Saturday, July 27, 2013

Bitcoin in emerging markets

I am far from being an expert in Bitcoin technology. I am also not the guy that is going to shout that this is the new uber-trend. For this I have been too long in payments and I understand the difficulties in getting something to critical mass. However, Bitcoins do have an interesting angle in the sense that it is extremely well-governed, without any-one specifically doing the governing. It is therefor very predictable (and thus stable). It does not take a Governor making a strange rule to change the direction of the currency as is the case in all other currencies.

In emerging markets where regulations are often the biggest inhibitor to innovation in payments, having a currency that is fully predictable could be a big advantage. No-one can therefor be blamed to reach out to Bitcoins as the possible solution to roll-out digital payment solutions in emerging markets. It were therefor not a surprise when the first Bitcoin-backed mobile payment solution was recently announced in Kenya. (Read here). Called Kipochi, the wallet is integrated with mPesa, allowing value to be transferred to and from Bitcoins. And this touches on the first of two major problems:
  • Bitcoins have been successfully growing in the digital world where many exchanges exist to convert Bitcoins between other currencies and vice versa, but it will prove extremely difficult to build these exchanges in markets where the bulk of currency are still in hard cash. Not only will it be difficult to sign up agents that will be willing to convert cash into Bitcoins, but to do this legally at the same time. By transfering cash into a mobile wallet before it can be transfered to Bitcoin (as is the case with Kipochi) really limits the application.
  • As is the case with most new things, the ultimate take-up and growth of Bitcoins in emerging markets will be a function of how well it is understood and trusted. While new technology has been embraced in emerging markets (look at mobile phones for instance), I am not so sure if the Bitcoin paradigm (don't trust in dollars - or other government backed currencies, trust the system), will be naturally embraced in emerging markets. It will take a lot of education, I think.
Solving for the above in an effective way, will allow Bitcoin-backed payment systems to grow in emerging markets.

1 comment:

Ima said...