I get it. Bitcoin ATMs are cool. You can walk up to a machine, insert cash and instantly get cryptocurrency. But Bitcoin ATMs in Nairobi are only a great idea on paper.
For cryptocurrencies to take off – for whatever use cases – people need a way to exchange their regular pesa in and out of the system. There is no way around this. It is the only way to bridge access and grow adoption. Calls for Bitcoin and cryptocurrency ATMs in Kenya and Africa typically stem from this access gap.
Unfortunately, this idea in Kenya and East Africa is dead on arrival.
The evolution of banking in nations, like Hong Kong, the US or the UK, took a vastly different form compared to East Africa’s much talked about mobile banking phenomenon. Any successful models for cryptocurrency adoption in East Africa have to be informed by local contexts. For starters, taking notes from existing digital money systems.
Agent networks – henceforth human ATMs – are the key to unlocking access.
How formal agency in Nairobi works for Mobile digital currency
The agent model was adopted and popularized by Safaricom, a mobile network operator for its mobile money payment system, Mpesa.
The Telcos had gotten into the business of digital payments – electronic money on mobile phones backed by full cash reserves at a bank. Like all payment systems, it only works if people can cash-in and cash-out of the system on demand. So Mpesa had to figure out a structure for cashing in and out of mobile money that was cost effective, efficient and offered the widest possible distribution.
Mobile money agents are effectively mini-forex exchanges, only, instead of foreign currency it’s a private digital currency and instead of a foreign country, it’s a mobile operator’s virtual territory.
Local entrepreneurs were incentivized to set up physical kiosks at convenient locations on the promise of earning commission from fees paid on every cash withdrawal. Mpesa then signed up every kiosk owner to a contract as an official distributor on paying a minimum refundable deposit. This automatically pushed a large part of the cost of distribution to the agents rather than expend their resources to build a distribution network.
Safaricom Mpesa could now focus on popularizing the mobile payments and remittance service to its over 12 million mobile phone subscribers. Agents on the ground completed the circuit of electronic money to cash and cash to electronic money.
Meanwhile, expansion of the agent network grew organically from demand. Entrepreneurs with a better feel for demand for cash-in cash-out services on the ground, could consider becoming agents as a full time or part time business.
How agents are phasing out ATMs
10 years later, human agents are the crux of distribution of digital financial services in Kenya. Even banks abandoned their branch and ATM distribution models, copied the agency model and tailored it to their banking services.
They went as far as lobbying for amendments to the Banking Act in 2009. New clauses were introduced through the Finance Bill of 2009 allowing banks to contract 3rd party agents similar to Telecommunication firms. Additionally, bank agents and non-bank agents faced similar regulatory compliance requirements.
See: Central Bank of Kenya Guideline on Agent Banking (pdf)
According to the Central Bank of Kenya statistics, electronic ATMs have been on a decline in 2017 with total ATMs at a dismal 2,778. In contrast, banking agents are more than ever, at 40,000 while mobile money agents stand at 180,657 across the country. as per statistics (pdf) by the Communications Authority of Kenya.
Equity Bank’s CEO acknowledged the end of ATMs in Kenya’s new financial landscape. Last month, when the largest bank in Kenya by customer base drew curtains on 11 ATM lobbies hosting multiple dispensing machines he said:
“This shift is informed by evolving preferences of its 9.59 million customers who want to do their banking on the go through mobile phones, or access banking within their neighbourhood via agents.”
“ATMs require upfront capital investments to acquire the machines and lease space yet depreciate at 20 per cent annually, agency and mobile banking have no such capital commitments.”
Lets face it, electronic ATMs have lost to human ATMs.
As a native peer-to-peer system, blockchain assets fit right in with how Kenyans are accustomed to accessing digital financial services.
While traditional agents are tethered to physical location and kiosk, cryptocurrency agency is flexible, allowing anyone to become a roaming agent as long as they have a phone and e-float. It is also accommodates traditional kiosk or cyber cafe agents. They can all swap cash, mobile money or bank money for crypto assets either online or offline.
I am glad to say it is already happening! This is how young Kenyans are accessing bitcoin with no formal cryptocurrency gateway.
What excites me most is how cryptocurrency agents in Kenya have pushed the boundaries of the agent model popularized by Mpesa.
If we can have a future where human agents serve as distributors of digital assets like cryptocurrencies both online and offline then I insist there is no point of Bitcoin ATMs in Kenya and the idea is retrogressive