>> Shabnam Erfani: Hi, I’m Shabnam Erfani. I’m Director of Technical and Business Operations at
Microsoft Research. I’m excited to host Jake Kendall today from Gates Foundation. Jake is the Deputy
Director of the Financial Services for the Poor Team. He runs the R and E. He’s here to tell us about the
challenges that they’re facing in that space.
This is a particularly interesting space for Microsoft. In terms of looking at the next four billion people
who in the future will be on boarded to not only our financial systems, but also software industry
devices and so on and so forth. Without further ado I’m going to hand it off to Jake and let him tell you
about what he’s working on.
[applause]
>> Jake Kendall: Thanks a lot, thanks. Thanks everybody for having me out and coming out to hear what
we’re working on. I think for me the goal of coming out here is really you know we’re and I’ll explain
more about our teams work and our strategy. But we’re looking to; you know our core vision for our
strategy is to create the next generation of financial services models that are relevant for the two billion
or so people who currently don’t have any access to financial services. A lot of that is not a technology
problem, right. A lot of that is a regulatory issue or a business model issue, or something like that. But a
lot of it is a technology problem.
You know we come out to see groups like Microsoft Research who have some of the top thinkers in
technology. Hope to both get feedback on how we’re looking at the problems but also of course
potential solutions. Really excited to be here and talk to you guys.
I’m Jake Kendall, thanks for the introduction. I run the Research and Emerging Tech Team on the FSP, as
we all ourselves, Financial Services for the Poor Group within the Foundation. Just a little bit of
background on myself, I started in Physics at MIT as an undergrad. Did a couple of years in rural Zambia
as a Peace Corps Volunteer, so that’s where my real development training started, I guess.
Spent some time then trying to apply what I learned at MIT doing Cryptography with a couple of
startups. But this was right around two thousand and one and was not a very good time to being doing
startups. I ended up going back to get a PhD in Economics kind of bouncing back to the development
role again. Spent a short time at the World Bank and then was picked up by the Gates folks and started
there as a PO. I’ve been there six years and now I’m directing one of the four initiatives on our team.
Just to give you some background on FSP. As I said our kind of core mission is that a group of two billion
or so people who are currently outside the financial system. Then there’s probably another billion who
are very poorly served by whatever their current financial products are to one or two more billion.
There’s a large chunk of the world that just don’t have any financial services. We’re really working on
how we solve that problem?
Our team within the foundation is what I would say medium sized. We’re within the Global
Development Group and we’re about a hundred and fifty million a year in grants and contracts. We also
do things like equity investments, debt investments, all those kinds of other tools, all of with socially
motivated purpose or a charitable purpose.
Our teams about twenty-eight people now I think changing every other week. I think, so, but bounces
around thirty. As I said we’re broken into four different groups, three of them sort of orient around
geographies and the themes common in those geographies. Then my group is sort of a cross-cutting
group.
The first group is really focused on, I think the themes of the groups kind of show the breadth of the
tools and the sort of many different angles through which we approach the problem. The first group is
focused on government policy, regulation, and sort of donor policy. We run pretty significant advocacy
campaigns within a lot of the countries where we work to advocate around particular regulatory
changes, some of them fairly technical.
But a lot of them having to do with regulations. That either blocks competition at the low end of the
market by putting it all in the hands of banks and certain types of financial players who are just not very
motivated to serve people at the low end of the income spectrum. Or regulations that just make it hard
to serve people at low-low cost which is of course imperative for people who are very poor. Those are
things like you know to what degree do you need to see identity, proof of identity, right? Do you need
to see a proof of address you know? Better part of half the world doesn’t have proof of address, right.
Those kinds of regulations rule people out unnecessarily, right, because the people at that level of
income are not really adding risk to the system in any significant way. If you can find creative regulatory
structures that actually allow them to get accounts and to get on to the financial system without adding
risk of you know terrorism, finances, and the other things that the regulators are very risk adverse
about.
We also in that same initiative work a lot with government payments. Try to get the government to
think of itself as a sustainer of the system and a stakeholder in the digital payments and financial
system. If they’re doing lots of transfers to citizens for welfare programs, famine relief, you know
maybe they’re supporting students in school, or whatever it is. Those payments are often done in a
paper form or through a voucher, or whatever it is. You know massively corrupt usually and very
inefficient.
If you transition those things to digital forms, direct deposit into mobile money accounts or banks
accounts. We’ll get into a little bit how some of that works. You know big efficiencies for the
government but also sustaining for the system itself because that pumps volume and sustains the
business model of serving those people at the lower end of the spectrum.
Second initiative is focused on infrastructure. Sort of the core element of it is what we call the Level
One Project. Which I’ll go into which is our design and reference model for a payment system that
serves the poor. They’re focused in primarily Pakistan and Nigeria right now where you know we have
good buy in from the government to try and build out these systems at the national level.
We then have a third initiative focused more on East Africa and Bangladesh where the mobile money
systems. I’ll go into it a little bit for those of you who don’t much about mobile money what those are.
But mobile money systems in those markets are more advanced. You have adoption rates of maybe
seventy, seventy-five percent for example of the adult population in Kenya of mobile money products.
You you’re clearly getting down to pretty low levels of income within that group.
You’re also getting pretty much ubiquitous adoption of a digital payment in financial services product
which you know for us is quite a big win. But you know there’s a lot more to do in some of those
systems. We have a team that works on both sort of ecosystem development and on sort of next
generation business models, and that sort of thing.
Then my group, which works on both client side research to understand the impacts and the needs of
low income consumers and households, and that sort of thing, so almost some of it’s in the academic
realm. Some of it’s more kind of data collection and surveys to collect the market intelligence. Then the
upstream or emerging technologies, so you know looking at the emerging technologies globally in the
financial sector but also in other sectors. How can we you know opportunistically capture the value that
they can create in our sector and help those technologies transition into the market?
That’s the broad overview of our team. I’ll go into a little bit kind of our broader theory of change. I’m
getting to the more technology problems focus part. But I kind of want to give you all a broader sense
of what our team does and why. Some of this is because I went out to your MSR Bangalore and dove
right into the technologies stuff. They were sort of like well we don’t actually know what mobile money
is or a lot of them didn’t and stuff. I wanted to give a bit more background here.
If you start, this is our teams broader Theory of Change. You start out there on the right side of that
column labeled Impact. You know that’s the goal that we’re going for, right. What’s the impact that we
want to have in the lives of low income population and poor households?
We start with the observation you know that a lot of the reason why people are poor is not that they’re
sort of born poor and stuck in poverty forever. But often they transition out of poverty. In large
numbers we actually looked at the data globally. You see you know anywhere from fifteen to thirty
percent of people who are at below two dollars a day, which is kind of the nominal figure we use.
Transition out of that over the course of a couple years but the problem is of course that a similar
number transition back in. That’s because low income people live a very, a life of high uncertainty.
They face a lot of shocks in particular health related shocks which can you know cause loss of income,
loss of job. Of course the expenditure around trying to cure an illness or broken leg, or whatever it is.
People end up you know in responding to these shocks, and shocks can also come in the form of you
know a bad agricultural season for people who have rain fed agriculture and that kind of thing. Of
course in responding to these shocks people are often pushed much further into poverty.
Then you do see of course people moving out of poverty by getting a formal job or improving their
entrepreneurial capacity. But that often also and this is the part, this is why we focus on sort of the
cycle of poverty. Both of those margins are affected by the ability to generate resources and to use
financial services, right. If you face a shock the ability to borrow, the ability to have insurance, or to
reach out to family and friends, or get a transfer from the government. All of those are kind of you
know kind of core coping mechanisms. Then the ability to capture an opportunity to get out of poverty
often also requires some form of finance.
That’s kind of the core motivation. If you go one step in to the left we think that in order to effectively
bring Financial Services to the large number of people who currently don’t have them. You have to
move people onto digital platforms. There’s been a longer history of course of microcredit which many
of you’ve probably heard of. Other you know banking, low income banking and things like that. That
have approached it from a much more analog process based approach.
