Coin Labs Weekly: The Rise of VC-Backed Financial Inclusion

Welcome to the second issue of the Coin Labs Weekly! You can find the first issue here. Each issue wi
Don Richard
Coin Labs Weekly: The Rise of VC-Backed Financial Inclusion
By Don Richard • Issue #2 • View online
Welcome to the second issue of the Coin Labs Weekly! You can find the first issue here. Each issue will contain my weekly article, my 5 favorite payments and mobile commerce reads from the past week, and a past Coin Labs article that I think you’ll enjoy. If you enjoy the newsletter, please forward this email to 3 of your colleagues and friends!

Lower income Americans rely on their mobile devices much more than middle and higher income Americans to do traditional desktop PC tasks. The cruel irony is that some of the most crucial services for lower income folks — employment applications, bill payments, financial services — are also some of the least mobile-friendly products to use.
For many Americans and most of the developing world, smartphones represent an irreplaceable lifeline that allows these folks to participate in broader society. Among the many societal challenges this groups faces, financial inclusion is one of the most pressing. This presents a massive opportunity to build large businesses that meet these urgent needs while creating new and valuable markets. Two startups, Propel and Coinbase, are taking advantage of this opportunity in innovative ways with FreshEBT and Token, respectively.
User-Friendly Safety Net
FreshEBT, launched by Propel, is a financial services mobile app for Americans using government benefits such as SNAP (Supplemental Nutrition Assistance Program)and food stamps. Its creator have dubbed a “more user-friendly safety net”. Users can check the app to monitor their benefits, track their spending, find nearby store deals and stores that accept SNAP. There are approximately 43 million Americans on SNAP, with an estimated 70% of U.S. households relying on smartphones for internet access. Providing a mobile-first experience geared towards the needs of this consumer base is an interesting and potentially lucrative strategy.
Propel is following Chris Dixon’s “come for the tool, stay for network” approach by providing FreshEBT as a useful SNAP tracker that provides the foundation to build a suite of financial services solutions (think government entitlements like TANF and WIC today, bank accounts tomorrow) and marketplace of commerce providers such as grocery stores.
Initially spread by word of mouth between users, FreshEBT could be become a network effects driven business where the more users on the platform gives Propel more leverage in building partnerships with commerce and service providers, which provides more services for users, enticing more users to join. This creates a virtual cycle where users gain a more robust and dependable safety net and partners gain access to a new consumers, revenue and loyalty.
Political Uncertainty
It’s interesting to note that an unstable political climate and the possibility of the reductions to government entitlements could make the incentive to use and stick with FreshEBT much stronger for both users and partners. Such external uncertainty could make a fully functional and thriving network more appealing, due to lack or reliability of possible outcomes between being in the network and outside of it.
With that said, substantial cuts to programs like SNAP could threaten FreshEBT’s overall service and value proposition. This may incentivize the Propel team to build more services and utility on top network faster than they initially planned.
By focusing the real problem of food insecurity, Propel is building a venture-backed business with potential to disrupt local commerce, financial services and the public entitlements sector.
Decentralized Inclusion
Coinbase recently launched Token, a mobile money platform that combines a private and secure messaging app, a user-controlled Ethereum wallet and a browser for Ethereum apps. According to the Coinbase team, Token was inspired by WeChat, all-in-one mobile messaging service that powers payments and commerce for nearly 900 million users in China. Token’s goal is to bring financial inclusion to the 2.5 billion unbanked adults in the world.
Ethereum, which has a $7 billion market value, is steadily gaining popularity and usage. ETH combines both usage tokens (for access to the Ethereum Virtual Marchine for distributed app development) and work tokens (granting individual rights for contributions to a decentralized autonomous organization or DAO). It makes a lot of sense to build an open source developer platform on top of Ethereum’s network, giving developers an economic incentive (in the form of usage and work tokens) to build financial services on top it. Ethereum’s transaction fees are lower than Bitcoin, allowing for a greater number of potential transactions and volume.
One concern with Token strategy’s is the conflation of financial inclusion for the unbanked using Mpesa and the reasons why WeChat and Paytm are finding incredible success in China and India, respectively:
Mobile money is growing. We were inspired by WeChat in China, PayTM in India, MPESA in Kenya, and others. Each of these has revolutionized payments in one country. We would like to bring something similar to the other ~180 countries, and also enable a global payment network based on open standards, so that every country becomes interoperable, and everyone has access to financial services.
Mpesa, Paytm and Wechat are finding success because their meeting real needs, but those needs are each unique and require specific solutions related to various region-specific factors. Mpesa made it easier for Kenyans safely and securely transfer money between parties without the need for a banking relationship. Paytm’s rise is being undergirded by the Indian government’s mandatory move to a cashless financial services system. WeChat’s dominance is due in part to a lower credit card usage, fear of counterfeit money and a lack of independent internet services like the ones found in the West.
Given the fact that cryptocurrency developers are still trying to determine what are the optimal use cases and business models, I understand Coinbase’s desire to present a singular vision for the Token platform that can guide developer towards viable business models that can grow adoption of the cryptocurrencies. This might be the optimal path long term, but I’m skeptical given the unique challenges facing global financial inclusion.
Focus on the Consumer Need First
The other 180 nations that Coinbase wants to bring financial inclusion to will have their own unique needs and challenges that won’t be served by blanket solution, either in mentality or in practice. The Coinbase team would be best served focusing one or a few fundamental issues regarding financial inclusion that would be well-served by Token. It’s always best to focus on the consumer behavior or need first, solution second.
If Token is truly to become the browser for cryptocurrency and help spur global financial inclusion, it needs to allow developers to chart their own paths to lifting up the unbanked and avoid the trap of being everything to everyone especially as Ethereum and cryptocurrency in general are still finding their optimal use cases.
FreshEBT and Token represnt two different strategies and business models to capitalize on the dire need for financial inclusion solutions. Venture capital is finally realizing the enormous potential for these solutions to not only do good in the world, but also turn an incredible profit too.
This Week's Top 5 Mobile Commerce Reads

