Why looking beyond Silicon Valley to emerging markets can give us a glimpse of the future, and why I’m travelling to Nairobi to get a peek
Kenya is completely owning the US on mobile payment adoption. In the US, imagine if Verizon owned peer-to-peer mobile payments app Venmo, the app ran primarily on features phone, over 25% of GDP was transacted over the app with businesses signed on, and Verizon in turn became one of the country’s largest banks. This is the situation in Kenya today where through a combination of lax regulation and a large unmet market need, Safaricom/Vodafone’s M-Pesa has become a dominant mobile payment player across the country. People use M-Pesa for groceries, restaurant bills, utility bills, and even capital investments in their house through pay-as-you-go software/hardware built atop M-Pesa.
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As Vodafone expands the service to more countries, such as India, developed countries remain on the sidelines. In 2013, North American mobile payments totaled $37 billion, a blip compared to GDP. Even if YoY growth remained >50%, the growth over the previous year, it would take years to reach the 25% of GDP mark.
Being on the cutting edge of payments in the previous generation—credit cards—has given Americans few of the incentives to remain at the forefront by adopting the next generation technology. Consumers are happy enough with the current solution with minimal incentive (or options) to switch to, banks are happy enough not being disrupted, and while fees can at times be high, vendors are happy enough for now and don’t see the benefit to jump because of low consumer adoption of alternate technologies. It’s the innovator’s dilemma of sorts playing out at a society level.
While developed markets certainly don’t always become tech laggards, this crutch of the cutting edge is not unique to payments. Fax machines for example remain a mainstay of Japanese society even today, selling 1.7 million new devices in 2012. Virtually all business and nearly half of homes having a device. So entrenched are fax machines that one lunch takeout business tried to turn to online ordering but had to backtrack due to dramatically lower sales.
“The fax was such a success here that it has proven hard to replace,” said Kenichi Shibata, a manager at NTT Communications, which led development of the technology in the 1970s. “It has grown unusually deep roots into Japanese society.”
It’s common to look towards the most advanced markets to see what the next technology will be and what the future will look like. Seeing virtual reality to drones to internet-connected electric cars to the latest biotech drugs all in Silicon Valley certainly give companies there strong authority to say they’re building the future, one I’m very excited for. But stories of M-Pesa to fax machines show that sometimes an image of what else the future may hold requires stepping outside the assumptions taken for granted in tech-forward places. What else can we learn from Kenya and emerging markets?
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In light of this question, I’m traveling to Nairobi for the next few weeks to explore the tech scene there and customer needs, especially around tech-enabled economic development. I’ll be documenting and writing about what I see, in part due to the strong interest I’ve heard from friends in tech and VC about opportunities in emerging markets. Please email me at punitshah@post.harvard.edu or comment if you have questions you’d like me to explore.
[Image via Afritorial]