They’ve had some success; microcredit you know had a certain amount of success, reached a couple
hundred million people. But stalled out and we think it’s largely because that model just isn’t sort of
scalable and sustainable and has fundamental limits in terms of how low cost it can get and things like
that. We believe it has to all be done over digital platforms in order for the cost curves and for the
business model to work out in such a way that you can reach you know sort of the last mile of customer.
Then these five larger inputs to that are kind of the five areas and since I covered what the teams doing.
That kind of covers, but those are kind of the areas in where we think if we push on some of these levers
we can start to see some of this happen.
I wanted to give you next a bit of a background in mobile money which is what I would say is sort of the
current state of play, right. This is mobile money is financial services primarily person to person
payments who, that are delivered over mobile systems. These are primarily low end phones which is
the type of phone that people in developing companies of course tend to have at low levels of income
anyway.
Currently they’re kind of the one success story to date. They’re, I’ll give you a sense of how broadly they
are. We think there’s fundamental issues with them but they have demonstrated a fair amount of
success. I wanted to give you kind of a background in what they look like. Then we can think about
what’s the next step to kind of move beyond them.
A typical mobile money system starts with the MNO which is the Mobile Network Operator up in the left
hand corner. They’ll partner with a Partner Bank they will in order to create the digital value that’s
going to sit on their mobile money system. They’ll usually put a deposit into the bank that will be
backed essentially so the value on the system is backed one to one with deposits in the bank.
The bank, largely that’s the role that the bank plays and they hold that trust account and make sure that
the MNO has backing of one to one. Then as part of that as well they’ll often open up to agents who can
then also go in and buy digital value themselves on the account of the mobile operator. Agents are the
small retail shops where the person who’s going to come in and get their mobile phone signed up and
then do transactions. That’s where they go in order to get cash out, put cash into the system.
The mobile operator will sign up a network of agents. Agents can, I’ll give you some photos of what
agents can look like. They’re kind of any kind of retail shop in a developing company. You see them in
the smallest kind of informal market stall all the way to supermarkets and things like that.
An agent just signs up. They have a special type of phone. It’s not necessarily a special device but their
account is special. It allows them to do transactions with clients who they also sign up. They’ll sign up
subscribers. The subscriber will get a phone; get the phone registered with the mobile operator, at the
agent. Then they’ll, you know the first thing that they want to do is load value onto the phone, right.
They give cash to the agent. The agent will accept the cash and basically transfer them value, electronic
value onto their phone in real time. It’s a one to one transaction. There’s no credit for example. They
don’t give the cash and then it appears later on their phone. It’s real time. It’s one of the nice things
about the mobile money system is that there’s no, I don’t need to trust the agent basically I know that
he gave me the value. I can walk away.
The agent will eventually accumulate enough cash. He’ll go and put it into the bank and that’s how he
buys more value. It’s almost like they’re e-value merchants, right. They’re just selling value. Sometimes
they’re buying value back, right. If I actually want to pull money out of my phone because somebody
sent me some money, I go in, I give cash, and I, or the opposite I get cash, and I transfer him value.
That’s really the basics of how it works. The core subscribers can then send money to other subscribers
who may live a long ways away. They’ll go to a different agent and pull money out there. It’s all sort of
mediated on the backend. That’s roughly how mobile money works.
I’m actually going to go to this slide first and then we’ll get back to the previous one. This is just to give
you a little bit of color in terms of what do these things look like in different places in the world. This
one up on top this is a rural area in Bangladesh where the B cash service is active. You can see you know
that’s just a little tiny stall on the side of the road, right. But you know they’re setup. They have the
signage up. They have pricing up and you know that guy has a phone that he can give cash out or put
cash in. Or he can also help you know for people who don’t quite understand the service and that kind
of thing usually.
Similarly, Kenya I think that’s one of the slum areas, so peri-urban. You know pretty basic structure.
Over here is actually also in Kenya is you know a pretty modern looking supermarket chain where you
can go in and pay with a credit card or do whatever you want. You can also pay with mobile money,
right. You can buy your groceries. You can put cash in or take cash out. You know all the functions that
you can do at one of these more rural things. You can also do in these more advanced things.
It’s kind of an elegant system in that sense in that it you know it’s very easy with a phone you can pretty
much install an agent anywhere. If you think about comparing this to a bank branch, right. You know
the cap X for building one of these is many orders of magnitude less than a bank branch. In fact the way
that these things are franchised the owner of the agent is the one who builds the structure. For the
MNO the cost, setup cost of rolling out an agent network of you know thousands and thousands of
agents is words of magnitude lower than the bank branch network, right.
>>: What kind of fee can [indiscernible] agent expect to earn on a [indiscernible]?
>> Jake Kendall: Yeah, great question. I should know this but they changed not so long ago. I think that
they get about fifteen cents, somewhere between ten and fifteen cents per transaction.
>>: Per transaction.
>> Jake Kendall: Yeah, might be closer to twenty at this point. But it’s somewhere in that range so they,
it depends a little bit on the volume. If, you know they’ll, that’s for a typical transaction. Then it scales
up and down based on how much they’re doing. They get for both cash in and cash out although the
client basically pays only for cash out.
You know this is a decent way for, if they can do ten, fifteen transactions a day they can add fifteen,
sorry, a buck fifty, sorry, about three dollars something like that. A good agent, we sort of estimate that
for an agent to be truly viable they need to be doing about fifty a day. Otherwise it’s not that interesting
as a proposition.
You know when they get up into the maybe ten bucks a day range that’s when it starts to be more
viable. Some of them are actually; some of them are doing actually pretty well. They make a thousand
or two thousand bucks a month. They can actually crank out quite a bit. Some of it depends of course
on the volume.
>>: How do the sellers manage their payouts from a cash flow? I mean it’s not always a balance of
payments that anyone installs.
>> Jake Kendall: Yeah, it’s a great question too. That’s actually one of the pain points I was going to go
into. Man, these agent networks tend to be about fifty to seventy percent of the kind of cost structure
of a mobile operation, mobile money operation. A lot of the rest of it is marketing. The backend
systems actually, of course once you’ve built them they don’t cost very much to run.
There’s not a lot else to it. These things while they are you know course dramatically cheaper than
banks and ATMs, and things like that. They still do you know both between the commission structure
and there’s a decent amount of kind of managing them, training them, recruiting them. All that kind of
stuff that’s kind of ongoing. Sorry, repeat your question.
>>: To me it was the payout.
>> Jake Kendall: Oh, how do they manage, so, yeah and that’s a big aspect of it. For the actual you
know the guy who runs this little place himself he’s got to figure that out. In most cases they kind of put
that onto the local entrepreneur who’s running these things. You know generally that’s smart, right.
Make the person who’s best able to solve the problem solve the problem. They’ll find ways to either
pay friends and relatives to go to the bank and come back. Or actually go themselves at really slow
periods during the day.
>>: Like I have enough load to kind of cover in between.
>> Jake Kendall: Right.
>>: But they might do in a day to get back down to the bank to replenish.
>> Jake Kendall: That’s right.
>>: They have to kind of get to know their business there. Because I image some could be more on the
payout side, some could be balance, some could be more receiving.
>> Jake Kendall: That’s right, yeah. It depends a lot. Rural areas tend to be all payout.
>>: Yeah.
>> Jake Kendall: People receive transfers from relatives in the city as sort of the standard thing.
>>: Yeah.
>> Jake Kendall: Then they come in and so it’s all payout. Then just they’re running back and forth to
the bank to get more cash. Cities can be more balance, certain parts of cities.
>>: Yeah.
