Many compare the emergence of the decentralized blockchain payments system to the emergence of the internet. While there were those who predicted the collapse of the internet there have been others who predict the collapse of the world’s first decentralized payments infrastructure. Fortunately, there has not been any US federal crackdown but instead a cautious consideration of the potential to move beyond the 500+ year old, obsolete framework of our global, centralized payments system.
The blockchain is beginning to financially connect the 4+ billion people in developing countries living at the base of the economic pyramid with diaspora communities in the US, Europe and elsewhere. Such remittances are important for international migrants (e.g. young African professionals in the UK, Filipino maids in Dubai, etc.) to maintain their social relationships and social presence in their home communities. According to the World Bank worldwide remittances will be $700B by 2016 with traditional money transfer organizations (e.g. Western Union, MoneyGram) charging fees of 10% or more and taking days to clear. Startups like BitPesa in East Africa and Rebit in the Philippines are leveraging the blockchain to facilitate these same remittances for fees of 3% or less with near-immediate transfer. In fact, in February 2015 BitPesa raised $1.1M USD in their second round from a roster of venture capital funds. The risk of such investments seems might be mitigated by the 5 X 5 development agenda of the G8 and G20 to reduce remittance costs by 5 points in 5 years by promoting transparency and competition.
Such models like BitPesa and Rebit also provide near seamless integration with mobile money platforms. According to the GSMA, the apex organization for mobile network operators worldwide (e.g. Verizon, T-Mobile, Orange, MTN), there are more than 250+ mobile money platforms that are primarily in the large urban centers and capital cities in developing countries. There has been such rapid uptake due to the phenomenal adoption of cell phones, limited/non-existence of financial infrastructure and therefore extraordinarily high rates of unbanked and under-banked people. In short, in the absence/near-absence of legacy telephone landline and banking infrastructure these countries are ‘leapfrogging’ into the future with mobile bank accounts. Mobile money is a new technology that began in 2007 only two years before the blockchain’s January 3, 2009 genesis block. Mobile money platforms have saturated or will soon saturate the large urban centers and mobile network operators are now looking to expand into rural areas in pursuit of nationwide penetration which presents potential to further align with the emergence of international blockchain remittances. New business models are emerging for the next generation of mobile money in rural areas that accommodate the reality of fewer transaction fees due to lower population densities and other challenges.
Agriculture is the most significant sector in rural areas and provides livelihood for 70% of the worlds poor. Further, there are 500 million smallholder farming families that grow and harvest 70%+ of worldwide food production. A longtime, nagging issue for agricultural finance has been how to cost effectively and securely provide financing to rural smallholder farmers in such manner that fraud is minimized while accountability and transparency is promoted. Recent and upcoming research by The Technical Centre for Agriculture and Rural Cooperation (CTA) reveals that cell phone-based crop payments by large multinational, regional and local commodity buyers (e.g. Hershey, Starbucks, etc.) to farmers can create a mobile money ecosystem of cashin/cashout agents that can be subsequently leveraged as a distribution channel for the provision of targeted credit, savings and microinsurance products to farmers. Mobile money is simple, convenient, affordable – and is disruptively innovative for agriculture finance.
Meanwhile, diaspora remittances into agricultural areas in developing countries is four times the global overseas development funding for agriculture provided by donor countries. This has occurred in spite of the expensive fee constructs and inconvenience of traditional money transfer organizations. Integrating international blockchain remittance payments into this next generation of mobile money – into rural areas – will further enhance the economic value proposition for rural rollouts of mobile money, enhance the efficiency of the entire commercial agricultural process, likely increase the volume of international remittances, expand the target market of BitPesa, Rebit and similar startups as well as further mainstream the use of the decentralized blockchain payments system.
The annual Bill and Melinda Gates letter for 2015 describes their four big bets about the future in the areas of health, agriculture, education and banking. Their overarching belief is that “The lives of people in poor countries will improve faster in the next 15 years than at any other time in history. And their lives will improve more than anyone else’s.” Business models that align the service delivery characteristics of the internet, mobile money and blockchain remittances and other payment streams will provide the transactional rails upon which we’ll see significant economic growth in Africa, Asia, MENA and Latin America. Digital finance and banking will do for the economic base of the pyramid in rural, agricultural areas what commercial banking did for the Industrial Revolution!