Electroneum has a unique approach to mass adoption in the crypto space. They are doing something very different, by combining Fintech Mobile Payments and Cryptocurrency in an easy to use mobile payment solution; and it looks like it is gaining traction as of lately. Recently, Richard Ells the CEO of Electroneum announced that everything was back on track now that KYC/AML and the patent pending Instant Payment System (IPS) are live. Since that announcement, the project saw a huge run-up in value over the course of a few days in late September 2018.
Electroneum has had some setbacks during 2018, primarily due to hitting many regulatory hurdles. These setbacks have put a hindrance on the MOU deals that they had in place. These deals got stopped in their tracks as the lawyers got involved and saw the regulatory risks of doing business with a blockchain. Now that these issues are resolved, this is looking to be the beginning of some fascinating times for Electroneum and Cryptocurrency as a whole.
Electroneum has combined Fintech and cryptocurrency to create an extremely easy to use mobile app that is similar to PayPal / Venmo. If you look at the mobile money payments industry, it is on the rise globally, but so is cryptocurrency adoption. Electroneum is at the right place at the right time as they have combined the two emerging markets to make the perfect mobile payment solution explicitly targeting the unbanked.
Current Mobile Payment Sector Overview
Looking at stats on the growth of the mobile payment sector, the year 2017 saw over 136 million new mobile money accounts created, bringing the total number of global accounts to 690 million, a 25% increase from 2016, with South Asia seeing the highest growth in account creation of any region of 47% in a year; now representing 34% of registered accounts globally. Furthermore, the amount of companies offering a mobile money service is on the rise across the world, with the percentage of fintech providers who provide mobile money through a smartphone app increasing from 56% in 2015 to 73% as of June 2017.
With all of these increases in services, total transaction values grew by 21% from $26 billion in December 2016 to over $31.5 billion in December 2017. On average, an active customer moved $188 per month, primarily cashing in and out and sending person-to-person (P2P) transfers. A full breakdown of how this money is moved can be seen below.
Electroneum is taking advantage of this emerging market of mobile payments by having a laser focus on third world countries; catering to the over 1 billion unbanked people in the world. If you look at the case of M-Pesa, a Fintech company (PayPal like) that is dominant in Africa, you can see that these markets are urging for fintech products to be offered to them: within two years of launching, M-Pesa volume of transfers amounted to 10% of Kenya’s gross domestic product (GDP) — today it accounts for nearly half. Not only this but there are now 100 times as many M-Pesa kiosks in Kenya as there are cash ATMs. These numbers show how these countries are ready to adopt fintech services, more so than others.
Below is a chart that shows similar stats for mobile phone transfers in Rwanda.
When we look at what mobile payments are primarily used for, Merchant payment transactions is one of the most complex use cases in mobile money. This being said they reached $722 million per month in December 2017, up 14% from the previous year.
This is partly due to the number of merchants and enterprises that mobile money providers are expected to continue to rise globally, from 549,000 merchants in September 2016 to over 618,000 in June 2017.
Electroneum is sitting in the forefront of the mobile payment revolution as being one of the 1st companies to combine the emerging fintech industry of mobile payments with instant cryptocurrency transfers catering to the unbanked with a combination of KYC / AML regulations to ensure they are compliant with the complex laws of these regions.
Below is an infographic that shows the Electroneum ecosystem and how it is set up to thrive in a crypto world that is lacking regulation and compliance. The biggest challenge crypto is facing before it can become mainstream is that governments around the world need to regulate it for tax purposes and cryptocurrencies need to be compliant with Anti-Money Laundering and Countering the Financing of Terrorism (AML&CFT) laws across the globe. This is required to mitigate the manipulation and fraud of a few bad actors in the space. In our financial sector, there are organizations such as the SEC and ESMA that help control the manipulation of stocks and securities.
Unfortunately, in the crypto world, this level of regulation does not exist. Businesses and people need to feel safe investing in blockchain. For the world to adopt crypto as a daily used tender, people need to know that these organizations or something equivalent will have their back in the event of fraud and manipulation. This is where Electroneum stepped up to the plate and created the ecosystem described below.
Honestly if you think about it logically, there is only a small percentage of crypto investors who are promoting the anti-bank, anti-government, decentralized system, but if you think about it subjectively, the only way Crypto will ever become mainstream is through regulation and for it to take its place alongside other methods of transacting currency.
It has been ten years, and unfortunately, cryptocurrencies have remained a store of value predominantly. The majority of crypto investors invest in a coin and either sit on it or try to trade it for a profit. Very few people are trying to give it a real-world use case. This needs to change. If we want to see cryptocurrencies used daily, it needs to be a stable and regulated payment method so that governments can open their doors to accepting and using it. When you think of PayPal or Venmo, it is a method of digital payments that allows people to use money effortlessly.