>>: You had said that the starts one day would help with that mobile operator. Is that always the case
or do other entities also start…
>> Jake Kendall: Good point, yeah, so that’s a typical. But it’s not always the case. Actually B Cash here
in Bangladesh is not a Mobile Network Operator. They have a very close partnership with Mobile
Network Operators. But they are actually one of the few third party systems.
In some countries, Pakistan for example, regulations stipulate that there has to be a bank who’s actually
holding the funds. Whereas in the model that I showed you it was more a bank that was holding a trust
account on behalf of MNO. In those markets there what’s happened is essentially the Telco’s have
bought banks and essentially have them as sort of sub-lines of business. Technically it’s a bank but on
some level it’s also a mobile operator.
>>: In any one country is it just winner takes all? Like there’s one dominant system or are there
multiple systems? Are there brokers or exchange between them?
>> Jake Kendall: Yeah, let me, I’ll get to that in a second actually. We’re going to give you; I’ll sort of
give you the sort of global landscape of what it looks like in terms of the market structure. Just real
quickly I’ll run this then. This is probably fairly obvious at this point.
You know, here’s some of the common products or common things you can do with the mobile wallet.
You can do cash in and cash out of course. Airtime top-up so I can buy more airtime for my phone.
Course most as you guys probably know most of the phones in developing countries are prepaid plans. I
buy minutes and then I use them. P two P or person to person money transfer that’s another, that’s
sort of the main use case, bill payments growing, so you pay your utility bills, your school fees, your
cable bill, whatever it is.
Merchant payments in store, everyone’s always kind of believed that there’s this big promise for in store
merchant payments. But it’s been really hard and has not taken off so that’s a very small sliver of
current transaction volume. Bulk payments still one-to-many.
Now more and more we’re starting to see stuff here like down in the bottom three where banks are
leveraging these platforms. Essentially, so they don’t have build these branches everywhere and so they
can reach people through their phone, through these agent networks. But allow them to use their more
advanced banking products through that platform.
Digital credit, where they’re using kind of the transaction data flow around the product to do automated
lending and then there’s a few groups that have experimented with Freemium life insurance. Where
essentially they use it as a promotion and then try and get people to buy up. But, you had a question.
>>: Is person to person transfer kind of the main incent mechanism that gets people who are previously
doing cash you know on to this?
>> Jake Kendall: Yeah, so I’ll jump around a little bit just to answer the questions in real time. This is the
global product mix. It’s data collected by the GSMA. That’s the kind of Global Mobile Operator or
Industry Association. We actually support a group within the GSMA who tracks mobile money and tries
to act as kind of a thought leader or think tank for the field around using mobile money for serving low
income populations.
You can see here on the volume side most of the transactions are airtime top up. Of course mobile
operators love that, right. Cuts out the agent commission that they pay on all the guys who are selling
the minutes because they don’t have to pay anybody a commission on that, and is convenient for clients
because you can buy airtime at any time from your phone.
You know good, decent volume of it is that gray is P to P. Then there’s a bunch of smaller stuff that’s
pretty low, some bill pay. Then the value of course P to P transfers are much larger. I mean no one buys
fifty; rarely do you buy fifty or hundred bucks’ worth of airtime. But of course when you do transfers to
your family and a lot of it is. You know a lot of it traditionally has been I’ve been working somewhere
and I want to send money back to my family.
But actually now you see all kinds of things, you see a lot of small business owners, informal business
owners who are you know using it to buy things from distant suppliers. Or manage their money in some
way, even pay their employees. A lot of people support their family in other context like kids going to
school and all that kind of stuff.
More and more you see kind of people doing all kinds of other use cases for it. But one of the driving
use cases was essentially the sort of family income transfer thing. Yeah, it’s almost always long distance.
But more and more you also see with, especially with the small business merchants and stuff they’re
starting to do it face to face.
>>: If you go back ten, fifteen years ago, I mean what would people be doing instead of this to do those
[indiscernible]?
>> Jake Kendall: Yeah, so in a lot of cases they were actually sending physical cash. You know there
were studies in Kenya which is probably the most advanced market now, as I mentioned. Pre MPESA
and it you know people would put a, literally they’d go find a bus driver who’s going in the direction that
they wanted to send money and say hey here’s an envelope please give it to so and so. Then they have
to call that other person and say meet the bus driver because you know if you don’t then he’s probably
going to take it.
Or you know they would happen to have a friend who’s going in that direction. Or they would just wait
until the person came home Christmas or whatever it is. There was a lot informal mechanisms that
were very inefficient, fairly risky, hard to depend on, that kind of thing.
We’ve done, you know we’ve done sort of pretty rigorous academic studies looking at when mobile
money rolled out. Comparing people who just by the chance of where they lived and where mobile
money rolled out first had access to mobile money versus those who didn’t. Suffered some sort of
medical shock or some sort of other significant shock to their income, or whatever where they needed
some money to deal with it.
You can see a big difference in the coping patterns. In fact, the welfare outcomes of the people who
actually had the mobile money because they were able to get money from further away from a broader
group of people. Larger amount and faster than the people who had to rely on sort of the regular cash
transfers and things like that, you know it really does affect even just that.
We actually see I’m going to get to you know there are issues with mobile money. It’s not open and you
know as you saw in that sort of diagram. If you think about the standard credit four corner model where
you know banks can join and merchants can join, and that kind of thing. It’s not an open system like
that. It doesn’t allow kind of the flexibility to create new products and new offerings. It’s pretty limited.
But never the less, you know it does improve people’s MODs. We think of the digital stuff as actually
you know has that value of being faster and all that kind of stuff. But it’s also really just a platform that
you can build so many other things on that’s the real value of it.
>>: How ubiquitous is mobile money in these markets? For example is it predominantly with the lower
incomes? Or is it predominantly with the higher incomes or pre…
>> Jake Kendall: Yeah, well so in terms of where it falls in the income spectrum. It tends to; I mean our
data shows that it tends to start with sort of upper middle income. Often people you know who are
traveling a lot. Or just you know kind of new, more kind of willing to try out something new, probably
have less to lose on some level. It kind of starts in that middle income band and may spread in both
directions. But eventually does go kind of down market.
We’ve sort of tracked it in Kenya since the early days. Definitely seen like you know it wasn’t very high
uptake in the sort of lower quintiles of income until more recently. But as it saturated people did start
to pick it up. Some of that’s driven just by mobile phone adoption. In Kenya it’s kind of getting close to
bumping up against overall mobile phone adoption in general.
>>: Is cost structure modulate as more adoption goes in? For example are there sources for the lower
income that can entice more to join in or is it pretty standard throughout?
>> Jake Kendall: Yeah, they, so a lot of it is already geared to be a pretty universal need. The ability to
move money over distance I mean you know it’s pretty fundamental, right. The low income populations
you know why they didn’t adopt right away. I think a lot of it was just not being in kind of the bigger
cities and not having probably been exposed to it very much.
But also I think you know there’s a pretty strong network effect. People that had a really clear need like
they’re a small business owner who’s going back and forth between two towns a lot. Just wants to
move money like you know there’s clear willingness to pay and that kind of thing. Whereas I think over
time you know the network effects probably started to drive it more with the low income population.
But there hasn’t been a lot of really interesting low income population only oriented products. I think,
yeah?
>>: [indiscernible] confused like there was also international reticents.
>> Jake Kendall: Yeah.
>>: How does that work?
>> Jake Kendall: Well so in, well international reticents get a lot of press I would say in the, especially in
the development world, international development world. They’re actually, they’re not really used by,
they’re actually mostly for people who are better off. I mean you really can’t afford to send someone to
another country, certainly not Europe or the United States unless you’re actually better off.
They’re actually pretty small percentage of the population in Africa and South Asia where we work.
Certain countries accepted, right, so certain parts of certain countries in particular. There’s you know a
lot of cross border traffic.
But the basic way that they work is you know from MPESA for example they will open up a partnership
with either certain banks, international banks that offer international [indiscernible] services. Or I think
with MoneyGram for example they offer to, they have like a partnership. They do some sort of backend
integration. Then someone sends you a remittance and it gets put into your mobile money account
basically.
