Snippings

As Andy Tobin at Avast wrote recently, if the cost of checking credentials falls significantly then we could see a “cascade” into the digital equivalent of “Papers please!” which has significant negative implications (already observed in India, where excessive demands for verification of the Aadhaar digital identity scheme resulted in a Supreme Court judgement restricting the situations where organizations could demand such verification).

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But China’s real ambition is to move beyond dependence on western-controlled financial infrastructure such as Swift, from which Russia has been partially excluded. That is why it has spent years building out its renminbi-denominated Cross-Border Interbank Payments System (Cips), through which payments rose about 20 per cent to Rmb45.2tn ($7.1tn) in 2020.

From How the Ukraine war could boost China’s global finance ambitions | Financial Times:

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The country’s parliament passed a bill Thursday legalizing cryptocurrencies. It notably does not recognize bitcoin or other forms of crypto as legal tender. The bill instead ensures businesses are protected against crypto-related fraud or abuse.

From Ukraine is legalizing crypto – Protocol:

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Unlike El Salvador’s move to adopt bitcoin as legal tender, Ukraine’s crypto law does not facilitate the rollout of bitcoin as a form of payment and does not put it on an equal footing with the hryvnia, the country’s national currency.

From Ukraine legalizes bitcoin and cryptocurrencies:

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Researchers and companies are developing high-tech toilets that go beyond adding smart speakers or a heated seat. These smart facilities are designed to look out for signs of gastrointestinal disease, monitor blood pressure or tell you that you need to eat more fish, all from the comfort of your personal throne.

From Smartwatches Track Our Health. Smart Toilets Aren’t Too Far Behind. – WSJ:

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Justin Faunce lost $500 to a scammer impersonating a Wells Fargo official in January and hoped that the bank would reimburse him. Mr. Faunce was a longtime Wells Fargo customer and had immediately reported the scam — involving Zelle, the popular money transfer app.

But Wells Fargo said the transaction wasn’t fraudulent because Mr. Faunce had authorized it — even though he had been tricked into transferring the money.

Mr. Faunce was shocked. “It was clearly fraud,” he said. “This wasn’t my fault, so why isn’t the bank doing the right thing here?”

Consumers love payment apps like Zelle because they’re free, fast and convenient. Created in 2017 by America’s largest banks to enable instant digital money transfers, Zelle comes embedded in banking apps and is now by far the country’s most widely used money transfer service. Last year, people sent $490 billion through Zelle, compared with $230 billion through Venmo, its closest rival.

From Fraud Is Flourishing on Zelle. The Banks Say It’s Not Their Problem. – The New York Times.

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ut police reports and dispatches from industry analysts make it clear that the network has become a preferred tool for grifters like romance scammers, cryptocurrency con artists and those who prowl social media sites advertising concert tickets and purebred puppies — only to disappear with buyers’ cash after they pay.

 

Moments after he texted back “no,” his phone rang. The caller ID flagged the number as Wells Fargo. The man on the line identified himself as a Wells Fargo employee and told Mr. Faunce that a thief was trying to empty his bank account using Zelle. To stop the transactions, the man said, Mr. Faunce would need to send the money back to himself.

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Nearly 18 million Americans were defrauded through scams involving digital wallets and person-to-person payment apps in 2020, according to Javelin Strategy & Research, an industry consultant.

From Fraud Is Flourishing on Zelle. The Banks Say It’s Not Their Problem. – The New York Times.

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One of the world’s most influential and important fintechs has just passed another milestone. Africa’s first mobile payment service, M-Pesa, is celebrating its 15th anniversary, having grown to connect more than 50 million customers and nearly half a million businesses across seven countries. M-Pesa now processes more than 61 million transactions a day, making it Africa’s largest fintech provider, and it has attracted 42,000 external developers to create additional services for the platform. Whichever way you look at it: Wow.

 

From M-Pesa celebrates 15th anniversary.

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Nick Read, chief executive officer, Vodafone Group says: “M-Pesa is a great example of how a regional platform can evolve and grow to meet and anticipate customer needs using smartphone technology – from peer-to-peer money transfer, to payment of utility bills, to enabling the payroll of businesses, and to financial services such as micro-loans.”