Much of what has changed the factious relationship to one based on a more cooperative model, Schulman noted, is that for financial institutions, PayPal is starting to look much more like their largest digital distribution channel than a director competitor.
Apple has also recently held discussions with Visa about creating its own pre-paid cards that would run on the Visa debit network and which would be tied to the new peer-to-peer service, sources told Recode. People would be able to use the Apple cards to spend money sent to them through the new service, without having to wait for it to clear to their bank account.
In some ways, the story of Amazon’s sustained and growing dominance is also the story of changes in our antitrust laws. Due to a change in legal thinking and practice in the 1970s and 1980s, antitrust law now assesses competition largely with an eye to the short-term interests of consumers, not producers or the health of the market as a whole.
Understanding the blockchain-based token boom is all about understanding a basic concept in behavioral economics. At their core, tokens enhance the economic incentives of users of internet products.
Financial services are part of the retailer’s recipe to avoid the fate of brick-and-mortar retailers that didn’t do enough to expand their traditional offerings and have begun to slide down the slipper slope of shuttering stores. Wal-Mart’s bet on these services makes sense — they give customers more ways to spend at a retailer and can be fundamental customer loyalty tools that reinforce a retailer’s brand value among its customers.
Coin Labs Vault
As smartphones became ubiquitous, the Chinese government’s restrictions on foreign internet services created an opportunity for domestic companies (some government-backed) to build internet services geared towards the habits and behaviors of Chinese consumers. These internet services favored the high frequency of use that a personal smartphone facilitates as well as the consolidation of services in a single platform (WeChat, for example).
Fintech Insider Spotlight
Check out Reuters Fintech Correspondent Anna Irrera’s great newsletter on the latest news in banking and fintech: https://tinyletter.com/annairrera
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