Can Open-Source Mobile Money payment system built on blockchain technology address the high transaction cost (from 1% to 6% +) associated with mobile money transfer?
We recently received another Open Innovation proposal leveraging blockchain technology to minimise the transaction cost in mobile money payment system. However, the success of any new technology is defined by its adoption. Tell us:
What are the key elements or must haves to ensure traction and adoption of a new Fintech solution by consumers in rural and peri-urban areas in sub-saharan Africa. Details of Innovation:
Innovation is creating another use case of digital crypto currencies, such as Binance USD (BUSD), which is 1:1 backed by real US Dollars and thus as stable as the actual US Dollar. Given Binance backing by USD, is considered to be a “stable coin” in the blockchain world and therefore not as volatile as other popularly known crypto currencies like Bitcoin. The market liquidity of Binance USD is around 14 billion USD, so no local banks are required to implement our open-source payment system. Anyone can exchange local currencies with BUSD and use the digital US Dollar. Local regulations are managed and fulfilled for each country by Binance.
The goal of this project is to adapt the existing technology to deliver energy access and other basic services using open source, cheap and interoperable payment alternative. Developer plan to enable mobile money users to use BUSD currency on Android mobile devices, feature phones (USSD) etc.
Following Open Source technical deliverables will be released:
• Banking SDK and App: Android app and SDK to exchange, send and receive BUSD. The app is an out of the box working app for customers and businesses, while the SDK can be used to integrate the payment service in third party apps.
• USSD service API: Implementation of all banking functionalities via the USSD API service of Africa’s Talking, so that end users can send and receive money via their feature phone.
• Financial blockchain services: Implementation of exchange and peer-to-peer payment services into server backend (please see attachment).
• Backend: The backend interacts with the exchange API, the Binance Pay API, the USSD API and the Android client. Everything can be installed on a server easily via docker
This is a great intiative. However, I do have concerns regarding the likely energy emissions and transaction costs associated with mining on the Eethereum blockchain.
Three questions arise:
What assessment has been undertaken to understand the typical micro-payment energy footprint for a typical Etheuem blockchain transaction?
Are the energy emissions created from these Ethereum blockchain transactions being off-set by purchasing carbon credits?
Hi Ed.
thanks for shedding light on high energy emissions related with solutions based on blockchain technology. I am not sure developer has looked into the climate impact of this solution @dan would you like to comment?
thank you very much for your feedback and addressing this issue.
I agree with you that the energy consumption of the Ethereum blockchain is too high at the moment, since it still uses a Proof-Of-Work (PoW) consensus mechanism.
The Binance USD does not sit on the Ethereum blockchain, but on the Binance blockchain, which is a second-generation blockchain. It uses a Proof-of-Staked-Authority (PoSA) consensus mechanism, so a combination of Proof-of-Stake (PoS) and Proof-of-Authority (PoA).
This makes the Binance blockchain much more energy-efficient than first-generation blockchains relying on Proof-of-Work, such as Bitcoin or Ethereum.
This is big news, and it’s been a long time coming. Open-Source Mobile Money payment system is great for financial inclusion in energy access and I’d really be excited to see it’s ripple effects in the sector.
Transaction costs and facilitating conditions need to be factored in when deploying and evaluating adoption of mobile money products. You realise that the cost of paying a transaction has a direct effect on consumer adoption of mobile money services. So according to me, an open-source mobile money payment platform built on blockchain technology would help address the high transaction costs.
But then again, it would be very important for the open-source mobile money payment “providers” to provide reliable technology, and adequate agent network coverage (if need be). Actually apart from cost, reliable technology is one of the issues mobile money services providers are yet to properly invest in to enhance adoption of the mobile money services in Africa.
Some FinTech startups now have to up their game. But let’s also hope it doesn’t affect the fintech bubble… because a lot of them are overvalued and not really doing much for financial inclusion especially on the grassroots level.
thank you very much for your feedback and addressing the issue of implementing an adequate agent network. This question also came up recently in other discussions (especially how the exchange works in detail), so please find a more detailed approach below:
The open payment transfer system can be implemented locally on project level so we will not need to introduce a new currency to all African countries.