Innovations supported by M-Pesa, include Fuliza – the world’s first mobile overdraft – M-Shwari which pioneered mobile only banking, the Pochi La Biashara wallet, and the M-Pesa Bill Manager

Read says more than 9 million customers and 320,000 businesses have downloaded the M-Pesa Super App since its launch, providing access to a broader range of services including savings, insurance and credit

M-Pesa was launched in Kenya on 6th March 2007, so I thought now might be a good time to explore its early history to see if there are any lessons that can be learned for the entrepreneurs of today who are looking to launch population-scale propositions. Here then is a concise summary of an early history of M-Pesa that I wrote a decade ago.

Genesis

M-PESA is so important that its origins and trajectory need to be recorded and reported from many perspectives. I was delighted to see a recent addition to the literature in the form of a book. In “
Money, Real Quick – The story of M-PESA ”, Tonny Omwansa and Nicholas Sullivan tell its story. It’s a super read if you’re new to the topic, explaining the history and the people involved, and is packed with potted case studies that clearly illustrate the magnitude of the impact of M-PESA on Kenyans and (always my favourite) the unexpected consequences of its introduction.

 

The first hero of the story (in my eyes, anyway) is Nick Hughes. Nick was then Head of Social Enterprise at Vodafone which owned 40% of Kenya’s Safaricom. Safaricom was the market leader in Kenya, with just over half the market. Nick had had the idea of using mobile phones to make the distribution of microfinance loans in Africa more efficient and he submitted a proposal to the UK
Department for International Development (DFID) for matching funding. This was granted back in 2003, and M-PESA was born. Nick then brought in what the book refers to as “UK-based consultants” to develop the idea. Modesty forbids me from mentioning who these midwives to monetary revolution were (oh, all right then, it was  Consult Hyperion ).

The second hero of the story is Susie Lonie, also from Vodafone. Susie had been working on mobile commerce in the UK, and in 2005 she was sent to Nairobi to get the M-PESA pilot up and running. She combined first-class project management skills with real vision, and together with Nick steered the system from a pilot that could so easily have run out of control, such was the popularity of the system once it launched, to the launch of a genuinely new national payments scheme in 2007. By last year…

Local transactions by Kenya’s mobile money service, M-Pesa currently exceed transactions made by Western Union globally, the International Monetary Fund (IMF) reports.

 

[From 

Local transactions by Kenya’s mobile money service, M-Pesa exceeds Western Union’s global transactions – The Next Web ]

That is a truly amazing growth curve from Nick and Susie’s pilot to national powerhouse in less than five years. I should say, incidentally, that it isn’t only me who sees Nick and Susie as heroes. In 2010, “The Economist” magazine gave them its Social and Economic Innovation award:

Mobile money-transfer services have proven a huge success in Kenya and several other developing countries. To mark this fact, The Economist today announces that Nick Hughes and Susie Lonie will jointly receive the Social and Economic award at its forthcoming Innovation Awards ceremony for their outstanding contributions in this field.

 

[From 

Social and Economic Innovation Award Winners 2010 | Economist Conferences UK ]

When the system went live it was immediately apparent that the market was using it in ways that had not been part of the original business model. In particular, businesses began to use it. They started to deposit cash (as a kind of “night safe”) as well settling transactions and paying wages. Now there are some 600 businesses in Kenya accept payments through M-PESA. These include the national airline, the power utility and insurance companies.

Customers travelling on British Airways can now make payments for their tickets and ticket changes in Kenya through the mobile money platform (M-Pesa) thereby affording customers a quicker and more convenient way to make payments.

 

[From 

BA to use Safaricom M-Pesa | BiztechAfrica Business, Telecom, Technology & IT News Africa ]

 

But I’m jumping ahead. Once Nick and Susie had got the pilot up and running, the very forward-looking CEO of Safaricom, 
Michael Joseph , realised that something big was going on and drove the team on to scale. Within a year, they had two million subscribers and were handling $1.5 million per day and he turned his attention to developing the agent network. Safaricom already had agents, of course, because they used them to sell airtime, but Michael realised that they needed to increase the size of the network substantially, and quickly. I won’t distract the reader with it here, but I strongly recommend anyone interested in the topic to read how this was done and the issues that needed to be managed: agent incentives, float management, trading and so forth. Suffice to say that becoming an M-PESA agent became an attractive proposition. (Betty Mwangi, Safaricom’s terrific M-PESA manager, says that she still gets 500 applications per day.)

