The lack of an official or formal bitcoin payment gateway has done little to dampen the adoption rate of cryptocurrencies in Kenya. Quite the opposite in fact. People have adapted to this service gap by forming peer-to-peer networks where anyone can buy or sell cryptocurrency. These informal networks, resemble the airtime currency informal networks of pre-2006, that powered remittance payment networks before Mpesa became a thing.
Let me explain.
Back then, banking and payment infrastructure were nowhere near what we enjoy today. Mobile phones had proved handy and taken off. Safaricom, a subsidiary of UK’s Vodafone, lay claim to 5 million subscribers on its cellular network, a decent chunk of market share. Their core business was and still is selling prepaid airtime units to subscribers through a well-established network of airtime resellers.
How East Africa’s kiosks power airtime currency exchanges
Airtime is like timeshares, an allocation of access to a cellular network. The way to buy into it is to exchange cash for airtime vouchers. Almost all shops and kiosks are airtime vendors. An airtime voucher bears a private key that subscribers scratch to reveal. Once this code is entered on a phone connected to Safaricom’s network, the mobile phone balance goes up to reflect the top up.
Once topped up, airtime is shareable within the network at no cost from one subscriber to another. There is only one catch.
Safaricom’s terms and conditions state airtime currency is not redeemable for cash. You can only formally buy into this airtime currency, but you cannot cash out. So airtime currency is only good for sharing or redeeming for virtual goods and services – data bundles, call time, SMS, promotions – within the network.
Airtime is pretty much virtual money for use on a virtual network. Subscribers exchange their regular money for virtual money to spend on the mobile operator’s network.
But something more interesting was going on in 2006.
Turning Airtime currency into an informal peer to peer payment network
The UK’s Department for International Development had observed Africa’s mobile subscribers sending prepaid airtime to each other as some form of quasi-currency.
Kenyans, being the masterminds that they are, had cobbled up a remittance network from the airtime sharing feature available on Safaricom. They were using airtime currency as a means to send value (and in essence money) across the country. Even though the existing formal structure only supported ‘cash-in’ functions, through airtime vendors, informal peer-to-peer networks emerged to plug the gap for a ‘cash-out’ function.
In my experience researching the informal sector, any observed innovative service is telling of an existing gap. A pressing need pushes participants to make it work by innovating around the problem. The poor infrastructure in Kenya is one that the informal sector is fond of working around to make biashara work.
This peer-to-peer network of cash out agents filled the need for a prepaid airtime-to-cash function. The informal network completed the loop from cash to airtime and back to cash and turned the cellular airtime network into a countrywide cellular payments system.
This emerging pattern was not peculiar to Kenya alone. An IFC report from 2012, documented similar observations in Sudan, a country to the north of Kenya. The report read in part:
Electronic payment infrastructure is near non-existent, with only proprietary ATMs and debit cards available through a few banks. Most cited short-term opportunities are in domestic and international remittances; three largest mobile operators by market share – Vivacell, MTN & Zain – all expressed strong evidence of demand based on use of airtime transfers as a surrogate currency.
I believe the current informal network of peer-to-peer cryptocurrency exchange agents are fulfilling a service and demand gap. And should not be taken for granted.
Unlike 2006, social media is now a catalyst for trade networks spanning Kenya, Uganda, and Tanzania. Whatsapp and telegram are boosting the reach of trade networks and making digital assets and an online payment mechanism accessible on demand at the last mile.
These observations resemble the airtime trading networks of pre-2006. What we are witnessing, is the basis for a future digital currency product and/or service design.
Could these traders perhaps become agents or exchange points in a future where digital currencies and crypto assets are commonplace? Perhaps akin to the offline cash in cash out network employed by mobile money, Fintech startups and banks in Kenya and East Africa?
I say yes.
A modified version of this article first appeared on Bitcoin Lawyer submitted by Michael Kimani.