The idea that Bitcoin will “bank the unbanked poor” is being mentioned with increasing frequency, especially by Bitcoin entrepreneurs who, no doubt, want to increase their fortunes and reputation through this noble undertaking.
Before looking at Bitcoin’s role in the domain of developing economies, we first need to examine the origins and meaning of the notion of the “unbanked poor”. The proposition that the “poor” 80% majority of the world need bank accounts is not a Bitcoin idea and has its roots in the globalization discourse of corporate capitalism.
In a 2002 edition of “Strategy+Business”, C.K. Prahalad and Stuart L. Hart published a seminal strategy paper entitled “The Fortune at the Bottom of the Pyramid“. Their message was that most big businesses were failing to exploit the vast market represented by the globe’s 80% poor majority because they (big business) were simply ignoring them for their diminutive spending power. Economies of scale, the authors argue, mean that – although spending small individually – the sheer bulk of expenditure by the majority class adds up to a “fortune”.
The paper goes on to explain a methodology whereby multi-national corporations can more effectively access the fortune at the Bottom of the Pyramid (BoP). It is summarised in this unselfconscious video manifesto (6:30mins).
The idea was, of course, not new. Multi-nationals such as Unilever and Nestle had already for over a century been accessing this lucrative market in Africa, Latin America, India, South East Asia and the Pacific. Basic commodities such as soap, salt and instant coffee have been their cash cows along with other created “needs” such as skin-lightener and baby-formula. However, the authors of “BoP” exposed the game for inclusion in business school textbooks and the incumbent benefits such as consultancies, speaking engagements, etc.
The BoP buzz was infectious and by 2004, we Africans noticed a change in the marketing pitch of banks and mobile service providers. Whereas before having a bank account was a “privilege” extended only to the monied and middle classes, now they were targeting domestic servants and laborers with entry-level accounts featuring low-fee offerings and funeral benefits (for when you die poor).
The mobile service providers, learned from the BoP “secret” too and changed their marketing strategy to make owning a mobile phone cheaper (Sub-Saharan Africa, never-the-less, still has some of the world’s most expensive mobile charges). Not only could entrepreneurs from the BoP afford to maintain their mobile phones, they could leverage the connectivity to multiply their profitability. Ordinary people began finding ways to make second-hand mobile phone ownership affordable and before long market penetration exceeded expectation.
The advent of mobile banking saw partnerships between the banks and mobile service providers become a necessity. However, the puzzle was how to engage the poor who essentially have no bills to pay electronically. The solution was to combine banking and air-time credit and so the air-time credit and remittance platform M-Pesa was born (2007).
M-Pesa effectively accesses the wealth at the BoP by charging a fee for people to remit money, in the form of mobile air-time credit, via bank ATMs and their mobile phone. The market is sizeable, and CCN’s correspondent John Weru Maina has written about its realities and suitability for the Bitcoin payment network. The platform is so successful – and profitable – that the conglomerate of service providers who own it have extended it beyond Kenya and Africa to new markets in war-torn Pipeline-istan, I mean Afghanistan, Central Asia and Eastern Europe.
Also read: Bitcoin is Much More Than Money
So, accessing the fortune at the BoP proves to be a lucrative business model. Poor people spend money and consume just like everyone else – it’s just in smaller individual amounts, but the sheer bulk and volume warrants a business plan from any serious multi-national player. Additionally, the poor at the BoP represent exactly the kind of customer that the banks and mobile service providers want. The BoP is more vulnerable precisely because of their poverty and the insecurity it brings, yet their condition generates an attitude that is generally frugal and financially responsible. The rich, for example, know that defaulting on a loan is inconsequential – the banks will keep throwing offers for credit at them. But poor people – having to survive on small, scarce amounts of money – are, in attitude and behaviour, more likely to honor a bank loan.
It’s just to get all those people to open bank accounts; to sign up for centralized mobile payment services; and then, the monthly commissions and transaction fees keep rolling in. The banks are also quick to extend loans against their meager incomes because they are more likely to honour those loans – especially, given the centralized control over their mobile contracts and credit balances.