 

Despite being familiar with the M-PESA story there were sections of this book which introduced me to new and fascinating aspects of the scheme’s growth and development. The section on the impact on the poor, and the dynamics in the 
Kibera slum , should be required reading for anyone interested in the topic. For instance: the average M-PESA balance has gone up fivefold since 2008. The poor are clearly using the service as an alternative to the mattress or the tin under the bed. Even with the M-PESA fees, mobile money is more cost-effective than cash.

Safaricom M-Pesa customers can now send and receive as little as Ksh10 (12 US cents) compared to a previous limit of 50 US Cents, for a transaction fee of 3 US Cents.

 

[From 

Safaricom drops M-Pesa rates | BiztechAfrica Business, Telecom, Technology & IT News Africa ]

In summary: a non-bank payment system founded on new technology rather legacy infrastructure has changed people’s lives in ways that could not have been envisaged by the people who created it.

What general lessons can we draw from M-PESA’s rise? I would like to highlight a few points that the book didn’t dwell on but that I think deserve further reflection beyond M-PESA because they may help to stimulate the development of more efficient payment infrastructures in developed countries as well as in other developing countries.

One lesson concerns the regulatory environment that allowed M-PESA to flourish and how, despite the banks’ reservations about the scheme, once it was successful banks were able to use it to offer financial services to an new customer base. The authors indeed note that “commercial banks have finally decided to expand their borders beyond branches by hiring agents. But that was only after they tried, and failed, to shut down M-PESA”. This is why, for me, the most interesting part of the story comes once M-PESA reached five million subscribers (more than all 43 of Kenya’s commercial banks combined) back in 2008. At that time the acting Finance Minister said he was not sure that M-PESA would “end up well”. There was more than a suspicion that the worries were not around consumer safety and protection but the Kenya Banker’s Association concerns about competition. In the unrest that had followed the previous year’s elections, many consumers had withdrawn money from commercial banks and deposited it with M-PESA, which they judged to be less risky. When you think about it, that was a cusp in the evolution of monetary institutions. The post-election unrest also saw the telco replace the bank as a channel for aid.

Concern Worldwide pioneered the use of M-PESA for bulk cash transfers during the post-election emergency in early 2008 in the Kerio Valley, one of the remotest parts of Kenya. During the violence, cattle rustlers attacked communities in the Kerio Valley, looting their livestock and displacing them. Concern’s initial response was to provide food aid, but carrying and distributing food proved very costly and insecure. Cash transfers were seen as a way of overcoming the challenges posed by the terrain and the security situation.

 

[From 

Mobile phone-based cash transfers lessons from the Kenya emergency response – Issue 40 – Humanitarian Exchange Magazine – Humanitarian Practice Network ]

No-one was sure who was supposed to be regulating M-PESA, but the Minister asked the Central Bank to study the scheme. Consult Hyperion were at that time engaged by the Central Bank to carry out the very detailed operational risk audit which the Permanent Secretary in the Ministry of Finance, Joseph Kinuya, said had found the service “safe and reliable”. He also said “there is nothing wrong with competition”. Hear hear.

M-Pesa now has over 15 million subscribers and the value its transactions topped Sh828 billion last year, equivalent of half of Kenya’s GDP… There are four other mobile money transfer services in the country, Airtel’s AirtelMoney, Telkom Orange’s OrangeMoney, and Essar Telecom’s YuCash.

 

[From 

Mobile money transactions to be audited by banks regulator | Mobile Money Africa ]

 

Michael Joseph was always admirably clear on the key issue. M-PESA was not a bank, it was a payment system, and should be regulated as such. What’s more, the figures showed very clearly that despite the vast number of transactions flowing through M-PESA, the total amount of money was still inconsequential compared to daly inter-bank settlement. What’s more, starting back in 2007, the commercial banks had begun to offer new services over the M-PESA network, thereby demonstrating that mobile money could deliver financial inclusion. As the banks began to offer more services, and became part of the M-PESA ecosystem as savings accounts and super agents, it seems to me that the whole financial sector was invigorated. Dynamic partnerships (such as the one with Equity Bank that led to M-KESHO savings accounts) delivered products that simply would not exist in a “traditional” bank environment. These included pensions, micro insurance, “layaway” and more. In essence, as Omwansa and Sullivan say, 
a new financial sector emerged.

