M-Pesa started in Kenya because people were trading their mobile phone minutes; in a world without bank accounts or landlines, these mobile minutes were vital to life and were a form of currency. The roadside stands (a kind of decentralized Wallmart) became the bank where you could convert mobile minutes into Kenyan Fiat. Bankers lobbied the Kenyan government to kill it, but a study found it to be secure. Anecdotally, the Kenyan President wanted to pay his gardener and when he saw how easy it was to do this with M-Pesa he was sold.

Off ramp – solved.

M-Pesa solves the off ramp through all those roadside stands. Western Union should rightly “look at those and tremble”.

M-Pesa and Bitcoin are like mirror images of each other.

• M-Pesa is closed, controlled by Vodafone. Bitcoin is totally open.

• M-Pesa has massive mainstream traction in markets where Vodafone dominates such as Kenya and Romania. Bitcoin has early adopter traction globally.

• Bitcoin requires smartphones and expensive computers, M-Pesa works on the cheapest phone.

There have been attempts to marry the two. An early attempt was to convert M-Pesa to Bitcoin. That was clever, but was not solving a real world problem. Bitpesa is going the other way and this puts them into the huge remittances market. It is a good start but still suffers from all the problems of using Bitcoin for cross border transfers at the on ramp and off ramp.

Disruption happens through outsiders who are not being served by the current financial system. For that reason, M-Pesa is the one to watch. Bankers, fighting over the overbanked in the West, are eying the 70% of the world that is unbanked. One of the simplest trends to ride in the 21^st century is the rise of billions from subsistence farming into the consumer society. Each of those billions spends very little but in aggregate the market is big and when a market reaches the tipping point when a real middle class emerges, it becomes a very big market – witness China and more recently India.

Yet it is hard to imagine M-Pesa, controlled by Vodafone, being anything other than a transitional technology.

M-Pesa solves the problem of delivering money to the most basic phone. However Moore’s Law favors the growth of cheap smartphones and Android is a big enabler for this. The phenomenal growth of Xiaomi indicates the huge market demand for cheap smartphones in the developing world. In the meantime, there are bridging strategies that people in developing countries use for other scarce/expensive assets (basically shared devices).

An open source M-Pesa that is not controlled by Vodafone is an obvious idea. However it is unlikely that would get the massive adoption through roadside stands. That happened organically in places like Kenya where Vodafone dominates because those stands were already selling Vodafone minutes.