M-Pesa and Bitcoin: Competitors or Trend Indicators?

Three days ago, Bloomberg View contributor Leonid Bershidsky had us thinking that East Africa had caught on to a superior digital currency alternative. His title is catching: “Forget Bitcoin, African E-Money Is the Currency-Killer”; it’s also very misleading.

We’re quickly startled by the statistics Bershidsky shares about M-Pesa: “About 43 percent of Kenya’s $40 billion gross domestic product flows through the system.” And since the title has put Bitcoin on our minds, we’re quick to remember that no country has anything close to that level of its GDP on the block chain. It seems easy to deduce that M-Pesa must be much more significant than Bitcoin.

Don’t let Bershidsky confuse you: Bitcoin and M-Pesa are not comparable systems. But they have one quality in common that he fails to mention: they are identifying–and filling–holes in the government-backed, central-banking fiat money system.

Take a look at Bershidsky’s description of how M-Pesa works:

Locals came to the agents with their phones — just plain old Nokias, not fancy smartphones — signed up and received a new menu from the operator, allowing one to transfer money to another mobile number. M-Pesa could be cashed at an agent’s — by sending a text message and receiving money then and there — and, eventually, at automated-teller machines, without the need for a debit card. Sending money to family in a remote part of the country or paying at a market stall was suddenly as easy as texting.

In short, M-Pesa is a service that partners with local banks to replace debit cards or mobile banking apps, or rather, to make digital financial transactions available to those who couldn’t use them before. There’s no “currency alternative” aspect to it. It’s just a transfer system within the existing fiat money structure, while Bitcoin is a separate currency system entirely.

So how did this predominantly rural, East-Africa-based money exchange option find itself in a headline with Bitcoin? Why does the click-bait work? Because currency exchange and financial institutions around the world are changing, and we want to know how and why. Articles like this are being written for the same reason that Facebook bought WhatsApp: tech companies are starting to pay attention to the world’s “bottom billion,” where mobile is the primary (and often only) platform for Internet access, and hubs of government or finance have not extended to most of their country’s citizens.

There is one mention of this movement in Bershidsky’s article:

The mobile operator’s thinking is clear enough: It is trying to pick up customers in countries that have the largest unbanked populations.

Amongst those populations, being “unbanked” is often a matter of a bank’s account fees and charges being beyond the means of the average citizen. NPR outlines this in an article on M-Pesa from 2011:

Like most people in Kibera, Outiri doesn’t earn very much — just $4.37 a week. He would like to put that money in a bank, but he can’t afford to.

“If I want to open up a bank account, it will cost me some charges, which I am unable to incur,” he says.

So Outiri deposits his salary onto his cell phone with the help of an M-PESA agent in a kiosk in Kibera.

You’ll notice a legitimate comparison to Bitcoin here: one of the many attractions to cryptocurrency is the ability to bypass credit card charges and banking fees that can accompany every transaction, costs that add up quickly for businesses and individuals alike (and in the case of poorer populations, make banking impossible). This ability to bypass is the feature of Bitcoin that has many governments worried about its potential impact on their official currencies.

But could Bitcoin, M-Pesa or any coming innovations in banking ever be a “currency killer”? In this Bitcoin Byte blogger’s opinion, not likely.

But in an extreme case, a currency could kill itself. As digital technologies continue to fuel the globalization of economies, we are likely to see a rise in any system that makes monetary transactions and exchanges more convenient and less expensive. These innovations exist because of the needs of their users–people for whom the extant system does not work. If a large enough majority of a given country’s citizens fall in this group, and their government fails to progressively legislate in response to those needs (possibly incorporating these technologies), their fiat currency could become obsolete.

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