecommunications and physical infrastructure in the country and enables the pooling and efficient allocation of funds. This will ease payments of everything from pensions to utility bills to payroll. Seeing the practical benefits of a fast, secure payment system first hand, the local Timorese people have enthusiastically embraced our technology. Villages are now actively petitioning for the system to be rolled out to them as soon as possible.

After one demo and training session, a group of elderly village leaders trekked overnight over mountains in freezing fog to ask the World Vision team when their villages would get the platform. The last time I was in one of the villages where the platform is being tested, a local shopkeeper asked me when could he deposit his own meagre funds into the system for safekeeping.

When the elderly cross mountains and the poorest trust your technology with their means of sustenance, that’s customer demand.

Who are our key competitors in the market?

The problems I encountered as I worked through the field, got me thinking about how do existing digital payment technologies work. These in effect are our competitors.

Mobile Money

Systems like MPESA and AirTel money, use the billing systems of Pay As You Go mobile phones as wallets, and were developed from the observation back in 2002 that Kenyan merchants were accepting airtime minutes like currency for payments. Mobile Money simply formalises this and adds some management features. This is a gross oversimplification, but it helps explain the limitations of these systems, they obviously don’t work when the mobile phone network is unavailable (hence the stories of people walking for hours to get to somewhere with signal so they can transfer some money), and worse they have a problem where it is very expensive or impossible to move money between phone networks. After all if there is no agreement between the mobile phone carriers to cooperate to allow cross network funds transfers, then your money is trapped, and it’s not in the phone company’s interests to allow really easy movement, they would rather try to grow their subscriber base at the expense of the other phone companies.

This results in Mobile Money being mostly used for transfers, rather than for savings or loans. People don’t deposit money to keep it safe; rather they use the system to send value to other people who withdraw it as soon as they can to so the value is always available in a form that everyone accepts, even if they are on another network.

People always point to Kenya as the shining example of how Mobile Money can revolutionise an economy, but it’s not a good example for a few different reasons; one is that Kenya has forced it’s mobile operators to co-operate and interoperate between its two dominant platforms M’Pesa and AirTel money. This is combined with brutal competition which has forced the networks to become reliable, as well as a benign environment which doesn’t suffer environmental events that bring down parts of the network barring the odd lightning strike. Kenya is unusual in that while central government is often politically weak, it has strong institutions and regulators which drive integration, if only the rest of the developing world were anywhere near as organised.

EMV2 based Credit and Debit Cards

You’ll immediately recognise these as the credit and debit cards in your wallet. The system that underpins them is pretty complex, and I won’t go into all the detail, other than to say that they rely on complex communications networks to allow the receiving bank that holds the merchant account to check you have enough money or credit available to pay. They have floors and ceilings built into the cards which allows you to simply wave the card or present it to with no authentication for small value payments, but need to contact your bank to do anything above that built in ceiling. Anyone who has ever travelled to a country where the telecoms and banking infrastructure isn’t great has probably experienced this first hand; you try to make a purchase, put in your PIN number and it’s declined (this goes double for ATMs, I remember many a time going from ATM to ATM of different banks trying to find one that worked to withdraw cash). You call the bank and they say you have plenty of money and they have no record of the transaction being attempted, would you mind trying that again. What you just experienced was a failure of that complex bank end infrastructure. Needless to say when the infrastructure fails you can’t use your card for very much unless it’s to buy a bus ticket or a coffee while you wait for the network to come back.

We’ve built our platform so that this should never happen, as long as you have enough money on the card, so one can enjoy that foot massage at the airport spa rather than endlessly searching for an ATM that works (true story from several occasions stuck in airports around south east asia where looking for an working ATM totally wrecked my quest for a foot massage; you come up with solutions to problems you’ve personally experienced, foot massage is important).

App based payments

These are the big new kids on the block, and in China, they have supplanted everything from Mobile Money to Credit Cards to Debit Cards. They rely on everyone having a smartphone with a camera and having really good telecommunications networks. They come in 2 sorts of flavour: Paypal/Venmo and WeChat/Alipay.

Paypal and Venmo technically aren’t technically very interesting. You link your existing credit or debit account to the app, and then use the app to pay for stuff identifying the payee with an email address or phone number. They are more like payment processors than anything else, you can hold a balance on them, but it doesn’t offer you much other than convenience for online shopping.

WeChat Pay and AliPay are totally different animals, which use very different technology to achieve the same ends. They both use the ubiquitous smartphone camera and QR codes with embedded single use passwords (Time based One Time Passwords for those of a technical bent) to identify either the seller to the payment app (alipay) or the payment app to the seller (wechat pay). They have staggering user bases, 871 million people in China use AliPay and WeChat Pay claims over 600 million users.

Obviously none of these work when the telecoms are down, and require everyone to have a smartphone, which is actually a very expensive item for the bottom 3.1 billion people.

Bitcoin and other crypto currencies.

Despite the recent hype, these things aren’t actually very useful. They behave more like a effort to recreate assets like gold, and suffer many of the same disadvantages as gold as money (which is different from money, cash and assets). As well as being inherently deflationary, they can’t be recovered if stolen, the apps don’t work when the network is down, they are hard to turn into real goods like food due to poor acceptance, vulnerable to theft by hacking and tough to turn into widely accepted currency because of rules around money laundering and tax evasion. An excerpt from a hilarious and very erudite book about the strange world of cryptocurrencies called Attack of the 50 foot Block Chain by David Gerard which explains some of Bitcoins deficiencies can be found here

How will we make money?

In a word licencing. We want a tiny cut of every transaction that crosses the boundary from the physical cash and default banking system into the card ecosystem. We don’t want to be a bank, or have to set up payment processing subsidiaries in every country. That’s a regulatory nightmare, and we aren’t bankers. There is also a strong argument to be made that finance must be accountable to the needs of the people it serves, and in practice that means financial institutions should be locally owned and run. Even in the globalised developed world, this more or less holds true as we have strong government, central banks and regulators (in theory at least).

So the game plan is to try to get our technology into every payment card worldwide and get cards into the hands of everyone, ideally from a local financial institution that can use the deposits the technology enables to invest into the local economy. Often times those financial institutions that make up these national payment associations won’t be able to or want to run the backend ledger systems needed to support the card ecosystem, and we plan to make money hosting and running these backends for them.

Integration with everything from trade finance platforms for small producers to government to people and business financial platforms provide additional income streams, as finally does data. Central banks, government and regulators finally have a way to directly see the health of their economies in near real time, while segregation of KYC data and ledger data ensures that privacy of users is protected. These are all services we can make money from.

It’s ambitious, but if one thinks about the world that we are heading towards, where the bottom 3.1 billion make up the last markets that will experience double digit growth rates, and increasing numbers of weather related (un)natural disasters test the resilience of everyone, it makes sense to move to technology platforms that are inherently robust, and that make real the promise of the much vaunted, but rarely seen, technological leapfrog.

What is our unique advantage?

To the best of our knowledge our technology is unique. It is the only one that works well when the network is down, it’s pouring with rain and the mains power is out.

A common idea is that once a technology is adopted, it opens a moat which makes it hard for competitors to cross. In our case, by getting to these markets first with a product that is trusted because it’s always available in the same way as cash, empowers countries, local economies and which provides resilience we can open a moat that is very hard for others to cross, simply by virtue of being the only digital wallet that keeps working seamlessly even when everyone else has failed because a flood, cyclone or fire has drowned, blown away or burnt their supporting infrastructure to a crisp. Or indeed when just some tropical rain makes it impossible to buy your vegetables because the local cell has gone down for an hour.