Bitcoin-inspired digital currency to power mobile savings app

A nonprofit is experimenting with using digital currency to give poor teens their first financial services experience.

Proponents of the digital currency Bitcoin have often argued that money made from computer code could help poor people access financial services.But so far, applications for technology have been almost exclusively aimed at people with access to the Internet and smartphones.Now a South African nonprofit is preparing to give the idea its first real test.

In the coming months, teenage girls in poor South Africa will be offered the chance to try out some sort of digital savings account managed via text message.It will be offered as a new feature on a mobile social networking service that girls already use.The savings feature will allow people to earn and save credit for mobile airtime, which in some countries is used in addition to government-backed money as currency.

Behind the scenes, the new service is powered by a digital currency called Stellar, which was inspired by Bitcoin.All savings balances and transfers will be represented using stars, as currency units are known.

Stellar, like Bitcoin, relies on a system that uses cryptographic software to create digital tokens that cannot be counterfeited.But Stellar differs from Bitcoin in that it is designed to act as an intermediary between currencies and conventional assets, to speed up transfers between them and not as a means of payment in its own right.The development of Stellar is undertaken by a non-profit organization, the Stellar Development Foundation, backed by $3 million from payments company Stripe (see " Increasing Internet GDP ").

The Praekelt Foundation develops free software called Vumi that powers interactive services that can run on text messages on phones without data plans.Humanitarian organizations including UNICEF, USAID, and the Gates Foundation use Vumi to provide health and education programs in Africa and beyond.

The new savings feature will be offered as a participation feature of existing social networking services built on Vumi and aimed at teenage girls living in poverty, says Gustav Praekelt, the head of the foundation.For most girls it will be the first opportunity to have a savings account, she says, something she hopes will lead to better decisions about money.

Tests of the savings service are planned for different countries.In addition to South Africa, Indonesia is likely to be a test market in the coming months, Praekelt says.

The savings feature works by rewarding teens with small amounts of airtime in exchange for texting, reading things, and other activities on social service.

Because the software that powers Stellar is designed to make it easy for businesses and organizations to transfer money quickly and securely back and forth, Praekelt says it could eventually become a framework for more sophisticated financial services.For example, governments or humanitarian agencies could use Stellar to provide payments to people, perhaps to reward participation in specific educational or health programs.

For now, the foundation is the only organization of any publicly known size that uses Stellar.Praekelt hopes that will change after corporations and other nonprofits see the savings account service in action.

However, digital currencies have yet to see much uptake by conventional financial institutions or corporations around the world. Kentaro Toyama, an associate professor at the University of Michigan who studies technology and development, says that even though Stellar will make it easier for the poor to create new financial services, it will still need to get approval from regulators.

Most countries' financial rules make it difficult for companies that aren't banks to transfer and store money, often for good reason, Toyama says.This can be a problem for organizations looking for something new, such as offering savings or mobile transfer services.The success of Kenya's M-Pesa mobile payment system, a manifesto of innovation in mobile money, illustrates the point.It was made possible only after wireless carrier Safaricom got special approval from regulators, says Toyama.

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