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Popular internet platforms in East Africa have grown beyond social, and now support value exchange within their closed environments – for example Facebook and whatsapp, both social platforms where people engage in online trade and biashara.
By adding a US dollar pegged coin known as a stablecoin within its virtual network, more value can be captured and retained within the network until it is absolutely necessary to cash out into local currency.
Facebookcoin, platform based currencies and network cryptocurrencies pose a threat to Mpesa just because of the sheer size of the networks they command and everything that goes on within them. This is great news for Fintech startups and banks in East Africa who can reinvent themselves in a post Mpesa world.
Here is how i arrived at this conclusion.
Networks are powerful
In an ideal world, Safaricom is as big as Opera browser, which targets the emerging market for Internet-connected handheld devices.
Safaricom’s network would span several African countries, cross border, not pegged to any single jurisdiction.
The phone call and SMS network would be the equivalent of whatsapp calls, video and messenger, mini apps within a larger network just like Facebook and whatsapp and telegram have embedded messenger and video call function.
Masoko, Safaricom’s flagship online shopping platform would resemble Amazon, or Alibaba – one huge virtual shopping mall for trade, biashara and value exchange at the click of a button.
Songa is Safaricom’s bootleg version of spotify for local music content while Safaricom’s BigBox is Netflix for video content.
Every emerging African consumer would be part of this network as long as they had a smartphone.
Finally, Mpesa and airtime would be the currencies of this network, that people used to pay each other, pay for ads, reward each other and even settle and trade and biashara.
In the real world, however, the year is 2019 and Safaricom and Mpesa are nowhere near the ideal. Granted, they’ve been trying with some strategic investments (in logistics company Sendy), funding an innovation lab (Safaricom alpha) and a wechat wannabe payments integrated messenger app (bonga), signing up local artists to its music streaming service Songa, and most recently dabbled in the ecommerce space with Masoko.
Right now though, everyone still mostly hangs out on facebook social and messenger, twitter, instagram, whatsapp, youtube, a couple of porn sites and sports gambling sites.
Mobile subscribers buy data bundles from Safaricom as a ticket to access the internet platforms, where all the action resides.
Beyond purchasing data and bundles, it is all a black box to Mpesa and Safaricom who have little to no idea what happens on these other networks.
Whoever owns the networks sets the rules
No one knows this better than Safaricom and Mpesa because it is a trick they pulled on everyone else.
In the pre-internet days, they grew and scaled a large cellular and payment network with millions of users and set the rules for outsiders as gatekeepers of user data, transactions, payments, calls, SMS.
First they cut off the banks , by hiving off 20 million people into a closed ecosystem with a prepaid wallet and subjecting banks to a passive role of depositing and withdrawing funds.
Of late, they’ve turned to cannibalizing the business of their airtime and mobile money agents who act as the cash in – cash out exchanges on the ground. Agents are the foundation of Safaricom’s and Mpesa’s success, wholly responsible for onboarding airtime and Kenyan currency on each network respectively.
By increasing the frequency and value of transactions within the Mpesa wallet ecosystem and within the Safaricom network, more value is created for every instance of a cash in (deposit) or cash out (withdrawal) transaction. So even though agents get paid a commission for acting as an exchange, the frequency of mpesa and airtime transactions within network means agents lose out on a lot more value created within the Safaricom and Mpesa network – like an airtime purchase via Mpesa, or merchant payment via Mpesa or an instance of saving instead of cashing out.
Why is this important?
Because now, facebook and other popular internet platforms, are about to do the same to Mpesa.
Networks of Value with platform currencies are more powerful
Reports suggest Facebook is working on FacebookCoin, a token on its network with (almost) all the features of cash – call it digital cash. It seems to be a trend by the world’s biggest internet social companies.
The internet outfits, including Facebook, Telegram and Signal, Twitter are planning to roll out new cryptocurrencies or integrate with cryptocurrencies like Bitcoin over the next year to allow users to send money to contacts on their messaging systems, regardless of international borders – the New York Times
Old timers will tell you that this trend is a renaissance. Over the last 3 decades, internet, gaming, entertainment, messaging and ecommerce platforms across the United States, Europe and China have experimented with internet currencies with varying degrees of success.
Facebook credits, Amazon coins, Skype credits from the later 200 QQ coins from Tencent’s messenger and the Chinese internet boom of the 2000s.
In 2007, QQ coins grew so popular, that it drew the attention of the People’s Bank of China.
