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Bitcoin Is The Natural Heir To The SIM Card

© by MIKI Yoshihito via Flickr

“Whoever controls the SIM card controls the [payment] ecosystem,” this is a quote by John Stanley from Money Real Quick; The Story of M-Pesa. The book explores and explains world’s most successful mobile money service.

When he was quoted, John was the head of mobile money at Equity bank, the largest commercial bank in Kenya by number of customers. He oversaw the integration of banking products into the mobile money ecosystem.

His reasoning was informed by the fact that M-Pesa is embedded on a GSM carrier’s SIM card.

The SIM (Subscriber Identity Module) card, an interface between a mobile device and the GSM carrier network, is a piece of innovation that in the last two decades has revolutionized how people interact. It has made on-the-go communication, part and parcel of everyday life.

In 2005, this minute smart card started providing a brand new service. It became a primary tool for payment services. This is after Safaricom, a subsidiary of Vodacom in Kenya, designed a way that users can send and receive value tokens that are exchangeable for cash through an applet on the SIM.

Of course, sending and receiving money is possible through other mobile applications which use Near Field Communications (NFC). However, what makes the SIM card payment service special is the fact that it does not discriminate against simple feature phones.

SIM card does not discriminate

Simple feature phones, due to their lower cost of acquisition as compared to smartphones, happen to be the most used in the developing world.

M-Pesa has become a fixture in the lives of Kenyans. Nearly every adult in the country uses it in one way or another. In less than ten years, banking services have reached almost everyone in the country.

In order not to be overtaken by the SIM card, commercial banks in Kenya are taking steps to have a piece of it. Equity bank is the best example in this regard.

Its first attempt was through a partnership with M-Pesa, which did not last after the two realized that they were competing for more or less the same customers.

In 2014, the commercial bank did the unexpected. It formed its own mobile virtual network operator (MVNO), which operates under the brand name Equitel. Through this subsidiary, Equity can now offer mobile money, alongside telephone and data services, through the SIM card.

Equity Bank chief executive James Mwangi – “The convergence between telecommunications and banking will transform the country.”

Commercial banks want a piece of the SIM card

Other local commercial banks are taking similar steps. While they have not yet launched their own mobile service networks, they are signing partnerships with existing mobile service providers such as M-Pesa to enable them to reach the bottom of the pyramid as well.

However, with the growing adoption of Bitcoin, which is decentralized and global, the best days for the SIM card as a primary tool of payment might not last for long.

The cost of buying smart phones is going down at a fast rate. In 2007, the cheapest smart phone could not cost below US$300. Now, $100 dollars can buy one.  Soon, even the poorest in Africa will afford one.

In addition, internet penetration is growing in these countries. India and Nigeria experienced 14% and 16% internet growth respectively in 2014. In the same period, USA and Germany had 7% and 2% more internet users. This is happening while the cost of internet adoption and connection is going down.

On the other hand, the SIM card mobile money service has major weaknesses. One, it is centralized, which makes it vulnerable to compromises by third parties. This centralization also encourages gate keeping in innovation.

Business Insider – “Within Kenya, M-Pesa has become so ingrained that competitors have struggled to make inroads, meaning innovation has stalled out.”

Also, mobile money services are expensive. While one will send a dollar in Bitcoin free, it costs over 30% of that dollar while using mobile money services like M-Pesa.

All these factors make Bitcoin the inevitable heir of the SIM card mobile money service. The changeover might not happen in the next few years, but it will definitely happen.