Stick in the mud

Category: Payments

  • Libra Cryptocurrency – Understanding by Implementing a Wallet

    Libra Cryptocurrency – Understanding by Implementing a Wallet

    Libra has caused quite a stir since it was announced, about a month ago. This cryptocurrency led by Facebook (formally by the Libra Association, but it is Facebook’s presence which generates all the attention) is scheduled to be launched early next year and has already had its fair share of controversies. The possibility of Facebook providing a currency, through its proposed Calibra wallet, which its billions of users can use to pay for everything, across the world, has struck fear in most traditional financial strongholds, including regulators. A lot of the reaction is knee jerk – reacting to Facebook’s involvement, the current privacy concerns, unflattering equivalences to bitcoin, pricing volatility assumptions and, at its root, the fear of changing the status-quo. However, it is worth looking at the technology itself, separate from who is backing it or assumed comparisons to bitcoin, to get a more rounded perspective. We, at Nearex, built a wallet, abracalibra.online, over Libra to explore it better and understand it as a technology platform, divorced from its hype. This post is a summary from those learnings. The whitepaper and technical papers from Libra provide a lot more detail – treat this post as an easy-read version.

    Before we go too far, I want to set at rest questions about Nearex‘s connection to Libra. Nearex has been pioneering payment systems in the emerging markets for the last 6 years. Every opportunity, technology or development that can move the needle in our quest is of interest to us and one we want to study and see how it can help. This experiment is towards those ends and, given the conceptual stage of Libra, will likely remain just that for the moment. 

    Jumping into the technical details, Libra has set up a Testnet – a platform to explore the Libra protocol and prototype. The code is open sourced (written in Rust) and they have provided a convenient command line program to connect to the Testnet and use it, as an end user. It still needs to be built from source to use and hence there is a need to have a more convenient alternative for the lay person to interact with Libra. This is the reason we created abracalibra.online to let anyone create a wallet, connect to the Testnet and transact. Feel free to go there (https://abracalibra.online) and check it out. There is a convenient HowTo there to help you use it.

    Libra is distinguished from the other cryptocurrencies, like Bitcoin, in that it is built on a permissioned blockchain rather than a proof-of-work basis. This brings in several significant differences in its operating model. Only “approved” entities can participate as the key nodes, validators, in these operations. It is not that anyone can choose to start participating as a peer as in the case of bitcoin. The Libra whitepaper does seem to indicate a transition to a more open ecosystem in the distant future, but the current implementation is very solidly permissioned. The current set of validator nodes are run by members of the Libra Association. Fears of a majority takeover by an unexpected third party just doesn’t exist. More predictable latencies and guarantees can be achieved. Another side effect, secondary but still important, is that the elimination of proof-of-work also eliminates the enormous amounts of energy that are expended in mining. 

    Validators are the entities that manage all updates to the Libra blockchain. They have a consensus protocol amongst themselves that allows a majority of them to sign any transaction in. All access to the Libra platform is via the interfaces that the validators provide. These interfaces are built on GRPC, Google’s RPC mechanism, which aims to simplify integration of systems written in potentially disparate languages. The primary interface the Libra protocol exposes, via GRPC, is that of AdmissionControl. This allows clients to submit requests to a validator and have it get queued up for acceptance. 

    Requests use a combination of SHA3 for hashing and Ed25519 for signatures. Requests can be one of 2 types – submitting a transaction or getting the ledger updates. These both go in via the AdmissionControl interface and allow clients (like wallets, including our very own abracalibra.online) to submit requests. Each of the wallets needs to generate requests which match the crypto expectations of the validator. There is another service, the faucet, on the Testnet allowing “free” minting of Libra on the Testnet. This, obviously, will be structured quite differently in a full-blown implementation as this is where the fiat currency gets converted to Libra.

    Submitting a transaction to the validator is a very generic and flexible operation. The actual transaction is defined in terms of Smart Contracts. Move is the language in Libra to write these Smart Contracts. Move is a script language which allows custom transactions to be written. The scripts get compiled to executable byte code and this byte code is included in the transaction request. This opens Libra to the power of languages like Solidity, with the ability to create custom, flexible transactions. At the time of writing this post, though, only a few pre-defined scripts are allowed by the Testnet. This includes the script to mint, create an account and a peer-to-peer transfer. These capabilities are the ones exposed via the abracalibra.online interface as well.

