South Africa’s Wala, a decentralized financial system for emerging market consumers, has gone bankrupt; it was unable to raise follow-up funds. This was a company which wanted to do what Facebook Libra is promising Africa: get underbanked and unbanked into the formal financial ecosystem. Through Dala, its cryptocurrency, Wala did make efforts. But it was not enough. The problem was not technology but the very fact that Wala relied heavily on the banks, exchanges and the very institutions it was trying to eliminate! It is common sense: if you expect to help a man that does not have a bank account, and you are required by law to get money from him through the banking institutions, you already have a problem. Simply, you cannot do without banking because without the banks you cannot be in business!
The collapse of a blockchain payments startup looking to serve the “unbanked” doesn’t bode well for other companies with similar plans, like, well, Facebook.
In late 2017, the South Africa-based Wala rolled out its cryptocurrency in developing countries across Africa, where it hoped to eventually substitute the local, volatile currencies for its own cryptocurrency, Dala.
But on June 24, after nearly two years, the company went belly up, laying off the majority of its 100 staff and announcing in a Medium post that it had failed to raise a second round of investment. The cause was clear: Wala was unable to disentangle itself from the banking system it hoped to exist apart from and, eventually, replace.
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“Whether it was exchanging money, or enabling our users to purchase goods and services,” he added, “we weren’t able to completely remove reliance or connection to the incumbent infrastructure.”
This is my call: the easiest way to get underbanked and unbanked into the formal financial ecosystem is through the current institutions like banks. Why? The rules have already decided that anyone that wants to fix any of these issues must work with banks in Africa. So, if everyone must work with the banks, the best deal is simply to revamp the banks and make them better. If you do that, job is done.
No fintech can advance faster than the banks in this space since ALL fintechs depend heavily on banks to operate and function in Africa. The Central Bank of Nigeria may not be wrong when it felt the banks can get it more users at scale.
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Yet, while Wala was a forerunner to Facebook Libra, the size and scale of Facebook along with the resources mean that the comparison may not be fair. So, that Wala failed does not mean that Facebook Libra cannot thrive.
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It’s the same way people set up a business, without adequate thoughts to political/legal, social and cultural components, and by the time reality hits; you then realise how flawed your original thinking was.
Technology is just one aspect, and most times the least of the problems. If technology is constant, then most of the other factors are variables, and without getting a handle on them, you have no business.
If all business ideas are viable, I am not sure whether Jeff can still retain the title of richest man for six months!
“Technology is just one aspect, and most times the least of the problems.” That seems to be so in fintech. The regulations may be doing more than most can accept