Cash Is King, Even When It Phones In

This is the first installment of our series, Bringing the Bank to the Unbanked While Making Bank. The series explores how some private sector enterprises in Kenya have embedded a theme of financial inclusion within their unique business models. The series highlights two divergent companies (ShopSoko and Kopo Kopo Inc.) generating profits while creatively extending financial services to individuals and even merchants who might otherwise not have access.

In January 2014 I met with several entrepreneurs based in Nairobi, Kenya. I was eager to hear from the individuals behind innovative business models effectively contributing to financial inclusion and garnering enough traction to warrant cross-border expansion. Ella Peinovich, founder of ShopSoko, and Ben Lyon, founder of Kopo Kopo Inc., were two such entrepreneurs whose unique insight struck me as compellingly complimentary.

Some background information on the two distinct companies:

ShopSoko is on a mission to empower craftswomen in emerging economies and to bridge digital, economic, and geographic divides. Soko provides a platform for small scale producers and entrepreneurs at the bottom of the pyramid (BoP) to connect to the online global marketplace through a proprietary mobile technology linked to an e-commerce platform. Soko’s innovative model enables artisans to independently create sustainable micro-enterprises.

Kopo Kopo Inc. acts as a merchant aggregator for mobile money providers. The company is similar to Square in the United States which acts as a merchant aggregator for Chase Paymentech. Kopo Kopo serves over 12,000 businesses in Kenya alone, many of which are small, semi-formal, and encountering a digital record for the first time via Kopo Kopo.

The fashion-meets-tech soon-to-be empire ShopSoko and one of the world’s first mobile money merchant services platforms, Kopo Kopo Inc, are the ideal businesses to appose throughout our “Bringing Bank to the Unbanked While Making Bank” series for a few key reasons. (And no, their propensity for the fun, sing-songy four-letter word is not one of them.) Firstly, they’re different, and not just from each other. Each business model is a departure from the status quo. They are representative of a push toward business as unusual. They are each nimble, digital disruptors as they displace intermediaries, inaugurating streamlined, cashless purchase processes.

Conversely put, they’re both bridges, newfangled middle-men replacers whose work is largely enabled by mobile money powerhouse, M-Pesa. And finally, in interviewing each entrepreneur, a commonality struck me as one of the essential reasons for their success: Both were well-attuned to the needs and mentalities of the people they serve. Rather than creating business models and products from the top down, arguably a reason why formal banking does not effectively reach much of the population these businesses do, both, ShopSoko and Kopo Kopo Inc, are uniquely attuned to their customers; a perspective and agility that is reaping rewards. Particularly, both businesses understand a prevailing sentiment in contexts where individuals were just becoming acquainted with formal financial services: Cash is king.

“A prime revelation in our sourcing activities is the imperativeness that you make any innovation or business decision immediately monetizable. An immediate monetary value is essential in encouraging the BoP to get on board. Our artisans are extremely entrepreneurial. Prove to them [that] there will be a payoff if you get this mobile money platform and they immediately do. It’s that exchange point, a rapid investment… That same immediacy is actually illustrated in the instant payment system we have in place.”

What Ella Peinovich describes is a cash is king mentality even as mobile money is the medium. The allure of cash flow is its flexibility and “spendability.” Just as more businesses fail for lack of cash flow than lack of profit, more micro-entrepreneurs are limited by a lack of immediately accessible cash flow rather than lack of opportunity. Further investment comes before expansion. Assets and ownership is the after to the investment before. When micro-entrepreneurs lack a formal financial footprint and are without a savings account to operate as a safety net or launching pad, short-term income can be expectedly urgent. Ms. Peinovich illustrates ShopSoko’s understanding of this:

“We have to be in a position to guarantee immediate income for the artisans to pay off the investments we recommend and eventually make investments independent of our requirements and suggestions. In achieving this we think incrementally.”

Much like Ella Peinovich, Ben Lyon elaborated upon the time-sensitivity of cash payments, and the opportunity that formal credit presents, in the context of Kopo Kopo operations:

“Based on customer feedback, we believe our customers are most interested in 1) getting paid, 2) accessing their cash quickly, and 3) accessing capital to help their businesses grow. We’ve been very successful in accomplishing #1 and #2 and are now working on ways to facilitate #3. Specifically, we’re now looking at ways to help our customers access formal financial facilities so they can invest in their businesses and weather economic shocks.”

The cash is king mentality and the mobile money medium prove compatible in the Kenyan market in particular because mobile money in Kenya boasts a flexibility and “spendability” that mirrors cash. But why is the mobile money landscape (which aids and abets efforts toward financial inclusion) so fertile in Kenya in particular? And what other asset-building opportunities are created once a formal financial footprint is formed? The next post in our “Bringing the Bank to the Unbanked, While Making Bank” blog series will explore the implications of these questions.