The emergence of billions of people out of subsistence farming into a global middle class is the biggest story of the 21st Century. This is the equivalent of the industrialization wave that started a few hundred years ago in the West. Except this time around it is driven by digitization not industrialization.
You can feel the heartbeat of this massive change when you go on a site like Zidisha and witness the struggles, hopes and fears of thousands of micro-entrepreneurs.
This is happening all over the Rest (those countries outside the developed world sometimes called Emerging, more recently simply high growth or rapidly developing economies):
- SmartPesa from Singapore enables these micro-entrepreneurs to accept credit cards.
- Companies from India may lead this Global Underbanked market because they have the right combination of a large Underbanked population and a big IT sector. Janalakshmi is going after the Urban Underbanked, a savvy move as it is harder to reach people in remote villages.
- There are people working on financial inclusion in America and in the UK. The Underbanked is a global market in the West as well as the Rest. The rise of the Rest is causing a lot of short-term pain in the West even if it is eventually a huge opportunity for people in the West as well.
Companies from all over the world are seeing this opportunity, but Africa is ground zero of this revolution. If necessity is the mother of invention, we may see this invention coming from Africa.
Bringing these two worlds together is Kipochi, a venture that:
“allows people to send/receive BitCoin and convert it to and from an M-Pesa balance.”
Kipochi is a UK venture, which is interesting because M-Pesa was originally created by a small UK software company on contract to Vodafone, which launched it in Kenya via their subsidiary Safaricom.
The most authoritative data about the Global Underbanked comes from the World Bank which has these data points for measuring Financial Inclusion (what they call the Global Findex Database) for the 2.5bn adults globally:
- 50% have an account (and 50% are Unbanked).
- 22% have saved in the past 12 months.
- 9% have taken out a loan.
The most commonly reported barriers cited by the World Bank are
- high cost
- physical distance
- lack of proper documentation.
The World Bank, given its heritage is focused on public policy and what it calls “formal financial institutions”. The digitization revolution of M-Pesa and Bitcoin really change those barriers:
- high cost (Transfers via M-Pesa and Bitcoin are cheap as are loans via Zidisha).
- physical distance (digital transfers are distance independent and when every road side stand can become a bank branch, the old way of setting up bank branches in remote places becomes irrelevant).
- lack of proper documentation (this one is critical. The practical default today is that your mobile phone is your ID, but this has issues).
In the West we may moan about the pain of proving who we are to get through KYC checks but we take for granted the benefits of having a proven identity through artifacts such as passports and social security numbers and drivers license. Without that proven ID, you cannot have financial inclusion. The Indian Government is innovating in this area through the Unique Identification Authority of India (UIDAI). There are other people tackling Identity at a technical and global level using Blockchain technology such as Identifi.
These are all tools – Bitcoin, M-Pesa, UIDAI, Identifi. What will be interesting to see is who are using these tools to create practical services that make a difference in people’s lives. Sendwave is an example.
Sendwave is an American company focused on Remittances from America to Kenya via M-Pesa. What I want to see is the innovation happening on the ground in Africa. So I checked out an innovation challenge focused on this called Matchi.biz (sponsored by Standard Bank in South Africa in 2014).
“The challenge received a total of 60 qualifying responses from firms located in 16 countries”
The 6 Winners and the runners up in are:
- Security & Fraud Reduction
Runners-up: Rippleshot (Chicago), Feedzai (Portugal)
- Mobile Payments & Customer Service
Runners-up: Sedicii (Ireland), Nomosphere (South Africa)
- Lending & Alternative Financial Services
Runners-up: FireWorks (South Africa), FriendlyScore (England)
- Personal Financial Management & Investment
Runners-up: Monipulse (Florida), SavedPlus (California)
- Business Banking & SMEs
Runners-up: FireWorks (South Africa), Nihilent (India), Appdator (Israel), Riskflow (South Africa)
- Corporate Banking Solutions
BCL Technologies (California)
Runners-up: FireWorks (South Africa), Market Prophit (New York City)
That has given me a list to add to my Fintech 1,000 database and lots of interesting ventures to review in the coming weeks.
This year’s SWIFT Innotribe Challenge also has South Africa as one of the regional showcase centers (along with the more traditional London, New York and Singapore).
It is interesting to note South Africa as the meeting place for this subject. It is a bit like folks coming from all over Europe for conferences in London or all over Asia to Singapore or all over America to New York. However I need to return to this subject to find more radical innovation such as Zidisha. The most radical innovation often starts as a not for profit model, gets scale with for profit and loses its way when fast money tries to extract too much profit and finally settles into real value by firms who are willing and able to extract profit on razor thin margins at massive scale. Then this “frugal innovation” will come to the West to serve the Underbanked in the West. This First The Rest and then The West is already playing out in mobile phones and may happen next in financial services. We are still in the first innings of this game.