“China’s Central Bank — which oversees the country’s $2.6 trillion economy — even went so far as to issue a warning about Tencent’s virtual currency, Q-coins, which allow customers to shop online for games, music and even virtual furniture.” – New York Times
So, we have been down this road before. But how is it different this time?
Alongside news of their new virtual coin, Facebook also acquired a blockchain company – Chainspace and announced their Facebook Stable coin would run on a blockchain.
So, the BIG difference between 2019 and the past is the combination of social media networks at global scale and the emergence of blockchain/shared ledgers as the base layer for issuing digital tokens with new technical abilities previously such as:
Digital currencies issued on the blockchain are natively interoperable so it doesn’t matter which platform coin you had, you can simply trade it in for another.
A free market ecosystem of digital exchanges and marketplaces for blockchain issued coins and assets to support the seamless trade and exchange of these currencies by humans, machines and bots.
Because they are issued on a ‘blockchain’ auditability is foundational and great news for network participants and third party agents who can trust the ledger.
Finally, because they are natively digital and built from the ground up, they lend themself to programming and APIs so third parties like exchanges and app developers can plug in and build out cool apps – like a game where you can win real money running within your social media account.
Mpesa unfortunately, is built on antiquated technology, too old to do any of these things that a Facebook or Twitter or Instagram or Telegram or Whatsapp coin can do.
The DNA of Telcos means they are always looking to fully utilize or make an extra buck out of an existing infrastructure, especially where they do not have to reinvest. Time and again, Mpesa and Safaricom have sought out strategic partnerships along trends, money and people. Where the cost to integrate is minimal with rewards and revenues for the same investment and infrastructure.
We have examples:
- Mpesa + Paypal
- Mpesa + Upwork
- Mpesa + Skrill
- Mpesa + Google Play
- Mpesa + Worldremit
- Mpesa + Western Union
So what if people from East Africa want Facebookcoin, or Instagram coin or whatever coin because they need to carry out some value exchange on their favorite internet network?
Well, Safaricom and Mpesa will have no choice but to make it happen.
In the near future, Kenyans will have the ability to convert either airtime or mobile money into facebook coins at a predetermined exchange rate. Then proceed to use facebook coins within the platform for paying for advertising, earning, sending and receiving value peer to peer, rewards, gaming and event settling pesa for online biashara.
This would effectively cut off Mpesa from all the economic data and insights from all the transactions and activity on facebook’s closed network. Mpesa would resign itself to the unenviable position of a cash in cash out agent.
An interesting position to be in because Mpesa and Safaricom did the exact same thing to the airtime, mobile money cash in cash out agents and banks.
The Nitty Gritties – Regulation and Partnerships
Before we get to this future, some things have to be put in order first.
The regulatory landscape in Kenya and East Africa over virtual currencies and cryptocurrencies is still up in the air, which means the future could swing in one of many sides.
One way is a legal framework that recognizes virtual currencies and allows for their use in payments. Right now, this is unregulated and unclear – I wrote about it 3 years ago here – a fact that has allowed Safaricom to freely experiment with airtime and airtime currency products (a virtual currency for the Safaricom network).
Another way could be Facebook seeking a license as a payment service provider, or electronic money issuer or whatever new license that comes up under a new framework. This way, Facebook could directly connect to local payments systems, gateways and banks right down to the agent level. Something like, convert cash into facebook coin at your nearest agent. Or convert mobile money to facebook coins using Pesapal.
Already, internet companies are seeking licenses to become financial technology companies.
Facebook has a money transfer license in close to 50 US states and Europe
Google Pay received an e-money license to operate across European Union while Opera is seeking payment licenses across Africa.
Another alternative could be Facebook partnering with any payment gateway in Kenya with the capacity to support integration – Finserve, Mpesa, Airtel money, tkash, pesapal, bitpesa, or maybe even all of them. This is worth getting excited over because Mpesa’s dominance as a universal gateway would be diluted.
Another way could be Facebook strictly partnering with Telcos like Safaricom and Telkom and allowing exchange of airtime to facebook coins at a predetermined rate. If they’re nice, they could extend this deal to decent APIs companies in the business of airtime across African countries like Africa’s Talking.
The outcome of all these options could change the landscape of how the African digital economy evolves. The sky truly is the limit.
My one piece of advice to policy makers, entrepreneurs, payment startups and banks is to take the lead in crafting a regulatory framework for virtual currencies and cryptocurrencies that allows all of them to partner with emerging online platforms for value transfer on fair terms. It is their best shot at throttling Mpesa’s dominance.
Until then, nothing can be ruled out.