Any talk of the “unbanked poor” should, by now, sound less charitable. The banks frame their “willingness” to service the poor as being rooted in benevolence. The poor, you see, will benefit from having a bank account because they can engage in “distance learning”, “get cheaper prices from online retail” (and have it delivered to their remote village too?), as well as, “participate in global trade” (doesn’t everyone dream of that…) It’s all framed in terms of benefit to the 80% at the Bottom of the Pyramid, but in reality it’s business as usual: conquering of new markets, creation of dependent consumers, and efficiency of exploitation.
Bitcoin entrepreneurs are no nobler or inherently more good than their fiat counterparts. In the context of Bitcoin, talk about the “unbanked poor” is a direct grafting of the bankster rhetoric about “accessing the BoP” directly onto Bitcoin without understanding the context from which these bank loan-sharks speak. A Bitcoin entrepreneur casting his business in this framework raises alarm bells: either he doesn’t understand the sinister underbelly of the topic’s true intent OR he does fully comprehend the business lessons in Fortune at the Bottom of the Pyramid and wants to make his money from these unbanked poor with a service centralized around his venture.
From the perspectives of decentralization and freedom from the need to trust, the majority of the majority at the BoP don’t need banking. It is a need that has been created on the back of a real need for a remittance network. The banking layer is imposed on a people who live in a cash society where rent is paid to local chiefs and/or landlords in cash, where goods are for sale in the market for cash, where wages are paid every Friday in cash. The emerging market currency amounts are small in US Dollar terms and it means that even the minimum Bitcoin transaction fee (that is relatively high despite being subsidized) means efforts to introduce Bitcoin in this majority world demand a serious rethink.
Blockchain technology can and will work for those at the BoP, but the solutions to their real-world needs will emerge from local innovators. Developers and entrepreneurs who have their feet on the ground and see the ordinary poor around them as people – and not as a lucrative market – will always be able to understand better and service their real needs. Don’t crow from the privileged West and tell them who they are and what it is they need. Partner with them and ask for their advice.
What do readers think? Please comment below.
Thanks again for readers’ abundant participation in the recent debates about manipulation on the centralized exchanges. It’s not so much about whether we can prove that the exchanges and their largest customers collude and manipulate – it’s about them being centralized, opaque and that they cannot, therefore, be trusted. Their continued existence in this condition is their own affair.
Analysis in this column will switch to a decentralized exchange as soon as a usable and profitable blockchain solution presents itself.
Critical failures of stewardship by the Bitcoin Foundation remain on the community’s radar and we continue investigating while we wait for them to commit their next centralized blunder.
Tomorrow is US Non-Farm Employment Change which promises to inject some volatility across markets. For today we watch:
Time of analysis: 12h00
The Bitcoin price is hovering around the monthly pivot level at $339 on the Bitstamp chart. The following Bitstamp 4-hour chart shows the 20-period moving average (20MA) in green, the 200-period moving average in red, as well as, in the price scale (right) the location of the daily chart’s 20MA at $352.
Bitstamp 4-Hour Chart
If price can advance above the daily 20MA ($352) toward the 4-hour 20MA at $360 then, we have the possibility of a rally. For advance to be confirmed price must stay above that daily 20MA ($352).
The stickiness of the pivot at $339 is a concern that is exacerbated by the state of the MACD and RSI indicators. The 4-hour RSI is well above its Bollinger Band, which in the past has always preceded a reversal. In this case reversal would back down toward $320. The possibility of a downturn is strengthened by the state of the MACD indicator which is reverse diverged in relation to price: price is making a lower high, but the MACD indicator is well above its max value when price was last near $400.
Buying activity has been stronger than during the past few weeks, but the commitment of buyers has been limp – think Peewee Herman in the boxing rink. An advance in this wave position would be either a 3rd wave or a C wave, and these are typically swift and full of purpose. Instead, the evident psychology is cautious and chihuahua-like – lots of barking and no bite. In fact, the trade history of the past few days is full of identical orders… reminiscent of algorithmic buying & selling patterns.
Algo trade has been stronger on the buy side for the past few days. Price could move toward $360 (Bitstamp) but technical analysis of the 4-hour indicators argues that a move down is due. Should manual traders choose to act on these signals (and manage to out-sell the bullish algos) then expect a decline toward $320 (Bitstamp).
Decline below $310 is difficult to sustain from a technical point of view due to the divergence indicated in red on the following chart. We can’t rule it out, but technically it will be difficult to sustain for long.
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Last modified: July 12, 2015 12:11 UTC