Want to go to the market, pay for a taxi or send money back home? In Kenya, all you need is your mobile phone.
Ever since Safaricom, Kenya's largest mobile-network operator, launched the mobile-payment system M-Pesa in 2007, some two-thirds of Kenya's adult population have subscribed, and an astonishing 31% of the country's GDP is now spent through mobile phones.
Kenya has been at the forefront of popular technological innovation for the past 5 years, and now there are indications that the country could usher in a new era of mobile banking. On 1 July, a company called Kipochi launched a new 'digital wallet' service that allows Kenyans to not only send and receive money domestically but, using the online peer-to-peer currency Bitcoins, transfer it internationally.
"In a country like Kenya it doesn't make sense to compete directly with M-Pesa on what it does best”, explained Pelle Braendgaard, Kipochi’s founder, in an online Q&A. “There is nothing better anywhere in the world for person to person payments as long as you're within Kenya and on the Safaricom network. Where we can make a difference in Kenya is with international and cross network transfers."
Kipochi will thus attempt to build upon M-Pesa's achievements, a company originally designed to facilitate the repayment of micro-finance loans but has since grown to become, in The Economist’s words, “by far the most successful scheme of its type on earth”. The beauty of M-Pesa is that it allows people to make quick money transfers securely, simply and easily. To use the service a customer need only register at one of the over 40,000 agents around the country and deposit some money in an M-Pesa account, from then on it is possible to pay other users just by sending a text. In this way vegetables are bought at the market, taxi rides are paid for, and money is sent from cities back to family in rural areas.
However M-Pesa’s success also brought with it unwanted attention from the Kenyan government, who sought to share in M-Pesa's success by bringing its payments within the country’s tax regime. In response Safaricom has had to increase fees for using M-Pesa, recently announcing it had to raise tariffs for transfers over Ksh101 ($1.20) by 10% due to a government-imposed tax.
It is partly in response to these new challenges in using M-Pesa that Kipochi has now emerged. Kipochi believes that by using Bitcoins it has found a way to both get around taxation and facilitate international payments.
Bitcoins are a so-called 'cryptocurrency' which exist only digitally and function without the involvement of conventional financial institutions. Launched in 2008, they form a kind of virtual currency that can be transferred between users in what can best be described as a peer-to-peer electronic cash system. Bitcoins are purchased using ‘real’ currencies and then, like M-Pesa credits, stored in ‘e-wallets’ from which payments can be made.
Kipochi’s particular innovation comes in making access to Bitcoins easier and by allowing phone numbers to be used as account IDs, making the registration process much quicker and simpler. Furthermore the main selling point for Kipochi is that when transferring larger amounts of money domestically or when sending or receiving money from abroad, payments are non-taxable when made using Bitcoins. This is due to the international and non-governmental nature of Bitcoins, says Kipochi, and gives them a distinct advantage over M-Pesa.
However, not everyone agrees with that assertion. Some experts have cast doubts on the sustainability of Kipochi's business model and believe that, despite what it says, the system cannot escape financial obligations so easily.
Paul Makin, one of the original developers of M-Pesa and current head of Mobile Money for Consult Hyperion, believes Kipochi is likely to encounter the same legal problems as M-Pesa. Makin claims that the regulations around international payments which affect M-Pesa also in fact apply to Kipochi, despite what the company might believe. Far from being immune, he says, Kipochi has simply been ignoring the law.
“Bitcoin was slipping under the radar of the financial regulators”, Makin tells Think Africa Press. “But that’s changing now, and the same restrictions that limit international transactions for M-Pesa are beginning to be applied”.
Regardless of the regulations Bitcoins are subject to or not, Kipochi has so far not been picked up by the public at large, and while over a thousand people have signed up for the Kipochi e-wallet, only a handful have actively tried to send money via this system.
Chris Foster, a researcher at the University of Manchester who looks at ICT innovation for low-income markets in Kenya, points out a few possible reasons for this.
“Bitcoin is still a risky 'currency' where value has fluctuated wildly, at times from hour to hour,” he says. “There are questions about security, particularly of many Bitcoin exchanges; and users are likely to feel the force of national governments if such 'stateless currency' becomes more common. So, in the short-term even the most technological savvy customer is likely to be wary of investing too much money in using such a service.”
Indeed, as it stands, Kipochi has yet to capture Kenyans’ imaginations and Makin sees it as merely the “latest in a long series of such ventures, none of which has achieved the necessary momentum”.
However, Kipochi’s foray into Kenya is barely two months old, and if Bitcoins were to become widely used, many agree that the technology could have huge potential. Foster, for example, believes Bitcoins could “enable more ubiquitous remittances across borders, and potentially a range of other interesting services by allowing M-Pesa customers to integrate with international services.”
Two Bitcoin enthusiasts – Julian Noble from Australia and Haroun Kola from South Africa – concur that Kipochi could be transformative and emphasise its potential to empower rural and marginalised populations.
“I see Bitcoin as a potential enabler for the 'unbanked' of the world to get more involved in cross-border web based commerce”, says Noble, after having used the system to make a donation to the Kenyan Red Cross.
Kola meanwhile sees rich possibilities in teaching rural people online trading techniques, saying, “I've been interested in Bitcoin and M-Pesa for a while since the inspiration for a way for rural people to experience economic emancipation first occurred to me”.
Kipochi clearly still has a number of challenges to deal with, from the unstable exchange rate of Bitcoins, to clearing up questions around regulations to which it is subject, to simply engaging more and more users. But if it manages to do these then by allowing people to transfer money within and across borders without the involvement of state agents, companies or banks, Kipochi could allow African entrepreneurs to operate more quickly, effectively and freely. There is a long way to go – and as with M-Pesa, the more success Kipochi has, the more scrutiny it will attract – but if it catches on, this innovative new technology could prove to be another useful tool in empowering ordinary citizens.
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