    So, that in essence is Libra. A set of validators, a GRPC API and clients submitting requests containing smart contracts written in Move and meeting certain crypto expectations. Rather underwhelming, but precisely because of that elegant in its simplicity. Feel free to create a wallet and mint or spend Libra at abracalibra.online – no technical skill required!

    The initial exploration of the Libra protocol indicates that it is a very promising platform, technically speaking, and quite simple and clean. Importantly, its availability in open source form well ahead of its launch, gives a lot of time for interested parties to figure it out; and for the Libra Association to improve it (they have already made breaking changes once in the 5 weeks or so since it became available). There are already a lot of attempts, like ours, to build around, with and integrate with Libra. These are worthwhile exploratory endeavours and, policies and politics permitting, can lead to a truly interesting platform with a rich ecosystem of players. 

    Meanwhile, the name Libra aptly captures how its fate hangs in the balance, much like its namesake constellation.

  • Digital payments for the disconnected majority

    Digital payments for the disconnected majority

    Last week two companies announced the availability of IVR based payments for their wallet offerings. PayTM lets users with a wallet initiate a payment by making a call to a toll free number. So does ToneTag. To most people this was mystifying at best and just one more reason to do a full page ad for the rest. A short while ago, Ola had announced that it now supports requesting cabs via SMS (sent from the app). Witness also the recent push for NUUP based services. These are not isolated incidents of digital services tacking on just another new feature. For those working in the mass market space in India or other emerging markets, this reflects a catching up with reality and not a new feature.

    Data connection availability, taken for granted in the urban areas, is on far more shaky grounds a short distance beyond the big cities. This is not just physical connectivity which is a problem (which it certainly is), it is also to do with people having exercised the option of having such connectivity. This could be temporary (data plan exhausted, or expired) or could be more fundamental in that the user has never had data connectivity. As Nandan Nilekani said in a recent talk, 250m people have smartphones in India, another 350 million have feature phones and the rest have no phones! The billion total phone connections, with overlaps, multiple SIMs and the like come down to about 600 odd million unique users. Most of the 350 million feature phone users don’t have data connection and, obviously, none of the 600 million without phones do. 

    This forms a natural barrier to adoption of digital services. Let’s look at how this impacts services specifically that for payments, the service that I started this article with and the topic of every conversation in the last few weeks.

    Payments require a few basic ingredients to work with. The payer (or customer) needs to have a digital store of money. The payee (or merchant) needs to have a visible means of conveying his/her identity. There needs to be a mechanism to communicate the intent to pay. The first part is met, directly or otherwise, by a bank account. You could use it directly (as in UPI) or by moving some funds to an online wallet (as with PayTM, Freecharge and others). The merchant is identified by an account number (or VPA in case of UPI) or a mobile number in case of wallets. The third part is where things get interesting. Since the first two parts are all online, the payment instruction necessarily needs to reach some server to be executed. Hence the rapid providing of an IVR option at first contact with markets beyond the tech-savvy.

    I believe there is a better and alternative option. Before we get to that, there are a couple of other aspects that are worth bringing up. Most people with bank accounts (which are nearly all households now, thankfully) are very wary of having their account used in any way which they don’t comprehend fully. ATMs are starting to get befriended – faceless as they are and representing banks. POS machines are a distinct no-no – as much to do with the machines as the people involved. So the principle of having a store of funds (wallets etc) as distinct from bank accounts is critical for adoption by the mass market. UPI may provide restriction-linked VPAs but digital wallets do that for now. The second aspect and perhaps even more fundamental is the user experience. Digital wallets, for all their goodness, still retain a lot of hand-waving mystique about them for people not used to smartphones. Particularly, auto-topup options as provided by wallets today can only increase distrust amongst people. 

    The better option, I believe, is for the use of stored value cards. ePurse cards. Prepaid cards. They go by various names and are similar to the metro cards or other fare cards. Imagine the simplicity of tapping a card like that at a shop and paying for coffee in an instant (< 1s). No connectivity required. Neither the merchant nor the customer need to be connected for this. Controlled funds – you can’t spend what has not been put physically on the card. The touchy-feely-ness of real cash. The supreme simplicity of just a tap to pay. Equally easy to topup. Familiar security methods – treat it exactly like you would cash! Best of all, this can be an extension to the wallets and bank accounts that exist today and provide a controlled use of small portion of funds while the bulk continues to remain in their trusted bank end systems. 

