M-Pesa vs Bitcoin

30 Jun 2014

Never mind Bitcoin – the future of digital currency could actually be mobile money initiatives like Vodafone’s M-Pesa, but only if M-Pesa goes open-source.

So says ReadWriteWeb, which draws some interesting comparisons between Bitcoin and M-Pesa, which Vodafone-owned Safaricom started in 2007 as an SMS-based remittance service in Kenya and has since spread to South Africa, Afghanistan, India and Romania:

Bitcoin is the answer that Silicon Valley is putting forward for the 70% of the world that is unbanked. It’s easy to understand why entrepreneurs and investors are charmed by the technical elegance and openness of Bitcoin, which provides both a decentralized system for transactions and its own form of stored value.

Therein lie two key differences between M-Pesa and Bitcoin:

1. M-Pesa works with existing national currencies, making it far simpler to withdraw and spend.

2. M-Pesa is controlled by Vodafone, whereas Bitcoin is an open technology.

M-Pesa owes a lot of its success to the fact that – unlike Bitcoin – it’s designed to work within the existing regulatory framework for banking. It’s also designed for mobile use, while Bitcoin’s mobility depends on apps, many of which don’t work well together.

However, that second point in the block quote could put Vodafone in the position of being “the AOL of mobile money” (a reference to America Online, once the most popular ISP in the US until its walled-garden content approach eventually became its Achilles heel). The comparison isn't quite apt, writes ReadWriteWeb’s Bernard Lunn, but it’s ultimately depends on Vodafone’s next move with M-Pesa:

It’s up to Vodafone if it wants to avoid M-Pesa becoming the AOL of mobile money. Vodafone has more than 400 million customers worldwide, but that’s a small percentage of the world’s global mobile users. As of March, only 17 million of them used M-Pesa. Vodafone will never reach the billions of unbanked who need it if it limits M-Pesa to its own markets.

So it will have to let M-Pesa free, either by open-sourcing it or licensing it on very fair, simple terms. It can still make plenty of money processing M-Pesa transactions on its own networks, as well as swapping M-Pesa for voice minutes or mobile data fees.

There is of course another complication – M-Pesa isn't the only mobile money service out there. In India alone, there are well over a dozen start-ups offering mobile money services, as well as Vodafone’s M-Pesa and Airtel Money. Meanwhile, other markets have their own mobile money programs, such as G-Cash in the Philippines, Easypaisa in Pakistan, and bKash in Bangladesh, to name a few. Any of them could theoretically decide to license M-Pesa, but it's hard to imagine why they would want to if their own services are doing fine.

Here’s another twist: Bitcoin could actually use M-Pesa (and presumably other mobile money programs) to establish itself as an alternate currency.

In fact, it already has. Last week in Kenya – where M-Pesa reportedly accounts for 40% of GDP – a new company launched BitPesa moved from beta to full commercial launch. BitPesa is a money transfer service that essentially takes bitcoins and translates them to work with the M-Pesa model. One of its selling points: a flat transaction fee of 3% regardless of size.

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