Digital finance is growing at light speed, attracting telecom companies, banks and now Bitcoin providers to the global boom in mobile money. A number of Bitcoin pilots and services have launched recently, bringing low-cost money services and easy mobile banking to anyone with an SMS or smartphone. Bitcoin’s unique feature is an open-source, peer-to-peer network that combines a global currency with a digital payment protocol. Like an “internet of value,” Bitcoin allows people to move money instantly and at virtually no cost. Startups are using this innovation to expand financial services in areas with high mobile coverage and low participation in traditional banks.
Bitcoin has only been around for six years, and partnerships with mobile operators, payment processors, and private sector businesses are just beginning. Like its peers in digital finance, digital currency faces regulatory hurdles that stymie business development and hinder consumer access. Growing interest in financial technology and a shift to electronic payments provide a platform for Bitcoin adoption. Yet Bitcoin is still new and its success remains unclear.
To see how Bitcoin services are developing worldwide, we looked at five countries with active digital currency marketplaces: The Philippines, India, Kenya, South Africa, and Argentina. Below are mini-case studies of early Bitcoin momentum.
Just 2 percent of Filipinos use credit cards and 73 percent are unbanked. Most have access to the internet and a mobile phone, but buying online is difficult. Coins.ph streamlines online sales and purchases using Bitcoin. Customers or business owners transact digitally with bitcoins and cash out in pesos. The goal is to improve time delays and transportation costs from historically cash-based transactions and weak payment infrastructure. Coins.ph also aims to leverage high mobile phone penetration to extend services to the unbanked. They recently expanded to Thailand.
In India, more than 40 percent of the population is unbanked, and like The Philippines, most people transact in cash. Big retailers like Amazon and India’s Flipkart are driving e-commerce, but smaller companies still rely on hard currency. Unocoin helps small and medium-sized enterprises compete on digital payments by using Bitcoin to lower transaction costs and eliminate chargebacks. These fees can erode profits, especially for those trading in low-cost goods or micropayments. Reducing transaction charges can significantly impact small business viability and long-term sustainability.
BitPesa targets the remittances market in Kenya, home to M-PESA and the hotbed of mobile money. BitPesa uses Bitcoin to send money for a 3 percent fee, a drop from the longstanding average of 9 percent. The goal is to build on Kenyans’ familiarity with electronic payments - the highest per capita worldwide - to grow Bitcoin adoption. Customers (i.e. expats, entrepreneurs, and the Kenyan diaspora) pay Bitpesa in bitcoin to send Kenyan shillings between mobile money accounts. BitPesa transfers money at no cost and guarantees a 3 percent exchange rate, protecting senders and receivers from losses or risk. Since customers interact with Bitcoin primarily through their mobile money accounts, BitPesa aims for seamless adoption. A recent study found that 74 percent of Kenyans surveyed are open to digital currency – the highest percentage among the 9 countries studied – suggesting a willingness to explore Bitcoin alongside mobile money.
Johannesburg is home to Africa’s first Bitcoin ATM. Customers insert cash and bitcoin is instantly uploaded to their digital wallet. ATMs help familiarize people with Bitcoin by using a well-known system for managing money. In partnership with Bitcoin provider BitX, South African payment processor PayFast also supports 30,000 online businesses in accepting Bitcoin. Adding Bitcoin payments requires little technical savvy and offers customers a new option to buy online. Bitcoin transactions are converted immediately into local currency, shielding companies from digital currency volatility. Some CEOs worldwide are passing cost savings from Bitcoin transactions onto their customers, though it is too soon to know whether South Africa will do the same.
Bitcoin has spread in Argentina as the economy has tumbled. Argentina has strict capital controls and inflation is nearing 40 percent. As the peso has dropped, some are opting to trade in Bitcoin. BitPagos gives Argentinians more payment choices in a tightening economy; they process credit card transactions for a 5 percent fee and Bitcoin for 0 percent, making digital currency transfers less expensive than local credit card payments. They also partner with mobile operator TeleRecargas to allow Argentinians to buy small amounts of bitcoin at more than 8,000 convenience stores where TeleRecargas sells prepaid phone plans. Through this partnership, BitPagos aims to increase access to Bitcoin in hard to reach areas of the country.
What we see from these pilots is early use of Bitcoin innovation to provide inexpensive financial services to underbanked regions of the developing world. Harnessing newfound capacity to send money on a decentralized network, Bitcoin companies can offer secure, instantaneous transactions at a fraction of current costs. These time and fee savings increase consumer options for managing money, and the convenience of using mobiles phones improves access to digital banking.
As mobile money grows, partnerships between Bitcoin companies and mobile operators may help overcome existing interoperability challenges. Coordination on shared interests in advancing digital payments and online banking may also strengthen advocacy efforts to address regulatory questions. Bitcoin is still developing and uncertainties remain. However, demonstrated consumer benefits and capacity to improve financial opportunities may accelerate popular adoption and incorporation into mainstream payments.