NEW BLOG: From central bankers and academics to speculators, everyone is getting over-excited about Bitcoin. Everyone that is apart from consumers, very few of whom have first-hand experience of buying actual goods with the virtual currency.
The currency can only be traded online via specialist exchanges and has no central authority in charge of supply, all of which makes bankers uneasy, but it is intriguing some in the mobile industry who think the virtual currency might have a role for mobile money.
A number of firms are eyeing Bitcoin as an alternative to the traditional financial system for transferring international remittances or moving cash between mobile money services, an area where interoperability is often absent.
Two firms – Bitpesa and Kipochi – are targeting remittance payments sent from foreign countries to users of the popular M-Pesa service in Kenya. A market opportunity exists because M-Pesa’s famous money transfer service is only for domestic use.
Another opportunity exists to provide interoperability between competing mobile money systems within Kenya.
Bitpesa’s CEO Elizabeth Rossiello tells me about the attraction of Bitcoin to her start-up. “It all comes down to avoiding the fees the international banking system imposes”. The currency can do this because “it goes outside the system,” she explained.
Pelle Braendgaard, the co-founder of rival Kipochi, likens the potential impact on the traditional payment system to what VoIP services did to traditional fixed telephony in the 1990s and 2000s.
Another analogy he uses is with the ubiquitous coverage offering by the global system of roaming agreements in the mobile industry. “In the case of M-Pesa, Bitcoin allows someone to set up and plug in with anyone so long as they too are plugged into Bitcoin.”
He predicts that in two years’ time a corner shop in Kenya will be able to offer its local customers a service for sending and receiving cash in competition with the likes of Western Union and Moneygram. I approached Western Union for a comment but no one from the company was available to comment ahead of its forthcoming earnings announcement.
Essentially, Bitcoin can offer a long-distance network with which national mobile money services can interconnect at either end.
Other competitors for the Bitcoin start-up include the major payment networks such as Visa, MasterCard and American Express. No one from Visa was available.
In a statement, MasterCard told Mobile World Live: “There have been a number of alternative currencies talked about over time. The bottom line is consumers want a payment solution that is safe, simple to use and universally accepted.”
Going forward, a mobile operator or MVNO in a western market with a significant immigrant user base could use Bitcoin as a means to offer a remittance service to its users, argued Braendgaard.
Of course, there are lots of potential catches here. Newcomers still have to negotiate agreements with banks and mobile operators to enter the market (neither Bitpesa or Kipochi have so far launched commercially).
Security and data privacy are legitimate concerns, which incumbents are likely to highlight repeatedly, and with justification. Others will be put off by the concerns over money laundering and tax evasion that hang around Bitcoin.
And it’s quite possible existing players will assimilate the virtual currency into their existing models (think how IP networks were adopted by traditional carriers). But however it happens, Bitcoin’s link to mobile money might be the best way to make it relevant to more people around the world.
The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members.