Currency based blockchains need to be simple as well. Sometimes we get too caught up in the technology, and it blinds us from the end goal we are trying to achieve, a simple digital payment method that works globally. Keep in mind; I’m talking about currency-based projects, not distributed application-based projects. D-app projects do require innovative tech, so don’t mistake my train of thought. Most people in the world don’t care about the tech behind the current payment systems, they want to send their money from point A to B, for it to get there instantly in an easy to use and secure way. They want it to be something that anyone can use, regardless if you’re in New York City or if you are in the Nigeria of Africa. Unrestricted secure & straightforward money transfer anywhere in the world via blockchain.
A vast majority of crypto projects live in the red area below. Electroneum has created this hybrid cryptocurrency that merges fintech and cryptocurrencies into a unique system that allows for mass adoption.
The Electroneum wallet model is based on a centralized system that is regulated via KYC and AML/CFT. Now that regulation and compliance is in place, Electroneum’s MOU’s that they have in place can roll out without any roadblocks.
Electroneum’s Instant Payment System
As I previously said, Electroneum recently went live with the patent pending Instant Payment System. This system allows users, who are on the centralized wallets, to send payments to each other instantly. These transactions happen instantly off chain and are then confirmed on the blockchain minutes later. This method can look at the ETN balance of the sending and the receiving parties wallet, then transfer the funds instantly to the receiving party and ring fence or lock the portion transacted from the sender’s balance to protect against double spends. It will keep the money ring-fenced on the sender’s wallet until the transactions are confirmed on the blockchain. When you look at this method in the case of a vendor accepting payment from a customer, it allows an instant transaction and the trust level for the vendor to know the ETN will be delivered to his/her account. This vendor can now release the merchandise purchased by the customer straight away, kind of like a credit card transaction, only faster.
Electroneum and Regulation
Now let’s look at the regulated and compliant ecosystem Electroneum is creating: shown in the green area of the top diagram. Below shows a zoomed-in view of the economy details. This diagram shows how the money moves from Fiat, into the ecosystem and back out to Fiat. It also shows how the money exchanges via mobile payments from user to user within the ecosystem.
Electroneum’s Gig Economy
The Gig Economy is going to be a key to the success of Electroneum. I don’t think there has been enough focus put on this area, which I believe is one of the vital components to kick-start the master plan. I have been studying what potential impact this can have on the unbanked and the probability it has to be successful. This amount is far too small of a number to be sent to an exchange to trade for FIAT successfully.
Just look at the stats above on how successful fintech companies have been in these emerging markets. Electroneum will launch a website in Q1 of 2019 a marketplace called GIG.guru; a platform that is very similar to Fiverr. This is a website where users of the western world, or anywhere in the world, can post digital projects or gigs and allow the users from these 3rd world economies to complete jobs for payment in ETN. This will enable the flow of ETN into this economy in addition to the mobile cloud mining payments. The average amount of ETN earned by the mobile miners as per Electroneum is up to $3 a month. This amount is far too small of a number to be sent to an exchange to trade for FIAT, without taking a substantial hit in fees. However, it is a considerable amount for someone who lives in the target market.
Providing an incentive to accumulate a significant amount of cryptocurrency with respect to wage levels and the ability to use it for remittance or mobile payments will provide Electroneum a massive advantage over the standard Fintech companies already in the space. It’s the start of Mobile Payments 2.0.
Electroneum’s Economic Retention
The economics of this system as Electroneum establishes itself as a Fintech provider in the region shows how Electroneum is creating a fully sustainable ecosystem.
I will explain this by using an example based on having 100k users in a region, not a far stretch as Electroneum has about that many users today mobile mining.
A large percentage of ETN earned by users will stay and circulate in the economy as it will be better served to be exchanged for a service or a product sold in ETN versus converting it to FIAT.
Let’s also calculate that 10%-15% of the mobile miner users will engage in the gig economy when they realize the profit potential. From that 10–15% of gig users, let’s estimate that they will receive on average $10–20 a month for doing gigs via this website.
Again, these amounts are too small for an exchange, so they will want to spend the ETN on a vendor that accepts it in the ecosystem to maximize the effectiveness of their balance. As more and more ETN enters the economy, the total amount of ETN circulating in the system will compound monthly. As this number increases, entrepreneurs who will see this ecosystem thriving will try to get involved and get a piece of the action. These entrepreneurs I call agents in my diagram. They can be companies doing gigs, companies buying minutes in bulk from the mobile carriers and then selling prepaid cards of airtime minutes for ETN, general vendors in the neighbourhood who accept ETN via IPS whom all want a piece of the action.