It’s pretty similar to how, I mean from a client perspective it works pretty similar to how you just do it
normally. Except the sender would go to you know a money transfer outlet in a developed country or
wherever they are, yeah.
>>: I imagine in most of these countries the majority of population is not added the traditional banking
systems.
>> Jake Kendall: That’s right.
>>: What is the adoption rate for mobile money? Then the percentage that are not on board to mobile
money what do those guys use? Is it still a cash economy?
>> Jake Kendall: Yeah and actually even for the folks who are adopting mobile money they’re usually
adopting it around a couple of specific use cases. They want to move money you know twice a month
from here to there from their, you know husband to wife. Or whosever transferring, whoever you know
someone’s working in a particular area.
The overall adoption rates vary a lot by country. A lot of that has to do with regulatory, how recently
regulations have opened up. Most countries in Africa and South Asia have some form of enabling
regulation. Some of them are still kind of stuck and the regulation is basically blocking it.
But you know in East Africa where it’s most developed the adoption rates are anywhere from about
seventy, seventy-five with Kenya down to I think thirty, mid thirties in Uganda. Then in other countries
it gets lower than that. You know in India for example it’s maybe one, two percent, so it’s you know
almost nothing basically.
It really depends on the level of market adoption. It’s really a network effect sort of a product. You
know if I’m the only one who has it it’s totally useless, right. It’s like a phone. I mean the more people
that have the more useful they are. You do sort of see often kind of these countries will sit in the
doldrums for awhile where they just you know the operators are kind of investing in trying to get over
the hump. Then eventually they’ll kind of get a takeoff.
East Africa has had that. Few other countries in Africa have had that. This data by the way is also from
the GSMA. You can see sort of the global landscape of where things are. Some countries have one, two,
and now more and more this map would have looked a lot more sparse three or four years ago. Now
most of them have more than one offering which is good because you do see the price drop a fair
amount.
You can see here regionally anyway sort of the total subscriber base. Twenty-one services now have
more than a million active users. We see a million as a pretty good threshold for where things are really
taking off and they’re getting good traction and that kind of thing. That’s been encouraging. That
number has moved probably doubled since you know two or three years ago. Then five services have
more than five million. That again, you know five million is a pretty active mobile money deployment at
that point.
But what you’ll also see is I think if you look at these circles. The dark center circle is the active user
base. The clear circle of the area proportional is the registered user base. You can see that there’s large
numbers of registered but inactive users. That’s a big problem that the industry faces. People will sign
up and then either they don’t find the product compelling enough or they forget their pin. Or they don’t
remember how to use it or what have you. That drives fair amount of cost in the system. It is again one
of the issues we want to solve.
>>: [indiscernible] can speak to that.
>> Jake Kendall: What’s that?
>>: [indiscernible] can speak to that.
>> Jake Kendall: In the sense that they have a lot of inactive usage. Yeah, fair enough, maybe for
different reasons. But, so I mentioned a couple times that you know we see mobile money as this kind
of great demonstration case on some level and potentially a platform.
But it has a lot of issues. Part of it is that you know we see this wheel is suppose to represent like you
know what we think is possible in the longer run. Using a better digital platform and a better set of
technologies and business models and you know the ability to kind of capture and support all of these
different payment use cases, right.
People getting their salary, people paying suppliers if they’re a small scale farmer or entrepreneur, tax
collection, you know pension and other social transfers from the government. All the different payment
use cases and then of course all the financial use cases on top of them that have payments as kind of
integrated into their, into the system, right.
If you’re doing credit you want the data that’s coming off of these systems. But you also want the ability
to put into someone’s wallet immediately the loan and not have to have them visited by a loan officer
and that kind of thing. That’s a huge difference in the cost structure if you can do it over a digital
platform.
You know E-commerce eventually, physical retail, all this kind of stuff. We think that in the long run you
know if you want to cut out the high cost things in the system. High cost things are cash and physical
person to person interactions, right, which tend to go together.
What you want is so that the value starts to circulate in digital form and stays in digital form, right. Right
now I send you money. You take it out and go buy stuff. You know we’re not really getting very far. It’s
better than putting money on a bus. But you know you’re not really kind of creating a financial system
where the sort of per transaction cost is you know minuscule and [indiscernible] small amortized over
you know the whole system.
You still have to have all those physical access points and people and stuff involved. You know if we
think about can we make people loan cash in the sense that, or long digital value, so we pay them in
digital value, pay for their crops in digital value. Get their money from the government digital value, all
that kind of stuff. That gives them an incentive to spend it in digital value.
But then you also have to give them the capability to do commerce, day to day merchants, all that kind
of stuff. The world is very far, you know the mobile money world is very far from being able to kind of
actualize on that vision.
Now a little bit getting into what our teams trying to do. That’s really the background. We were
involved quite a bit in the, globally in the scale up of mobile money systems. We gave you know
exploratory grants to some of the early movers and that kind of thing. Have you know like I said
supported the industry because we’ve seen it as a valuable thing.
But we also think you know and we think its part of our role is that the industry itself you know there’s a
next step to take really, right. There’s a, there’s much further that they can go in terms of creating an
open scalable, more robust platform.
I’m going to show you sort of two areas, right. One is the platform work that we’re doing, that our
teams doing. As I said we’ve designed kind of a reference model for what we think the payment system
needs to look like at that lower levels of income, or to support those types of transactions. That was a
long a pretty in depth process of studying kind of the current systems and what their shortcomings are.
Then I’ll give kind of a next generation set of technology pain points, or pain points that we think
technology could readily solve.
Just jumping on the platform stuff you know I was telling you the mobile money systems tend to be
pretty bespoke, built for purpose, and not very robust, right. They’re built around this person to person
payments, use case, very narrow sort of use cases. They are very unreliable, MPESA use to have you
know I think probably three hours, three or four hours a week of down time. They’re better now.
But you know that kind of latency or that kind of down time would just be you know unheard of in a
credit card system. I don’t know if you’d use a credit card or a bank if you thought they were going to go
offline a couple hours a week at you know completely unexpected times. You know that kind of lack of
robustness. As well as, the inability to be open to allow third party players to integrate through APIs and
that kind of thing.
The mobile money systems are pretty basic and hard to work with. Then the sort of more in you know
credit card based systems or banking systems that can support some these use cases have a lot of issues
in terms of their cost structure primarily that make them hard to do. We did, like as I said, kind of a
design exercise. You know talked to people all over the world and ended up building a prototype that
are now going out to build a real reference model that will deploy in a couple countries.
But we started with kind of the first principles, right. It needs to be digital for fairly obvious reasons, has
to be robust, open, low cost, and secure, right. We wanted to be able to assure that those five
principles were instantiated in any platform.
We then kind of looked at what is the user need, right? What is the user experience need to be able to
support? An easy account opening, you know lots of paper processes, and having to go to three
different bank branches and all that kind of stuff you know really not going to work, right. You should be
able to open your account yourself. If you have to go into a physical location it’s only to meet some sort
of regulatory requirement to show ID or you have a fingerprint, or whatever.
You need easy access to cash in and cash out. Now we think in the long run we want to get rid of that,
right, by giving people better options than to cash in and cash. But no one’s going to start off using a
system if they think they can’t get their money back. Obviously, it’s got to be safe you know it’s got to
be trustworthy. You have to be able to move money to other individuals.
I think that’s a difference in the developing world that’s probably different from here. That’s not as big a
use case in the developed world, right. I rarely need to pay other people. But in the developing world
where lots more transactions are informal and that kind of thing you want to be able to move money to
other people. You need to be able to do direct deposits. You know people can get their wages and
other things, direct deposit of wages, and these are government benefits. You need to be able to
purchase things. You need transparent and low fees, right. You can’t have people thinking that they’re
kind of getting charged all the time.
