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When the internet first came round in the mid-nineties, people didn’t expect to see impactful tools like open-source libraries like Wikipedia or renting sites like AirBnb or car-sharing ones such as Uber and Lyft. As an open tool, the internet has laid the foundation for these products to be born, reaching audiences far and wide with powerful applications that impact most of our daily lives, whether we like it or not. But a lot of important industries have been left behind in the process. This, however, might be starting to change.
Vumi is an open-source messaging app that doesn’t rely on data. Instead it relies on SMS technology, using airtime. Currently being used by NGOs UNICEF, USAID, and the Gates Foundation, the technology helps organisations have wider reach with audiences in Africa.
The messaging application is the product of South Africa’s non-profit Praekelt Foundation. The technology company is currently working on a new feature which would help girls with an easy way to save money. This is important because most adolescent girls — like the majority of African adults — don’t have access to basic financial services like saving accounts. In fact, only 37% of women have bank accounts in the developing world. Research from Women’s World Banking has shown that poor women are inherent savers, putting away 10% to 15% of their earnings for emergencies. This means that they can have an enormous impact on their families and communities.
Using a Bitcoin-inspired, open-protocol for financial services called Stellar, Praekelt’s developers are now building financial services into the messaging app, enabling girls to store mobile airtime credit as a means to save.
“Payments have not kept up with the internet,” argues Jed McCaleb, the creator of Stellar. “Money works fine in the developed world,” he continues. “The people who actually get screwed are the people who pay 10% remittances or those who can’t get a bank account. They are the ones that will benefit most from Stellar.”
According to The World Bank, 2.5 billion people who make up about half of the world’s adult population are so called unbanked or financially excluded.
Backed by US$3-million from online payments conglomerate Stripe, Stellar is the product of the Stellar Development Foundation which was launched in July 2014.
The non-profit also boasts an impressive group of advisors on board, like the founder of WordPress, Matt Mullenweg, Sam Altman of Y Combinator, Joi Ito who’s the director of MIT Media Lab, Greg Stein from Apache Software and many more.
The San Francisco-based organisation is on a mission to create an accessible payments infrastructure to help include an educate more people about our financial world.
The Bitcoin effect
The inspiration behind Stellar comes from the popular digital currency, Bitcoin. The controversial piece of technology that’s biggest impact so far has probably been helping people understand the importance of open, distributed protocols in transferring and storing money. At the very least it’s opened up dialogue in this area.
McCaleb explains that whereas Bitcoin is essentially a way to move value from one person to another, Stellar links all these different financial institutions to each other, including Bitcoin. It’s an intermediary between conventional currencies and assets, which can help speed up transfers between them, whether that be Stripe, PayPal or M-Pesa. “All these things can now talk to each other. Stellar provides a common language for all of them,” McCaleb — who’s also the founder of Mt. Gox, which was once the world’s largest Bitcoin exchange — explains.
When a reported US$460-million were lost, Mt. Gox — under the leadership of CEO Mark Karpelles — was forced to close its doors. McCaleb started working on a project called Ripple Labs. He eventually left the company and focused on Stellar instead. Joyce Kim, who’s the foundation’s executive director notes that the code behind Ripple wasn’t working as they’d hoped and that it “isn’t scalable enough” for what Stellar is trying to achieve.
“The purpose of Stellar is to do two things,” McCaleb adds. “One is to create an open protocol that acts as an IP layer for payments — the internet for money basically. The other side of things is actually distributing these coins to the world in a way that is as fair as possible.”
As part of the initiative’s adoption strategy, 1.6 million stellar coins have so far been distributed. Kim stresses that, since Stellars are only one of many kinds of value and currencies that can run on the protocol, their specific value is not particularly important to the overall system.
She also tells Memeburn that education is a critical part of stellar’s plan going forward. It for instance recently released a 38-page white paper of the technology which was accompanied by a graphic novel:
We believe that all these concepts should be accessible to as many people as possible because for financial services to really help the world it needs a lot of voices in it that are making these concepts non-threatening to these people, so that non-programmers can build products and have discussions on it as well.
“What we’re trying to build is free access to economic activity which is arguable more powerful than information,” says Kim. She terms Stellar the “Google Translate for all our economic lives”.
Kim says that Southeast Asia is seeing the most Stellar activity. In Indonesia, she explains, a couple of very entrepreneurial agents selling airtime started accepting Stellars so that people can now remotely top up. In the past — when you didn’t have a bank account — they had to walk to an agent and physically go pay.
The interesting thing in Indonesia is that the cost of topping up online is 30% less than the cost of topping up in person, so these agents are making it cheaper for people to buy airtime who otherwise would have had to walk somewhere because they didn’t have access to basic financial services.
While Stellar doesn’t have quite as many use cases as Bitcoin, it’s still early days. Kim notes that the potential is huge and that that is where things get really interesting — when the best is yet to come.
Where the internet enables innovations around information, bitcoin does so around value or digital property. Stellar, on the other hand, helps build economic inoperability. Could Stellar become a tool to help bridge the gaps in our global economy? Only experimentation and time will tell.
Image by Institute for Money, Technology and Financial Inclusion via Flickr