For a better understanding, let’s go through this by the example of a mini-grid in Kenya.
The mini grid does have a local operator, equipped with an Android smartphone.
Registration: An end customer registers a new Binance account with the local operator. The end customer can use her / his new open mobile money account directly on her / his feature phone or smartphone.
Exchange: The end customer can exchange cash for BUSD with the local operator. No bank is required and liquidity is always ensured.
P2P exchange incentivization: We believe the key to success of a sustainable agent network is the right incentivization model. Please find attached a graphic, which describes the exchange model and incentives in more detail:
Company: The mini grid provider in this example can get BUSD via bank / credit card payment, using for instance the transak exchange service.
Agent: A local agent / operator can exchange cash for BUSD from the mini grid provider. The company might charge some exchange fees, but in this example the mini grid provider could also decide not to charge additional fees.
Customer: A customer can exchange cash for BUSD from the agent. The agent will earn a small transaction fee of x% for each exchange. So everyone with a smartphone or feature phone can become a local entrepreneur providing P2P exchange services. At the same time an agent could sell air time or data bundles and earn some extra money, providing additional services. We propose to provide these functionalities for the open banking app as well as any feature phone.
Driver to establish the agent network: Since the open mobile money transfer system can be implemented on project level, the initial driver is always the project owner.
In this example, the driver would be the mini grid provider. We believe end customers will be happy to use the new system due the tremendous cost savings at no additional effort (except for the initial account setup / registration).
Thank you for your initiative, this sounds promising. I do have a question:
How will this work with local currencies, will this be handled in USD only? How will you handle forex currency transactions and handle its related risk?
But congrats, this is the direction we need to go in Energy Access if we want to scale
Our plan is to implement a multi-currency account, where BUSD serves as basis.
As an example:
In Kenya, 10 BUSD would be shown as 1140 KES on the mobile money account.
Thus, users don’t have to get used to a new currency, but BUSD is merely used as underlying technology “in the back”.
Regarding foreign exchanges, the exchange rate will be calculated at the point of sale.
A customer can select whether he or she wants to pay by the local currency or BUSD.
The business owner (e.g. a mini grid operator) will receive all money via BUSD.
Does that clarify your questions? Please feel free to add your comments and thoughts on this.
the data from transactions will help to create a credit score for the local businesses which can be used by finance institutions to finance these business’ at lower rates. Right now because of lack of credit history/score, the local businesses dont have access to any kind of finance. and most of the times end up paying crazy high interest rates.
most of the payment gateways charge 1.5-2.5% transaction costs, which is quite huge for the small business’ considering their margins are in single digits. so definitely a much needed solution. a quick question on the transaction costs, if someone needs to draw money in local currency, you mentioned the rates will be calculated at the point of sale. will there not be any kind of commission at all? if its zero, who will bear the costs towards maintenance of the system ?
how easy will it be it to integrate such a service with third party apps? is it doable even for a small scale local business ?
wish you good luck with this project, looking forward to see it unfold!
thank you very much for your valuable feedback. Please find our comments below.
the data from transactions will help to create a credit score for the local businesses which can be used by finance institutions to finance these business’ at lower rates. Right now because of lack of credit history/score, the local businesses dont have access to any kind of finance. and most of the times end up paying crazy high interest rates.
This sounds like a good idea. I think it would be great if the end user can decide if he or she wants to share this information with finance institutions. So we could generate a credit score report, which is according to the needs of finance institutions.
most of the payment gateways charge 1.5-2.5% transaction costs, which is quite huge for the small business’ considering their margins are in single digits. so definitely a much needed solution. a quick question on the transaction costs, if someone needs to draw money in local currency, you mentioned the rates will be calculated at the point of sale. will there not be any kind of commission at all? if its zero, who will bear the costs towards maintenance of the system ?
Yes, we think it makes sense to offer a commission to those who provide exchange services. So for instance an agent will earn a small commission for each exchange (Please also see post 6 for more details). We want to evaluate the exact commission amount during the first pilot projects, but expect to have the overall fees including the commission for an exchange officer <1%.