That leads us to some of the design principles. We think you want self-issued account and sort of tiered
levels of KYC. KYC is Know Your Customer, so how much do diligence you have to do should be tiered.
Push payment model, most credit cards are all on a pull payment model. It’s kind of subtle as to why
push payment; push payment is initiated by the user’s device.
It’s not really, I think part of the reason why the Legacy systems are built around the pull payment
model is that it wasn’t feasible to do real time communication when credit card systems were first
developed. What happened is I give you my information. You as the merchant then go pull that money
out of my bank account, right, with my “permission”.
Then the digital credit card systems were just built on top of that model. That adds a lot of transaction
backend stuff that’s in particular I as a merchant now can pull from anybody, right. I mean at least I
could try. That’s where most of the fraud comes from in the system. There’s a whole bunch of extra risk
and fraud mitigation stuff that has to be in place.
Whereas in a push payment model I’m the only one who can activate my account, it’s through my phone
and I have pin. If something goes out it clears immediately and is immediately transferred and that’s
another principle.
There two as well as the irrevocability lead to a lot lower cost structure. Most, a lot of the cost structure
in credit cards is that you have the right to sort of revoke things. Merchants can charge you for no
reason and so someone can fake being a merchant and that kind of thing.
Of course open loop we want you know other third party players to be able to integrate in and use the
system. System wide fraud and risk, so not that everyone has an individually siloed fraud and risk
approach. Then of course high volume and low value payments are feasible within the cost structure of
the system.
>>: Does open loop include interoperability with other, two different services or multiple services? Or
are you thinking more just open loop in terms of currency, merchants?
>> Jake Kendall: Yeah, so open loop. Yeah, I mean in general should incorporate the ability for lots of
different third party players who want to be able to move money in ways that the system support safely
should be able to do that, right, through…
>>: But it means sending money to a person that’s on a different service?
>> Jake Kendall: Yeah, yeah, right, sorry, interoperability across platform as well, yep.
>>: Okay.
>> Jake Kendall: We actually see this, the level and project we’re thinking about it really at the payment
systems level, so you know at the national level essentially. What do the solution sets enable some of
these? You need an account opening service, consumer agent and account management service, smart.
You know these are just sort of different account management modules essentially, interoperability for
across platform interoperability and then fraud and risk.
Then the broader national strategy has to be more than just the technology platform of course, right.
You need the technology but you also need the regulatory framework. You need the right business
models and scheme rules. You need certain governance so that the different scheme players feel
ownership, operations, and the right level of communications, and that kind of thing. This was sort of
the background.
This is I’ll jump over this slide pretty quickly just because we’re getting on in time. But this is kind of the
high level schema. We, I think the thing to look at here is this is sort of the old, the Legacy system, right,
commercial banks, card networks, the central bank, etcetera. These systems are not very well geared
for things that are explicitly mobile and very low cost and high volume, so, low-end consumers in
particular but also small merchants, and things like that.
The other thing to note is in this new system there’s kind of a set of core services that are shared. Then
there is the stuff that each digital service provider is going to build on their own and where this is where
the completion is in the market.
I’ll show you some pain points; these are sort of the next generation issues. What we did to develop
those was really to go through the different players inside this box. The DFS providers and the different
end user stakeholders and think through kind of what are their. Given the system you know if it were
setup what would they still have as pain points in order to sort of execute?
>>: It’s the notion that you have a national digital financial a really good tie in backed with central bank
that in terms of your policy, currency controls, currency leaving the country like Nigeria. Is that, that’s
really embodied into that central pillar, right?
>> Jake Kendall: Yeah, so central banks, right, I mean they, their kind of core mission is usually systemic
stability and bank regulation. But they also often run various aspects of the payment system. They’ll
setup and manage the ACH and all that kind of stuff.
>>: Yeah.
>> Jake Kendall: Then they setup the rules for, yeah, international transfers and all that kind of stuff.
Some of them have all kinds of stuff like capital controls and things, but.
>>: Yeah, that’s, I read about that.
>> Jake Kendall: Yeah, yeah, this just too kind of give you a sense of all the different components that go
into it is the next level down in detail schema for the reference model. You can see maybe in particular
the stuff we see ourselves as commissioning to build directly versus stuff that’s done through partners
at different levels of. Some of it is you know direct support versus supporting through partners. Then
some of it is just stuff that we think other people will eventually build on their own.
But kind of the core stuff of you know the interoperability integration and security, and things like that
are kind of the things where. Then also potentially some of the merchant processing stuff, at least the
core elements of it is things where we think we can add value. Because you know that’s not something
the market will necessarily do on its own.
Where we think we can work with the government for example to setup kind of a core public good
system. Not necessarily an NGO, right, could be a for profit company. But we see it as a public good in
the sense that it’s shared infrastructure for the broader economy.
>>: You’re actually funding third parties to build to your specifications some of us would hope?
>> Jake Kendall: Yeah that’s right. Yeah, so we will build a reference model. We’re talking to some of
the bigger system integrators and other players. In the process of setting up like I said Pakistan and
Nigeria we, some of these components already exist in each country. It’s a little bit of like filling in the
gaps on some level.
But we plan to build a full reference model. At the current plan instead of an open source,
[indiscernible], and hope that and try to support an open source community where others can build to
the same reference model. Some of those other builds may not be open source. We’re not sort of
fixated on open source but more that we want to, if we’re going to pay for it, it should go into the public
domain, basically. But that’s the platform stuff. That I think to me is an answer to the question what is
the right architecture and schema, and business rules for the core of the system.
In the time that we have left this is, these are kind of what we see as sort of next generation issues. In
areas where we think more you know sort of direct point solutions from kind of emerging technologies
are potentially relevant. These are areas that even if you have the architecture right and that you know
L one P system in place are still hard and can still you know benefit by people inventing new ways to do
them, basically.
I thought I’d just go through them. But I’d love to hear you know I think we can kind of discuss
individual ones and if you all have thoughts and things like that. The top one is fraud and cyberattack
prevention, right. You know this is sort of obvious I think in a financial system we’re constantly being
attacked. It’s usually kind of proportional to the amount of money involved. Currently there hasn’t
quite been, maybe hasn’t quite been enough. I think also partly because the systems are built for
purpose and closed loop, so all run within the datacenter of one mobile operator.
There hasn’t been that we know of a whole lot of massive cyberattacks. But there’s certainly fraud of
different kinds. They’re probably, and there’s certainly been insider fraud, so internal cyberattacks if
you want to call them that. People who are insiders within the company and have managed to kind of
like you know jigger it to put ten cents of every transaction into their own bank account or whatever it
is.
Of course you know most of that stuff just never comes. You know they don’t allow that to be
publicized in the newspaper if they can avoid it. It’s hard to know how much of this stuff there is. But
it’s certainly an issue in the long run because the bigger the systems get the greater the pressure on
them will be. There’s a lot fraud of the form kind of petty fraud, person to person fraud. You know
calling up and pretending to be the, you know whatever the services operator, trying to get peoples pins
and all this kind of stuff, fisching stuff with text messages and all that kind of thing. Certainly more to
come I think as it starts to get into the merchant business and that kind of thing.
Proximity payments is another one and I think that’s one where the, why are we interested in proximity
payments? I sometimes get that question, right. You know it’s not that we think poor people benefit by
paying with a digital phone rather than with cash when they buy their groceries. I mean that you know
it’s not really clear.
But as I said before what we think for the long run sustainability and health of the system you need to
achieve the ability to keep cash in digital form. For that to happen it’s really critical to get the proximity
the ability to buy things in the store. Because that’s most of someone’s sort of you know day to day
transactions are you know very, very small value proximate payments to someone who they’re buying.
You know three tomatoes from in the market or something else, right, or soap, or whatever it is.
But this is a real challenge, right, because cash just works super good as a payment medium for
proximity payments. I mean just you know I hand you cash, I can count it out easily, I’m familiar with it.
