Loan me a dime

Posted on Wednesday, September 26, 2018

BrechaCero.com is an excellent webpage and associated newsletter on the social benefits of the mobile industry. For someone as cynical as I am, it is a welcome antidote. A recent article on mobile payments in Venezuela, however, was a bit too optimistic. Building mobile payments momentum in Latin America has been difficult and I do not think Venezuela is a relevant example for other countries.

I have tried to write for Brecha Cero, which I think is a very worthwhile project, but I guess I have a different role in the mobile telecoms ecosystem. My submissions have been politely returned, thanking me for my contribution, but pointing out that they are looking for positive examples of the use of mobile networks to close the digital divide. Hence the website name ‘Zero Divide’.

I just do not do that very well. I keep hoping that, someday, something will inspire me in a good way and I can get published in Brecha Cero. But so far, I have not found the right topic.

This blog is not going to do it for me either.

Recently, Brecha Cero published an article on mobile payments Venezuela bets on mobile payments (Venezuela Apuesta Al Uso de Pagos Móviles).

It is a well-written report with lots of interesting information. It looks like the author was able to speak to senior people in CANTV (the government telco) and the Ministry. There are a number of important topics discussed including, obviously, mobile payments but also a mobile identity card.

All good stuff and relevant for Brecha Cero’s target audience: governments in the region and NGOs.

But I am not sure that the adoption of mobile payments in Venezuela is a relevant example for other Latin American countries.

For anyone who is not following that benighted country’s woes, among other economic challenges, there is hyperinflation. Despite recently lopping off five zeros from the currency, prices were up 10,000,000% (yes the zeros are right) between August and March. Prices double roughly every 17 days. (Sorry, these links are to The Economist website and you may need a subscription to read the articles.)

One (among many) challenges of hyperinflation is simply paying for daily necessities. The supply of bills is fixed – in the short term – and expanding the supply of bills can feed inflation. Worse, in the case of Venezuela, only 5% of bills are printed locally. The rest are imported and as inflation soars, the Bolivar devaluates, raising the cost of imported goods. The cost of printing money becomes a significant proportion of its face value and the Venezuelan government lacks hard currency (like US dollars or Euros) to pay for imported bills. A vicious circle.

There are stories from Argentina and Brazil during their hyperinflation experiences a few decades ago of people bringing cash to stores in wheelbarrows – just to pay for bread or milk.

With this backdrop, it is no wonder that mobile payments have taken off, no wonder that government officials are actively encouraging mobile payments. Credit cards, debit cards and mobile payments are the only practical way to deal with the physical problem of how to pay for things when using cash has become nearly impossible. (I can only speculate why an authoritarian government would be interested in a mobile identity card in a GPS-enabled device.)

My point is not to heap more bad news on poor Venezuela nor to criticize Brecha Cero for its article.

My concern is that Venezuela is a special case that has little to teach us about how to develop mobile payments usage in other countries.

Several years ago, we often said that the most interesting country for mobile payments and for operator strategy more generally was Kenya. Safaricom – at the time Vodafone’s Kenyan subsidiary – had transformed itself into a bank with an innovative mobile payments service. The operator had an amazing revenue flow from ‘value added services’, capturing a toll on the millions of transactions passing through its phones.

More importantly from a policy standpoint – a Brecha Cero standpoint if you will – was the transformational power of mobile payments. The platform took a traditional barter system and gave it the power of high finance, encouraging saving, permitting loans and creating small businesses out of street stalls.

Telecom software vendors rushed to launch mobile banking platforms – based on their prepaid / real-time charging systems – and operator rushed to copy Safaricom’s success in their own markets, especially their own emerging markets.

But like some rare African orchid, transplanting the idea had ‘limited success’. ‘Failed’ would, unfortunately not be too strong a word. Even Vodafone could not make the idea work in its other African subsidiaries.

I had a long interview with Telefonica Colombia about its trials with a mobile payments system for coffee growers. In Colombia, coffee is grown by small farmers – often very small farmers – who have no income for much of the year and receive a wad of cash at harvest which they stuff under the mattress, if they do not blow it on frivolous purchases after months of penury. The social objective was to bring them into the ‘banking world’, like Safaricom, encouraging savings and giving them access to credit.

There were a number of challenges ranging from Colombia’s historic paranoia about money laundering, to slow decision-making by the country’s lumbering banks and impenetrable government bureaucracy, to the coffee-growers’ reluctance to change their traditional way of living, even if that meant more safer, more stable cash flow and the potential for growth.

Something ‘clicked’ in Kenya – I have always understood it was an abysmal banking system – which has struggled elsewhere. (I may be being too harsh. The Philippines have had success with peer-to-peer payments and there is broad growth in e-commerce, using a smartphone for purchases rather than, less common, PCs or laptops.)

North American readers may have Apple Pay on their iPhones or Samsung Pay on their latest Galaxy smartphone. They may pay for their Triple Shot Venti Almond-Milk Latté with a tap at their local Starbucks.

But in most emerging markets, waving your smartphone at a cashier is unlikely to result in much more than a confused look.

Except maybe in Venezuela. There mobile payments are the obvious, indeed only, solution to an otherwise insoluble problem: how to manage the copious numbers of bills required for the simplest, smallest purchase.

Elsewhere in Latin America, the big banks (not the mobile operators) are still trying to convince their customers (and more importantly, merchants) to adopt mobile payments. They may eventually have better luck since – unlike Kenya – the banks are trusted and have the support of governments. It will eventually happen, I believe, but it will not be as rapid as it was in Kenya or Venezuela.

The use of cash as a tax-avoidance strategy, especially for VAT, the lack of capital (and desire) to invest in sophisticated point-of-sale terminals, fear of money laundering, and powerful banks will all act as brakes on mobile payment deployment.

And when it does take off, the mobile operators will not profit from it.

Won’t somebody please loan me a dime?

Or even 6.20 Bolivars Soberanos?

Today. Quickly. Tomorrow it will different.

(Title reference: Loan Me A Dime or Somebody Loan Me A Dime is one of my favorite blues songs, especially as done by Boz Scaggs with the late Duane Allman on guitar.  Originally by Fenton Robinson, the Boz Scaggs version is nearly 13 minutes long and you have to experience it in all its glory.)

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