In terms of maintenance, the financial services are maintained by Binance. Binance charges a fee of 0.1% per transaction. We will be happy to continuously maintain the app and backend, since we want to offer the open source payment solution as part of our product portfolio. We believe once the solution is adapted, the open source community will continuously contribute, too.
how easy will it be it to integrate such a service with third party apps? is it doable even for a small scale local business ?
The project foresees to provide an API for easy integration with third party apps. What third party apps do you have in mind exactly? If we as community integrate different third party apps, everyone can benefit from it.
thank you very much for your reply. This answers my question very well.
Please let me know when the solution is ready. I have a few companies on my list who would be willing to try out this payment system, claudio
This sounds great!
As a last mile distributor of clean energy products in Zimbabwe and South Africa we are looking to move to alternatives to cash payments including PAYGO. Mobile money payment systems have made accessing cash in these hard to reach markets possible. But the cost there of is restrictive. Reducing the cost with this proposed technology will have a high impact on players like us to protect margin and ensure our low income customers are passed the saving. It will make clean energy far more accessible in hard to reach poor markets and help us all reach SDG 7 sooner, impacting more lives! Hoping to see this technology soon!!, Cherise, ENERGY BOX
Hi
thanks for your feedback on this innovation. Success of this technology innovation will depend on the field roll out amongst agent network, who will be then responsible for the registration and onboarding of last mile customers into the platform. The onboarding of agents will be sole responsibility of energy access companies such as SHS distributors, mini-grid developers. Can you tell me more about your company and how you see your company taking on this responsibility, what kind of challenges you are likely to see in field execution of such tech innovation based on your experience?
This sounds very promising. When do you plan to have it finished?
We are currenlty planning to implement mobile money payments in our business.
If you can decrease the cost to <1% we would be happy to test this out.
Please let me know in case you need a local partner for a pilot project.
Nayo, thanks for your feedback. Can you share what type of mobile money payments are you going to incorporate in this business. One of the key requirement for the success of this tech innovation is registration and onboarding of agent network. The idea assumes that energy access companies such as SHS distributors, mini-grids will manage the agent network roll out, registration, training and onboarding of them to this new platform. This agent network will be responsible for registration and onboarding of last mile customer to the platform. Hence would like to know how do you see company such as yours owning this aspect and likely to see challenges in this last mile management ?
Hi, 4Walls (www.4walls.co.za) rolls out ENERGY BOX microfranchises in South Africa and Zimbabwe. We distribute SHS as well as bigger systems up to 5kva and solar appliances such as DC freezers and productive use such as solar borehole pumps. We distribute via a hub and spoke model to the last mile. Our agents/ microfranchisees I see as being the party to load / onboard the customers.
Some challenges we see is customers without phones or without access to a smart phone or data. USSD functionality is very useful if they have no smart phone. Also off line mode to activate when they have data. Some of this risk can be mitigated by the agent having a smart phone supplied by the company (ENERGY BOX or other distributor) to register and assist the customers with payments on the agents phone if needed.
The low income customers we serve need this kind of technology to reduce the end cost to them so this makes a big difference. Access to mobile money solutions is crucial for the roll out of off grid solar as most of these customers are unbanked and have no credit record. PAYGO technology at a LOW COST per transaction is critical to ensure we can roll out at scale and collectively meet SDG7!
Thanks cherise for sharing your feedback and potential areas where it can have limitations in its adoption.
We all know large set of customers do not have smart phones and hence role of agent is crucial in onboarding the last mile customer. what are the other challenges you likely to see in the field roll out and adoption of new mobile money payment system?
Thanks Aartim, you’ve shared very insightful points.
Question: Does the Open-Source Mobile Money Payment System allow the usage of a feature phone, or can only be used via a smart phone? Yes, majority of rural customers do not have smart phones, but do have access or own feature phones.
I’d also like to recommend that you include local dialects in the Open-Source Mobile Money Payment System. This can help to reduce the language barriers that the less educated users might experience when using the application. From experience, the existing pay-go applications have this drawback, thus also majorly affecting the payment frequencies of the existing customers.