You know it’s super fast, easy, you know all that kind of stuff.
>>: No fees.
>> Jake Kendall: There’s no fees.
>>: But today if you want to buy three tomatoes couldn’t you just do that by entering the merchant’s
phone number into your service?
>> Jake Kendall: Yeah, I mean you can but the guy selling three tomatoes on the side of the road
typically isn’t a merchant. But even if he was the…
>>: Except he’s a consumer or she’s a consumer…
>> Jake Kendall: Right, so you could pay them…
>>: Chances are she has a phone herself.
>> Jake Kendall: Yeah, so there’s a couple aspects of it, right. One aspect of it is the fee and that’s not a
technology issue obviously. But another aspect of it is just the user experience, right. I’ve got to punch
in this guy’s phone number and you know like not get it wrong. Then you know go through the menus
and all that kind of stuff. The current systems are really bad at that.
We’re looking at stuff like NFC and barcodes, and other ways to you know put all the information for the
transaction quickly from one phone to the next. You know some things that we think about and weigh
as to whether we can make the assumption or not. That for instance one of the parties has a smart
phone if they’re a merchant you know those systems, those approaches become a lot easier. Because
obviously with a smart phone you can, you know you can read a lot more things. Because they have
sensors and you can project a lot more data and things like that.
>>: You’re thinking phone to phone?
>> Jake Kendall: Yeah.
>>: And phone to terminal, phone to point of sale terminal?
>> Jake Kendall: Right, yeah you’d want to integrate in. Have the ability to integrate with Legacy
terminal based POS systems and things like that. But, yeah, NFC, it could not be a phone, right, on some
level, right. If you just had like an NFC chip or something like that. Yeah?
>>: Are the phones for these markets built with mobile payments in mind? Or is it like they try and
wear it on top of text messaging or something else?
>> Jake Kendall: Yeah, so I actually skipped over that slide but the primary medium, so they’re not built
with mobile payments in mind for the most part. The sort of the communications protocol that most of
them tend to use is USSD which is just a really basic session based protocol. That a low end phone can
initiate with just a code. You’ll have USSD short code. It’s like three numbers and it’s sometimes like
star three numbers and hash tag. That pops up like a menu.
But some of them also use just sort of the direct integration with the SIM toolkit and the ability to put a
menu item in the actual SIM card menu. That’s better in sense of from the user experience it’s a bit
more integrated and smooth. But often requires a SIM swap and so some operators have just opted not
to bother trying to get all their clients to swap a SIM.
Then some have tried to do it with kind of structured text message and things like that. But so the
obvious issue with structured text message it’s not all secure. There’s no way to really prove you know
the, which phone it came from and all that kind of stuff. Yeah?
>>: Jake I’m going to have to take off but thank you. I run payments for Microsoft.
>> Jake Kendall: Oh, okay.
>>: I’ve spent some time with Roger and Costa before.
>> Jake Kendall: Okay, yeah, yeah, yeah.
>>: On some of this stuff. But it’s always good you…
>> Jake Kendall: If you’ve got a card leave it and we’ll keep in touch.
>>: Pardon.
>> Jake Kendall: If you’ve got a card leave or send me an email and we’ll keep in touch.
>>: I’ll send you a card.
>> Jake Kendall: Okay.
>>: Good.
>> Jake Kendall: Just too quickly go through the rest, identity, woops. Identity is you know how do you
identify people? We’re looking at a lot of biometric stuff. Thanks a lot.
>>: Yeah, thank you.
>> Jake Kendall: Yeah, there’s you know there’s a lot of challenges with, if you could easily figure out
who someone is both for the transactional integrity. But also the onboarding, the KYC part where you’re
actually signing them up. Most regulators want to know who people are so they can mitigate against
terrorism, financing, and money laundering, and all that kind of stuff.
That simple act of trying to figure out who someone is can actually add a fair amount of cost at least
relative to the amount of revenue generated by a really low income person. We’re looking at like are
there really quick ways to, can we capture a fingerprint through a mobile phone camera, basically. Or
things like that so that we could really cheaply in software deploy identity solutions across some of the
systems. Yeah?
>>: [indiscernible] the essential the phone number, right. There is no…
>> Jake Kendall: That’s right.
>>: It’s what you can all anchor up, right.
>> Jake Kendall: Yeah, so, well that’s your, that’s what you have, right, but it’s not really who you are.
>>: [indiscernible]
>> Jake Kendall: Anyone can have that phone number.
>>: That linkage between them is sort of missing [indiscernible].
>> Jake Kendall: That’s right, yeah. It’s especially hard in the initial sign up process, right. Because if I
sign up.
>>: Yeah.
>> Jake Kendall: I mean anyone can say I’m you know whoever, right. Like India has set up this really
interesting system called Aadhaar or the Universal Identity. They have basically biometrically
fingerprinted and iris scanned nine hundred million people at this point and, over the past couple years.
They have a really kind of simple core system that basically you send Aadhaar number or identity
number and the biometric. It’ll give you an answer is this the person you know it’s that biometric mass
that match that number. They can also send back name, address, one or two other fields, really simple,
right.
But just that capability in and of itself is really core to all kinds of identity questions. That kind of system
you know especially to the extent that new phones are starting to come out with biometrics and things
like that. The main issue is that like sometimes deploying biometrics broadly over lots of different retail
points and things like that can be challenging. Being able to, I think actually if we could do it in software
only on a mobile that would be a pretty interesting…
>>: Do you have any leads in how you could link those to?
>> Jake Kendall: Yeah, so I’ve seen, there are some folks that like have a biometric, like a palm based
biometric that you can do through mobile camera. Some extent it depends on what kind of verification
you want to do. If it’s you know capture biometric and do a look up. You know the false positive array is
just too, you can’t look up nine hundred million people and find the right you know exact individual,
right. Or you’re going to get like fifteen yes’.
But if you’re saying if you want to do it for like a transactional or if you’re going to capture that and then
just put in the person’s name or something like that that’s fine. The main issue with Palm is that no
ones, like there are no Legacy databases of Palms, right, in most countries that I know of.
We’d love to have something that actually does fingerprints since that’s what a lot of these countries
have actually over the last few years often supported by the UN or somebody else around a voting. You
know an election or something like that. They’ve actually got big biometric databases that we try to
boost of. But if you have to have some specialized biometric that’s not going to work. Like there’s ear
prints and you know there’s all that kind of different stuff that you can do with a, potentially with a
mobile phone camera. But actually fingerprints are harder, so that could be a, I think that’s an area that
if someone came up with a solution it would be pretty important.
Client activation is another one, has to do with again signing people up, getting them onboarded. But
also kind of communicating with them after the point of actual physical contact with messaging and
things like that. To keep them engaged and give them instruction and give them value, and things like
that.
Analytics is also a, you know clearly an area where you know mobile phones are creating a huge amount
of data. If they’re also doing your payments and money transfer and things, that’s also you know a
whole other level of data where there’s a lot of signal in terms of who you are and what you’re doing,
and that kind of thing. Risk scoring for credit of course is a big area and currently in Fintech in the
developed world where the people are using all kinds of alternative data sources to score. You’re seeing
that trickle down. People are trying to use the mobile calling patterns and transactional patterns, and
things like that.
There’s also just in general you know the current you know mobile operators. They are sophisticated in
very specific ways and then very unsophisticated in a lot of other ways, right. They’re very good at their
kind of core system integrity business and that kind of thing and keeping the mobile signal up and all
that kind of stuff. But they’re not very good at kind of other kinds of analytics and developing products
and things that sort of leverage their data.
Another one is CICO agents. Like I said this is an area where you know CICO agents cash in, cash out
networks. They cost probably like I said fifty to sixty percent of the cost structure for these things is just
keeping up those things up and running. There’s a huge problems with cash stockouts or digital equidity
stockouts. Agents don’t, you know they don’t stock enough. There’s problems with how do you place
agents in the right place? How do you manage them? A lot of those things I think could be solved with
data analytics.
