FinTech and Business Models in Emerging Economies

To initiate a series of Research Seminars to be held at Surrey CoDE (Centre for the Digital Economy), Chris Locke gave a talk on “Platform Economics & Business Models for Fintech”, at the Surrey Business School.

Chris is the founder and CEO of Caribou Digital, a market research firm focusing on emerging markets such as Sub-Saharan Africa and South East Asia. Specialising in qualitative and quantitative research, their aim is to understand how people use digital technologies in these economies.

Chris’s experience includes working in the GSM sector, and with business consultants; an experience he described as “feeling something missing”, which was the lack of real deep understanding of what it’s like to run a business in an emerging market, and the fact that you can’t take a Silicon Valley model and apply it to an emerging market. This gap is what he and his team at Caribou Digital are interested in exploring.

Caribou Digital’s research has brought up many interesting insights in the emerging markets of Africa. Their qualitative research with the youths of Uganda allowed them to learn the frequency of apps and services usage by young individuals. Due to the cost associated with internet in these economies, it was interesting to see what tasks people were crushing into the moments when they were connected to this internet. To describe this phenomenon, Chris referred to the term “Metered Mindset”, coined by Johnathan Donner in his book “After Access: Inclusion, Development, and a More Mobile Internet”. In low-income environments, access to information is expensive, access to electricity is expensive and getting online is expensive; which really changes their online behaviour.

But qualitative research is not enough; they wanted to dig deeper with quantitative research. Caribou Digital developed an app called Measure, for both smartphones and feature-phones, in Kenya and Nigeria that collects usage data of a couple thousand participants (with utmost importance given to their privacy and no personal-identifiable data being collected). Their data collection allows them to see everything that’s being used on a participant’s phone. One very interesting finding Chris shared was regarding M-Pesa, a popular mobile payments company in Africa, used by 77% of the population in Kenya. Chris’s team was able to find out what people were using 30 seconds before and after an M-Pesa transaction; the answer in both cases was a majority use of WhatsApp. Insights such as these can bring to light business problems that would not be brought to light otherwise. In M-Pesa’s case, what would happen if WhatsApp added a mobile payments feature? Users would not need to leave the app they are already using to send a mobile transaction.

Caribou Digital’s research also expands into platforms. They recently did a report on the app economy, to understand where most of the money was. Particularly in the emerging economies, there’s a voice that believes one can earn a living by becoming an app-entrepreneur, by developing and publishing apps for smartphones on platforms such as Google Play and the Apple App Store. Chris’s team was able to do a deep analysis on what the revenue flow was on the Google Play Store.

The outcome demonstrates that if you are not in one of the major economies of the US, UK, China, or Finland; you can’t make much impact being an app developer. This also poses interesting questions on how you can go into a country with no real IT industry and get them straight into apps. The question remains unanswered because these apps platforms aren’t really as free and open everywhere in the world. This is why the market is dominated by a few players. There are only about 6 countries of the world where you can’t pay for an app, but there are only 60 countries where you can have a merchant account to sell apps, and get paid for it. In Africa, there are only 2 countries on the list: Egypt and South Africa. Hence, developers in any Sub-Saharan African country, or most of South East Asia, just can’t make money from apps unless they have access to a bank account in an accepted country.

If they can’t sell their apps, perhaps they could sell advertising on their free apps? To answer this, Chris’s team look at Facebook advertising, which owns a huge market chunk when it comes to digital advertising. A company based in the US, most of their revenue also comes from the US. It is so large, that if the US market catches a cold, Facebook’s business would come under a lot of pressure and may no longer be sustainable without subsidies. Facebook and other digital advertising platforms have only converted analog advertising into digital, making use of user data to enhance their value.

This tells an interesting story about the value of individuals’ data. The value of a data isn’t just in selling and advertising, but also in other areas. In terms of use in Research, Chris’s team is looking at ways of a revenue sharing model, where instead of paying their participants a fixed rate, they could pay their participants based on how much value they can create out of their data. Currently, it remains a hypothesis as no one really knows the real value of an individual’s data.

On the point of this, Alan Brown, head of the University of Surrey Centre for the Digital Economy, raised an interesting conceptual question. Can particular services, like higher education, be made free for students in return of their data throughout the years they spend at the institute? Can enough value be generated out the experiments run on that data for research or business collaborations? Such questions still remain unanswered because the specific value of data is still uncertain; and whether the value is in an individual’s data or aggregated data.

Overall, Chris’s talk was a very interesting look into the methodology and findings of an organisation that has practical ongoing experience with research in the emerging economies. He thinks the Chinese market has a better understanding of emerging economies rather than the Silicon Valley based businesses; especially looking at the success of WeChat. The goal of Chris and his team at Caribou Digital is to build an APP Economy; an Agency, Privacy and Portability Economy.