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Latest data from the World Bank in 2017 suggests that 73% of the population above the age of 16 use mobile money services—making Somalia one of the most dynamic markets in Africa and worldwide.
Despite only being introduced 10 years ago, over two thirds of all payments in Somalia now rely on mobile money platforms.
From Somalia changed the face of money transfers worldwide — Quartz Africa.
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In comparison to neighboring markets like Kenya, which is home to Safaricom’s M-Pesa, one of Africa’s most well-known mobile money services, cash is transferred in dollars and most telecoms companies do not charge a fee for transfers.
Taxi for Cash
I have to say, I saw this coming. In near-cashless Somalia there was already the almost cashless enclave of Somaliland, the breakaway republic of 3.5m people that I wrote about a decade ago , when I said that “Somaliland might well become the world’s first cashless country. Not Iceland or the Netherlands, Korea or Kenya, but Somaliland”. This view was confirmed for me not because of futurologists or economists, but (as is true of the best theories, of course) because of a taxi driver.
Back in 2018, the Economic Club of Minnesota (ECOM) invited me to Minneapolis to give a talk on digital currencies. One of the points I made in the talk was the payments in the future are about my mobile phone talking to your mobile phone, not me handing something (banknotes, credit cards, cheques, whatever) to you. This means that the adoption of new forms of money can accelerate without updating or replacing cash registers or plastic cards. It is the mobile phone payment systems that are showing us what a cashless future might look like, not what was going on around Bitcoin.
If you click on this picture, it will take you to a video of the talk and the Q&A session afterwards.
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Anyway, the Club had arranged for a driver to pick me up from the airport and take me to the hotel. He was very interesting man of Somali origin and we had a nice chat in the car. He told me about his last visit to the old country, when he was surprised to find himself paying for everything (and he meant everything, from a nickel payment in the food market to a $400 remittance to relatives) using a mobile phone. Somali has a dynamic remittances sector with more than two million citizens living overseas and the the UN Development Programme that such remittances account for almost a third of the country’s GDP.
At the time of this taxi ride, a World Bank report had showed Somalia to be one of the most active mobile money markets in the world, outpacing most other countries in Africa. Mobile had superceded the use of cash (their words, not mine) in the country. Cash was not being banned, but it was approaching irrelevance. Apart form anything else, no-one used it because of widespread counterfeiting: As I said in my book “Before Babylon, Beyond Bitcoin“, a cashless country does not literally mean a country where cash is extinct. Some cash will linger for post-functional purposes, such as pinning to wedding dresses or waving around in casinos, but that cash will be irrelevant to GDP.
“It works on trust”, the taxi driver told me, “because there is no government”.
(I was thinking of telling him that in my opinion the reason it works at all is because there is no government, because in many countries where the government has done its best to regulate mobile payments mobile payments do not have anything like the penetration that they do in Somalia.)
Lessons
The world of mobile payments has fascinated me from its earliest days and I’ve been able to observe its evolution first hand. My colleagues at Consult Hyperion worked on the UK’s first prepaid scheme, first WAP “walled garden”, the first NFC trials and, as I explored in some detail recently to celebrate its 15th birthday, M-PESA in Kenya. Experience has given a pretty realistic picture of what is happening across the payments industry in general and mobile payments in particular, and my view is that we are heading toward a tipping point that will see us accelerating toward cashlessness.
Somalia is a place that we can learn from. It is not a template for the future of the digital Dollar or Britcoin, but it does have lessons for us that are important if we want digital currency to address the inclusion agenda. Like the UK, Somalia has no national identity infrastructure. Identity verification has to rely on other records, such as local government (eg, the electoral register in the UK). In order not to discourage financial inclusion for Somalis who do not have access to formal identification, unidentified users were allowed to hold wallets but with a low limit ($300).
Snippings 