I mean, there’s a guy at Harvard I talked to recently who’s just you know run a model if you could get
the agents to restock their cash. According to his model you know when his model predicts they should
restock and that sort of thing they’d save you know thirty, forty percent of their cost structure, or at
least their cash in and out cost structure.
Now whether or not you could actually get them to behave that way is another question, right. You
have to figure out how to motivate them. But I mean that, you know that kind of thing I think the
prediction stuff using the data that’s flowing out of the agent networks is currently not done at all. It’s
actually incredibly unsophisticated the way agents are managed. There’s almost no sort of automation
of messaging and prediction, and things like that.
I think that’s potentially a really big area. Maybe there’s also sort of hardware stuff at the point of sale,
right. Agents you know they get passed a lot of counterfeit currency in certain countries and being able
to detect it, some simple cheap way to detect that would be really interesting. You know, I don’t know
maybe there’s security devices really low cost, etcetera.
>>: Did you say in many cases an agent is not typically operating on their own? They’re part of some
group of agents that’s…
>> Jake Kendall: Yeah.
>>: Funded by a third party entity or an individual.
>> Jake Kendall: Yeah, you see different models often the mobile operator will contract with a series of
super agents who then manage a string of fifty to five hundred other agents. Those guys often do some
sort of basic frontline support. You do see, but you see different structures. Some of them, some of it’s
almost all in house and there’s no real subcontracting structure. It just kind of depends, yeah.
Then another big area is financial managing and budgeting tools for end users. You know as with
anybody low income people have a hard time keeping track. They have actually very complicated
financial lives which is surprising to some people. Everyone things it’s very simple, right, you know zero
balance and that kind of thing but like they’re actually very complicated.
There’s, you know if you look at, we’ve done very careful studies tracking their financial patterns over
many years for example. You’ll see that for example maybe ten times the value of their income will flow
through their house in and out. They’ll borrow and lend and you know receive gift from somebody and
give a gift to somebody. You know maybe ten X what they actually spend and consume goes in and out
of their household. They really have a lot, a very rich life of informal loans, gifts. You know money
transfers to friends in times of need you know all that kind of stuff.
I think in addition and this is something that has come out in recent years in the research. The fact of
being poor and kind of being pressed every day to make decisions and living a life where you know
there’s very little certainty. They’re often they’re sort of finding piece work from day to day, no steady
job, no steady paycheck. That adds a huge amount of cognitive load on people. It’s just something that
sort of behavioral scientists are getting better understanding of. But it diminishes their capacity to make
sort of long run planning and decision making and things like that.
We think there’s a huge amount of potential for this kind of stuff if you could do it over the low end
interface that a mobile phone represents, right. We’re doing experiments with like text messaging and
trying to come up with kind of the right messaging framing formats to motivate people to save for
example. Or motivate them to pay back debt on a regular schedule or that kind of thing.
I think you know helping people with their budgeting. Helping them kind of you know with their
“nudges”, behavioral nudges and things like that. Giving them maybe optimization tips, so like you
often see people are borrowing at high interest and holding liquidity at zero interest, right. You know
just sort of pointing those kinds of things out. I think there’s a lot to do here. It’s complicated because a
lot of it is more behavioral science than it is technology. But if you can build the two together I think
there’s a lot that can be done.
>>: If you look the under bank you know population in developed countries. I mean there’s a huge you
know when there’s such an asymmetry of financial power there tends to be. The people who are under
banked tend to be overcharged you know.
>> Jake Kendall: Right.
>>: Things like check cashing services and payday loans and stuff like that end up tip toeing toward
predatory stuff. How do you keep all of that kind of stuff out of this? Is MPESA like they’re for profit,
right?
>> Jake Kendall: Oh, yeah, yeah. I mean that’s, yeah. That’s a huge question for us. Especially like in
the digit credit space, right. Like you see you know some of these guys are offering either through a
mobile app or through kind of a backend service that’s white leveled through the mobile operator.
You know what’s very attractive on some level, right, because I can on my phone go on, register, signup,
and apply for credit, and get an answer within you know thirty seconds, right. I might get you know
fifty, a hundred, two hundred dollars loan. My loan term is typically two weeks. For the short-term
emergency that’s enough. But then my interest might be three, four percent over two weeks which if
you sort of do the math over the year is, it’s about a hundred percent or something like that or a little
more I think. You know I’m not pundit at doing math very good.
>>: It’s just like payday loans here it’s worse than that, right. It’s like you know thirty dollars to borrow
a hundred and fifty for you know ten days.
>> Jake Kendall: Yeah and you see that kind of stuff too, right.
>>: But digital credit in these markets that’s a new phenomenon, right?
>> Jake Kendall: Right.
>>: That’s, it’s just getting started. You said earlier it’s really you have to have cash to get the value on
to your phone. You have to have the value on your phone to get cash out, right?
>> Jake Kendall: That’s right.
>>: You’re not floating or crediting people generally?
>> Jake Kendall: No, I mean the system itself doesn’t have inherent credit built into it, right. But people
are always trying to create credit products for people.
>>: In the…
>> Jake Kendall: Yeah and our worry is like the potential of it seems great, right. But then how do you
make sure that eventually that interest rate comes down to a level that’s not you know frankly gouging
people? How do you make sure that they actually get value out of it and aren’t just pressed into it by
the urgency of their circumstances?
I think competition is probably an answer to that in some sense, right. In the kind of fees that the
mobile operators charge we’ve seen them come down when more entrants successfully enter the
market and start to grow the size of their client base. You know I think that’s one of the main
motivators, one of the big motivators for our level one project is to build a system where the mobile
operator can’t just set up a one party system and keep everybody out. But to actually build a more open
architecture for the payment system as a whole so that you get competition at different levels of the
value chain that will actually drive the lower costs.
But, yeah it’s certainly; I mean you can gouge people over digital just as much as you current gouge
people in sort of manual and face to face transactions. That’s certainly true. That’s definitely something
we think about a lot.
>>: As a comment to your last point, are there places where like you [indiscernible] where you can
actually get them to save and have [indiscernible] an account, and…
>> Jake Kendall: For sure, yeah. I mean there are you know successful saving products and things out
there. One of the areas where we’ve seen success is what we call commitment accounts. Accounts that
have some sort of friction associated with taking money out. It can be as simple as like you commit to a
group of other people who are savers that you’re working, you know that are part of your social
network. You all kind of chastise each other, right, if you take money out.
It can be that basic. But it can also be sort of more formal account features where you pay a fee to take
money out if you take it out before you’ve reached your goal. You might set a goal of I don’t know two
hundred dollars because you want to buy a sewing machine and start business or something, right. If
you take it out before that you get a penalty. Or you want to save up for planting season so if you take it
out before planting season comes you get a penalty, something like that.
We’ve seen, you know we’ve run sort of randomized experiments with people who have those features
and don’t. You actually see a fair amount of success in increased ability to save. Then even you know
the knock on effects of that which are better planting, better investments in planting and farming, and
that sort of thing.
>>: [indiscernible] on the backend link there’s a bank account for them. Or like where is this money
being put?
>> Jake Kendall: It depends, in that scenario I was just mentioning was a bank. But most of the
commitment products have been through banks mostly because the mobile operators, mobile money
platforms are not flexible enough to instantiate that kind of account feature. They’re very inflexible.
There just sort of really basic wallets. But I think they’re moving in that direction. Most of them are
upgrading platforms and things like that.
But our, I mean what we’d like to see is you know if that’s a niche product that some people want. You
know you should be able to offer it without setting up the entire mobile money system, right. The
creative entrepreneur who comes up with just the right sort of marketing and system of you know Avon
groups. Or whatever the right thing is that people actually then start to buy into it should be able to
access that system. Deliver that product over the system through an API or whatever it is without
having again to build the whole thing from scratch.