    In order to bridge the digital payments divide, ePurse systems provide a far better reach and likelihood of adoption. Interested in conversing about this? Do write to us.

  • The Age of Offers

    The Age of Offers

    An elderly person I know sells honey that he picks from village groups. He buys pre-bottled honey for Rs.260 (just under $4) and the bottle has a retail price of Rs.310 (about $5) which he sells in his shop in the city. He is really not trying to make money off it as he spends considerably more in getting a batch of bottles to his shop and keeping them on display, than the small margin he makes.

    Last week, a young customer was mighty reluctant to pay the listed price of 310 and was demanding a discount. He argued to get at least a Rs10 discount and finally paid with poor grace. I was just a bystander, but this got me thinking. Every hour of the day and every day of the week, nearly everything I buy seems to come with offers. Breakfast (15% off on home delivery), cab to work (20% when paid with a mobile wallet), lunch (50% off for second person), and so on covering everything from cosmetics to computers, mobile phones to movies, flights to pharmacies, and hotels to houses. Quite literally, the only thing for which you don’t get some discount, offer, or cashback is for payments to the government. Consumers are used to this, and in fact find it laughable that anyone will pay the full price for anything!

    Offers and discounts have transitioned from promotional schemes to a way of life. Freebies are de rigueur to succeed, and increasingly even to survive. On the face of it, this seems to be fostering a wave of companies who are innovating and finding ways to drive down prices. All the buzzwords that matter – dis-intermediating, cutting-out-the-middleman, economies-of-scale, and the dreaded app-based service – have been applied to achieve this end of low prices. I believe that this current trend is also inhibiting innovation. There are far more companies who have drowned while throwing around money than those who have genuinely found ways to deliver value. Due to these, only those products and services which are backed by deep venture-funded pockets can afford to get into most domains today. Everything else, which aims to provide a useful service or product for a reasonable fee, finds no favor with the pampered consumer.

    There was a time in the early 2000s when some people would speculate if telecom services (voice, data, etc) could be made completely free by using ad-funded models. However unlikely the proposition was, it had some serious backers as well. Fortunately, sanity prevailed and we rarely hear such talk nowadays. Though such buzz, instead of dying down, has merely moved onto other areas, including the payments domain where Nearex operates.

    This sounds particularly strange today, when the flag bearers of such deep discounted services – news, content, discounted movie tickets or cheap flights – have all moved on to more reasonable business models. News and content is increasingly behind paywalls today and the convenience fees that aggregators charge almost always make a movie ticket more expensive online than at the theater or a flight ticket and stay cheaper at the airline and hotel chain directly.

    Intuitively getting X conveniently should cost more than merely getting X. It is a lesson that the startups of the last decade seem to have learned. Will the new crop of startups learn from them or tread the same painful path all over again? For the sake of all the startups out there, I hope it is the former.

    As to the person selling honey? He declares that there is no better honey in the local market and those who value his product will pay his price.

    And that, perhaps, shows the best way forward.

  • First impressions of UPI, as an user

    First impressions of UPI, as an user

    Much has been said and written about the impact UPI will have on everything. I am a strong believer and, therefore, when UPI was launched last week and the first apps became available it was but natural that I give it a spin as the one participant that I had been unable to be throughout the buildup – as an end user. Specs, lofty visions, protocols, and comments by pundits have all been eagerly devoured and I was real curious to see how an end user will actually perceive it.

    Early on Saturday morning, as I reached for my phone with bleary eyes (as every person who reads this will be doing, I bet) it indicated that half a dozen apps that had been updated overnight. I usually flick that notification away without a second thought, but I was keeping a watch for updates (for the UPI enabled apps that several banks had promised within a “few days” and also for my Nexus 6P to receive Nougat) so I checked. Sure enough, the Pockets app by ICICI was updated.

    I spotted a UPI icon, as my vision cleared up rapidly, on the enhanced Pockets app and was my first stop. I was apprehensive that it would be buried three levels deep in some obscure menu and was glad to see it bright and green on the home screen. Augurs well, I thought.  Before going further, I should mention that my Pockets app is linked to my ICICI bank account and hence my experience could be very different from those who have the same app without the linkage.

