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Thanks to initiatives like M-Pesa and Lenddo, emerging economies will be…
Thanks to initiatives like M-Pesa and Lenddo, emerging economies will be able to fully develop economically without a formal banking system
Pros
Lenddo
Traditional banking system is old fashioned: people considered 'unbankable' can be supported by lenddo
Capital Access to ones, which couldn't
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use data from smartphones every middle class person in EM has : by 2020 everyone expected to have one. Much heavier use of social media
use people's connections and interactions to analyze and involve digital instead of "physical" community
social, mobile, analytics and cloud (SMAC) --> algorithms (predict what happnens in the future) --> big data!
borrowers who approach a financial institution need to be assessed: upon their consent, social footprint is analyzed by lenddo. Lenddo's clients, being the financial institutions can then do business with these people. --> verify identity and assess risk for clients
algorithms translate nontraditional data, like social media activity, browsing behavior, geolocation and other smartphone data [13] into insights around the consumer’s behavior, network, and strength of their relationships—information that can be highly predictive of people’s willingness and ability to repay a loan.
MPESA
Quick process of transferring funds - where otherwise transfer fees are high, little security is granted when physically transporting money and additionally high costs
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All functions that banks have M-Pesa has too: M-pesa moves away from pure money transfer platform to financial services in general.
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Safe money (without interest payments - users were not more likely to save even with interests paid ) e.g. while travelling.
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Storage function, cash deposited not to yield returns but to protect from being spent
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Lack of ATMS as opposed to M-Pesa stands: banks can thus not serve as quick emergency transfer providers. or enable people in remote areas to step out of poverty as they lack finance.
quickest, cheapest, most reliable (as opposed to friends, post offices and money transfer companies)
World wide expansion to Tanzania, Afghanistan, South Africa , Romania, India, Mozambique, Lesotho, Egypt
Transaction velocity of e money could be higher than the transactions velocity of cash.: thus a small amount of M-Pesa, by circulating more frequently, would provide the same transaction services as a much larger quantity of cash. . However, the transactions velocity of M-Pesa does not stand out as being much higher than cash.
gains credibility by seeking advice from established financial institutions: how to best protect customer information, how to adhere to international best practices
By enabling users to transfer money to each other and make payments directly to businesses and service providers, mobile money platforms cut down on corruption by reducing the need to operate in a cash-only economy.
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Contra
MPESA
No interest on savings (Although implicitely through lower transaction costs, especially when considering withdrawal thresholds).
Transaction maximum 35000 ksh roughly 300 euros. Will not replace the services of banks for larger entities or corporations
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doesnt equate financial inclusion: need of variety of differnet savings. M-Pesa is only about access. M-Pesa is about how inclusion can be delivered, but doesnt provide the foundation of money/loans (that is what people or banks do).
just a complemetary tool and no substitute to the formal banking system. Use of M-Pesa led to 58 percent increase of bank use, but unclear if due to people holding more money or due to M-Pesa using commercial banks.
Lenddo
algorithms could create faulty data, faulty conclusions
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Stigmatization: people clustering around people with undesirable lending profiles may be misjudged although they may have a well fitting profile.
Both
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both use banks as a base for their operations, which emphasizes the importance of banks
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