That’s what we’re hoping will happen. It is starting to happen in certain cases where some of the
operators have started to allow a little bit more access to their systems.
I don’t have, I’m out of slides. I’d love to hear any thoughts you guys have. You know if you just kind of
have an idea down the road for things, technologies we should be looking at, or ways in which we could
collaborate. I mean all; we have you know partners on the ground who are kind of struggling with a lot
of these things. A lot of them are not very technologically sophisticated.
You know the ability to kind of experiment, help them experiment with new approaches to this would
be really valuable for us. I think you know for the reason to come out and talk to you guys is kind of,
from my end to kind of get you aware of the problems. Then I guess if you come up with things,
thoughts for me, or just want to talk about it, get more involved, etcetera. You know definitely reach
out. I’d love to hear from you. Yeah?
>>: You talked about making some of this reference implementation open source. What’s the
timeframe for that? How would you kind of engage community to build some momentum behind that?
>> Jake Kendall: Yeah, so that’s something we’re still really trying to figure out. Because as you know
open source you know often sort of flops, right, and doesn’t really create that sort of energetic
community around it.
I don’t know what our strategy is going to be to be honest. We’re still like I said really wrestling with it.
But the timeframe I think the, I think we have a prototype which is not to say a referenceable
implementation. But really just a prototype that, like kind of like checks the box and will do basic things.
But doesn’t have, kind of like the performance characteristics and ability to parameterize and things all
that kind of stuff that you would want from a full-fledged system.
That may go into open sort of public domain sooner rather than later next few months maybe. But
again that’s, I don’t know how interesting that is except to kind of play around with. I think the bigger
project will probably not be until at least the end of the year or maybe probably next year. My guess,
but I’m not sure. It’s not actually, that one’s run by the other team, the one that’s doing infrastructure.
I’m not probably as in touch with their timeline is. But my sense is it’ll be aways down the road.
>>: Sorry, not to over resimplify but I will for a second. It seems like analytics, although you called it out
on number five. It seems like analytics would play a role in number one, number three, five, six, and
probably seven.
>> Jake Kendall: Right, yeah.
>>: I think about where you know Microsoft has been demonstrating some strength recently as in the
Cloud, Machine Learning, and Analytics…
>> Jake Kendall: Yeah.
>>: [indiscernible] since I don’t know how much of the infrastructure that or the reference designs that
you’re doing have Cloud based aspect to it.
>> Jake Kendall: Yeah.
>>: That could tie into the Machine Learning that’s coming along. But that would seem like an area that
could unlock some value in a bunch of these different areas.
>> Jake Kendall: Yeah, that’s a great point. It’s true these are not really kind of a MECE list of things,
right, the fraud and identity being you know, right. But, and analytics definitely cuts across a lot of it. I
think, yeah the idea of having a Cloud especially maybe in the fraud area or any of the shared services
where data’s being shared…
>>: Yeah.
>> Jake Kendall: In particular probably a really good idea. One challenge is in a lot of countries. In some
countries there are explicit laws that state certain types of data can’t leave the national boundary.
Cloud based solutions are really tough in those countries for that reason. In other countries it would
just be politically difficult.
>>: Yeah.
>> Jake Kendall: You know from an optics perspective. But might still be feasible might just take a little
bit more sort of you know getting everyone on board. But I do think, yeah, that makes a ton of sense.
Actually the whole thing could frankly be I mean most of it could be in the Cloud.
>>: Yeah, well like in China for instance you’d really have to setup joint ventures.
>> Jake Kendall: Right.
>>: To basically operate within the national you know licenses and stuff like that.
>> Jake Kendall: Yeah.
>>: That COM, so you’d have to probably do something similar in other markets.
>> Jake Kendall: Yeah that’s right.
>>: Then the other thing is then, right, I think I probably know the answer. But, yeah the fact that we’re
struggling on our Windows Phone market sharing and even with the Nokia acquisition. But we do have
a lot of you know large screen devices. I just don’t know how much…
>> Jake Kendall: Yeah.
>>: Of the unbanked, how much of the overlap is there between…
>> Jake Kendall: Yeah.
>>: People that use mobile paid services and have larger screen you know computers at home or
something like that. Whether that could…
>> Jake Kendall: Yeah, I mean I, you know the vast majority of “our clientele” are really at best on a low
end phone.
>>: Right, yeah, a flip phone or with a candy bar…
>> Jake Kendall: Yeah, exactly, yeah, if they’re on anything else as an operating systems it’s probably
Android.
>>: Yeah.
>> Jake Kendall: I mean you guys probably know the actually the market share on the phone side you
know in some developing countries.
>>: Painfully we know it. We know it painfully well, yeah.
>> Jake Kendall: Yeah, I feel like sometimes when I travel or I probably move the number by a fraction.
>>: [indiscernible].
>> Jake Kendall: But, yeah, I mean the, yeah, I mean there’s not a lot of. I mean it’s even worse than
here in the sense that like people haven’t even bothered to deploy a lot of the computers that they
would have. Because they’re doing almost everything through, right, through Smart Phones.
>>: [indiscernible], yeah.
>> Jake Kendall: Yeah.
>>: It’s just related on the analytics. I mean right now I mean all of that data is siloed per carrier, right.
There’s no kind of if you want to do analytics for fraud or anything else, right. MPESA has its silo of data
and everyone else theirs really. We can speculate about what kind of patterns they’re seeing and how
things might improve. But there’s no actually no public access, right.
>> Jake Kendall: Yeah, there’s certainly no kind of formal channel public access. We support different
academic researchers. Some of whom have managed through to sort of hand shaking and cajoling get
access. Sometimes to you know datasets that are maybe six months old or something like that.
>>: Yeah.
>> Jake Kendall: They do see pretty interesting patterns. We’ve done research on that dataset you
know call detail records and event detail records that come off of mobile phones, right. As you said
they’re all mostly trapped in the mobile operator silo. But they’re really fascinating datasets. I mean
we’ve don’t everything from plug them into epidemic transmission models to chart where, like where is
malaria going to go next and that kind of thing.
Not even financial services related. But then also looking at like I said optimizing agent network, cash in,
cash out patterns, and things like that. You know we’ve even tried to use them to figure out whose rich
or poor, or who’s male, female. I mean you could just try to figure all kinds of things about the
population if you have some sort of labeled dataset on the other side of who these people are.
>>: Like whose data were you using for those classes?
>> Jake Kendall: Each research project tends to be some other you know sort of specialized…
>>: Are those one by one kind of negotiation for this particular project?
>> Jake Kendall: Yeah, yeah, it’s very painful, takes like a year per dataset.
>>: Yeah.
>> Jake Kendall: But it is very interesting stuff. We’ve got a facility, a grantee that we’ve setup. One of
their missions is to come up with a more systematic sort of standing order type approach. Potentially
think through like what’s the right, because it’s very sensitive data, right. You can’t just take out the
phone numbers and you can still figure out who everyone is, right, just by where they’re moving and all
this kind of stuff.
You, one of our grantee’s is sort of tasked with trying to figure out what’s a kind of like an aggregation
format that would leave enough resolution in the data to be actually interesting. If you wanted to chart,
for example, maybe mobility patterns for which there’s a lot of uses for knowing that kind of thing. But
low enough resolution that you couldn’t [indiscernible] individuals. There’s you know obviously fairly
technical ways to do that.
But their goal is not, I mean that part actually is not so hard to work out in any given context. But then
setting up the political process around it and potentially like a shared datacenter resource or something
like that. That would then make it, make the data available appropriately to researchers or others you
know in a kind of standing order basis.
>> Shabnam Erfani: I have to interrupt at this point. We have another meeting coming up at three
o’clock with folks who are calling in from Austin, so thank you Jake for the talk.
>> Jake Kendall: Thank you guys.
[applause]
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