    There were options to send money, collect money and respond to a collect money request – all through UPI and pretty straightforward. I have this rather unfortunate habit of going to the settings/preferences/configuration of any app or tool that I try out, before I do anything with it, and hence the “Manage” option was my first stop. A “Create VPA/Add Bank Accounts” option lead me quickly to the part that I was really looking forward to – creating a new VPA (the Virtual Payment Address). I was asked to type in an identifier, like the registration option on any self-respecting website, and hit “Check availability”. This was such a refreshing start to doing anything with a bank account which usually requires a visit to a bank or uploading some document or at the very least entering some obscure information from a document that you will almost certainly not have at hand.

    My preferred ID was available and the next step was to link this newly created VPA to a bank account. The dropdown showed all the UPI integrated (but not necessarily launched) bank accounts. I picked ICICI, my ICICI account number appeared; I selected it and set that as the default account to send and receive money from and I was done.

    It took me about 2 minutes. And I was not even out of bed. Now to use this I needed someone else with a VPA. Sent out a message, with my newly minted VPA ID (arun.blog@pockets – yes I can share it freely), on one of  my WhatsApp groups which I knew had a few people who would be up early even on a Saturday morning. One of my friends responded, and a few minutes later I heard the rather strident (and alarming) notification from Pockets – he (or rather his VPA ID) was asking for 50Rs via the collect UPI facility and a couple of taps later I had completed the payment. While he was still typing a message on WhatsApp that he had sent me a collect request, I had completed the payment! Wow, was all I could say. Wallet apps have been doing this for a while, but to get such simplicity for transacting with bank accounts is really something else.

    The experience as a user was as simple as it could be. All that power and sophistication that one had discussed and heard about was all present – in as easy a package as one could expect. We should be seeing a flood of UPI enabled apps and services in the next few weeks and if they are as easy to use as this (and I suspect they will be even more easier), then UPI is all set for a truly life changing run.

    Circling back to my last blog, this is one huge step that can actually make every merchant a digital merchant. Looking forward to it.

    If you are wondering what we will do with this at Nearex, all I will say is “Watch this space”.

    PS: I have no affiliation to Pockets or ICICI and it just happened to be the first of a round dozen payment related apps on my phone which supported UPI.

  • 2 billion merchants are waiting

    2 billion merchants are waiting

    There are two billion unbanked adults in the world, according to this CGAP report. I think these are really 2 billion unserved merchants. Want to know why? Read on.

    To understand this we have to go all the way back to Adam Smith and the Wealth of Nations, his 1776 masterpiece that kicked off the period of what is now called classical economics. It covers a lot of ground, but one sentence that struck me as particularly relevant today, as I re-read it recently, was this gem:

    Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society. 

    CHAPTER 4, OF THE ORIGIN AND USE OF MONEY

    The back-story for this line was that division of labor was getting more and more established (remember, this was 1776) and every man’s wants were met only in a small measure by the produce of his own labor; and he would need to depend on others to meet the greater part of his wants. And, in turn, fulfilling a portion of other’s wants himself.

    Pause for a moment and reflect. You need to do that often when reading Adam Smith.

    Every person has something to exchange – be it produce, goods, or skills. Anyone who exchanges any of these for money is a merchant. Ergo, every economically active person is a merchant.

    Step back a bit and observe  – who is a merchant when you look around your neighborhood? The grocer, the plumber, the bartender, the taxi driver  – all clearly identifiable by a shop or other visible trappings of business. But look closer (and read Adam Smith’s line above again) and you will start noticing merchants everywhere – the hawker at the traffic signal, the fortune-teller under the tree, the guy hanging from the open door of the minibus and soliciting passengers, and even the beggar exchanging benediction for alms (this one is Mayank’s favorite, BTW). Think back and you will now see where the 2 billion merchants come from.

    Yet, your original reaction of looking at only those with shops or establishments as merchants is completely understandable for that’s how society has been classifying them for long. Banks and other conventional financial institutions have so conditioned society to think, that anything else borders on blasphemy today. Mobile money service providers, telcos in most cases, have disrupted how financial services reach the common man, the ones left outside of conventional financial systems. When it comes to merchants and commerce, they should continue their disruption of financial traditions and make every merchant, in the full Adam Smith sense, a first class citizen of the modern commercial society.

    The time has come for every merchant to stand up and be counted. The time has come for true financial inclusion for every unserved merchant. The time has come for Xip.

    PS: Read Wealth of Nations, listed amongst the most influential books ever by the World Economic Forum, for free at geolib.