I invite you to do some calculations on what this economy will look like if we had 100k users mobile mining, and 10% of them doing gigs. Calculate a percentage that leaves the ecosystem back into FIAT, and the new money coming in every month. Then fast forward a year and tell me what you see. And while you are doing all of this, let’s also bring the user count up to 200k, 500k, one million and 10 million from 100k. What do you see now? Let that sink in for a second. Remember $3 in Africa, Asia and South America is a lot of money, the target markets for ETN. The larger this ecosystem grows, the more successful it will be, and as it grows, it will grow exponentially.
Not only will Electroneum be helping the economy in Africa and allowing the people of developing nations to increase their income, but they are also letting anyone who has an online store to attract a whole new audience by their API for the IPS.
The API for the Instant Payment System is straightforward to integrate into any application and requires zero knowledge in blockchain development. The API handles everything, and it works at the speed of Instant. It is just as easy to implement ETN into an existing application, as it is to integrate platforms such as PayPal or Stripe into an application. Electroneum is working with several community developers to create IPS integrations for the most popular shopping cart systems including WooCommerce & Magento; used by 35% of the top 1 million sites. These two plugins are already completed in beta form and can be found on GitHub. They are also working to create ETN payment gateways for OpenCart, Omnipay, Drupal, Jigoshop, easydigitaldownloads & more. In the next few weeks when these plugins are released, it will be as easy as installing an ETN payment Plugin into your existing site, entering in your Vendor API keys and you will be live and ready to accept ETN as a payment option.
This will create a massive marketplace that utilizes ETN as a form of Crypto payment.
The API also allows mobile carriers and any corporate partners to integrate ETN into their existing payment platforms easily. Electroneum recently announced that many of their current partners are well underway on integrating Electroneum via the instant payment API and these integrations will be live by Q4 2018.
Electroneum is already KYC/AML compliant, has a released product and a well thought out game plan ready to be marketed and adopted.
So in summary, this is obviously a project to keep an eye on as it starts to make a splash in the crypto world: it is one of the very few projects that is creating a solid path to mass adoption.
Let me know your thoughts.
If you are interested in the reports I was researching; Below I have a few additional stats and charts that I found interesting in my research. They show how profitable Fintech mobile payment providers in emerging markets can be and the interesting stats on the unbanked.
When interviewing the unbanked around the world, the below chart shows the reason they gave why they chose not to have a bank account. This provides some insight into why mobile payments are so prevalent in these regions and what potential cryptocurrency to help enable the unbanked in these regions.
Having established a vast user base, when Electroneum focuses on profit for Electroneum LTD in the future, the stats below show how profitable a mobile payment provider can be.
• While models differ, there are typically five main roles across the value chain: deposit holder, e-money issuer, payments service provider, agent network manager, and telecommunications channel provider.
• The Average Revenue per User (ARPU) for providers is $1.50 per month per user.
• With agents still serving as the backbone of mobile money, the cost structure of providers continues to be driven by operational expenditures (OPEX) like agent commissions, marketing and personnel. In 2016, mobile money providers reported that, on average, 68% of their costs were OPEX.
• The combined values of cash-in and cash-out transactions increased from USD 4.2 billion in December 2012 to over 17.2 billion per month in December 2017, supported by an agent distribution network that expanded from 538,000 active agents in December 2012 to nearly 2.9 million in December 2017.
- Digital finance has the potential to reach over 1.6 billion new retail customers in emerging economies and to increase the volume of loans extended to individuals and businesses by $2.1 trillion. This is on average $1312.50 per user in loans.
• Transactions are currently the second-largest contributor to mobile money revenue but hold significantly greater promise. Today, transactions represent roughly 20 percent of total revenues. Appealingly, margins on transactions can exceed 75 percent thanks to fees that are large compared to the low costs to the provider, due to automated systems and digital user interfaces. As a result, providers stand to improve profitability meaningfully by increasing the number of digital transactions for every time cash is put into the system.
• As the network of mobile payments grows, new types of financial services are emerging. Companies are developing innovative products and services by using risk datasets engendered by digital payments.
- For people in developed markets, mobile money is a convenience, one of the many digital advances that have made our lives easier. For billions of people, and millions of small businesses, in emerging markets, mobile money is much more than a “use case.” It is — or can be — a lifeline, bringing the benefits of financial services to those who currently lack access, and thus enabling them to take initial steps toward healthier financial lives.
- The role of merchant payments and SMEs in digitizing the ecosystem Merchant payment transactions, one of the most complex use cases in mobile money, reached $722 million per month in December 2017, up 14% year-on-year. The spread of merchant payment solutions represents an opportunity for providers, small and medium-sized enterprises (SMEs), banks and customers alike because it is a daily use case. Forty-nine per cent of mobile money providers participating in the global adoption survey cited enterprise solutions as one of their top three strategic priorities for 2018, and merchant payments were rated the highest product priority for 2018 by 60% of respondents.