Whither Disruption? Kenya!

The financial service industry seems immune from major disruption the way that other industries like technology, car services, hotels or media have experienced. Why? Look to regulations, complicated distribution systems and deep-pocket incumbents that block newcomers making it difficult if not impossible to make major changes.

Perhaps the future of money is being discovered in a surprising place. In a fascinating 60 Minutes piece, M-Pesa is changing how people use money leveraging mobile phones without the use of banks. Though very few Kenyans have a bank account, over 80% have a mobile phone. They put money on their phone at a local M-Pesa outlet which leverages existing stores and outlets – users transfer money to taxi drivers or vendors using their phone which requires nothing more than a PIN to unlock the money and a vendor code. It allowed a farmer who could not afford to buy a solar panel for $200 to pay $.35/day from his M-Pesa account. Costly intermediaries like banks have been eliminated providing access to people who otherwise could not afford it.

Banks were furious – they tried to block M-Pesa just as taxi cab companies have tried to block Uber. But demand by users will usually trump lobbying by incumbents spending more money on try to block change than investing in innovation. The “bank” behind M-Pesa makes very little on very small transactions, not appealing to major banks, but they have 19 million users and gross $250 million annually.

Could the momentum behind M-Pesa, Uber and Airbnb trickle over to the US financial service industry? With Charles Schwab as the last major disruptor in our industry, it may seem like wishful thinking. On the other hand, somewhere between people 80 million people saving at work through their DC/401(k) plan and the advent of mobile technology and social media also suggests that change is inevitable though it’s doubtful that robo advisors will be the leaders. Maybe we should look to Kenya for answers.