Another lesson is that I simply do not believe that a bank-led solution would have triggered the innovation revolution that M-PESA clearly did. A key element in its success is that it was born in telco culture, and conceived as an infrastructure for others to build on. Mark Pickens makes a point about “adjacent industries” stimulated by M-PESA and this seems to have led to a high-tech boom in “Swahili Silicon Valley” around iHub in Nairobi. Cashless schools, pay-for-use water, e-health and an incredible range of applications have been made possible by the ready availability of a mass market payment system for the 21st century. As the CEO of Kenya Commercial Bank is quoted as saying in the book, when asked if M-PESA is a threat to banks, “if you don’t respond it’s a threat, but if you embrace it, then it’s an opportunity”. I see this as a template for payment system evolution in the Europe and hopefully the US as well.

Finally, I cannot help but point to the relationship between identity and money. One of the most unexpected impacts of M-PESA was the use of M-PESA transaction histories as substitutes for conventional credit ratings. Remember that many M-PESA agents are merchants, so it is natural for them to extend credit in this way. In other words, M-PESA became a means for previously excluded people to demonstrate identity and reputation. Paul Makin, the head of Consult Hyperion’s Mobile Money practice (and the chap who carried out the original feasibility study on behalf of Vodafone), and I have discussed this many times.

One semi-technical note. I can see a future in which the regulator insists on interoperability between mobile money schemes and regulates the interchange rates, but some players want more than this, and in this they adumbrate skirmishes about to break out in developed markets. In Chapter 7, the authors refer to Safaricom’s control of the SIM and tensions arising from this because the banks want (but haven’t got) access to it. I can remember from the early days of the project that there was considerable debate about how to implement the service for consumers. Consult Hyperion recommended going down the hardware security route (i.e., using the SIM card). This meant writing new “SIM Toolkit” software and re-issuing Safaricom SIMs to customers who wanted to use mobile payments. Safaricom decided to make the investment required to go down this high-security route rather than use SMS or USSD, hoping that it would act as an anti-churn factor in a SIM-based market. This was at the time a brave decision, but one that has been repaid many times over. Good for them. I can’t see how regulators can realistically force operators to open up the SIM for more SIM Toolkit applications. But as in the case of smartphone applications in developed countries, it might be realistic to ask the operators to agree on a standard, SIM-based identity management infrastructure and then provide open, transparent and non-discriminatory access to it. But that’s another story.

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Frosties, which had become the latest star of the NFT world as 2022 began, just as quickly became the year’s most notable scam. It was a rug pull, a trick where creators of a cryptocurrency or an NFT artwork or game abruptly shut down the project, make away with the project funds and disappear. Along with the money went the trust and goodwill essential to getting a project merging new forms of art and finance off the ground.

Rug pulls have become a major form of crypto fraud, making up nearly 40% of crypto scams and costing users about $2.8 billion last year, up from just 1% the previous year, according to Chainalysis.

The Frosties scam led to the theft of at least $1.2 million, moved in a series of rapid transfers of funds from Frosties’ OpenSea wallet to other accounts, leaving a community, which numbered roughly 40,000 at its peak, stunned.

From NFT art scam: How the Frosties rug pull went down – Protocol.

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DeviantArt, a decades-old online community for digital artists that hosts half a billion pieces of digital art, began monitoring the blockchain for copies of their users’ work last fall after NFTs based on stolen work by Qing Han, a beloved artist who died in 2020 after publicly chronicling her struggle with cancer, were found for sale on OpenSea.

DeviantArt has sent 90,000 alerts about possible fraud to thousands of their users since then, company executives said. It’s now scanning for fraud across 4m newly minted NFTs each week. The number of alerts doubled from October to November, and grew by 300% from November to mid-December.

In December, bots began attacking the site, Moti Levy, DeviantArt’s chief operations officer said, scraping whole galleries of artists’ works. The pieces would later appear on NFT marketplaces, often with artists’ names and watermarks still attached.

From ‘Huge mess of theft and fraud:’ artists sound alarm as NFT crime proliferates | Non-fungible tokens (NFTs) | The Guardian.

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How’s your week?

Mine? I just erroneously listed @etherrock #44 for 444 wei instead of 444 eth🤦‍♂️

Bot sniped it in the same block and trying to flip for 234 eth

In one click my entire net worth of ~$1 million dollars, gone

Is there any hope?

Am I GMI?

Can snipers show mercy? pic.twitter.com/yq9Itb2Ukb

— Rock dust 😭 (@dino_dealer)

March 10, 2022

https://platform.twitter.com/widgets.js

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