Bitcoin Service Targets Kenya Remittances With Cut-Rate Fees

BitPesa Ltd., a Kenyan start-up, will take on remittance providers like Western Union Co. (WU)by using the Bitcoin virtual currency to cut transaction costs for Kenyans working abroad who send home $1.2 billion a year.

The online service plans to start on a trial basis by March, after obtaining regulatory approval, and gain 1 percent market share within a year by handling 6,500 transactions a month, Chief Executive Officer Elizabeth Rossiello said yesterday in an interview in the capital, Nairobi.

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The digital money gained credibility this month after law enforcement and securities agencies said in U.S. Senate hearings that bitcoins could be a legitimate means of exchange. Photographer: Tomohiro Ohsumi/Bloomberg

Bitcoin gained credibility this month after law enforcement and securities agencies said in U.S. Senate hearings that it could be a legitimate means of exchange. The price of Bitcoin today traded at a record $1,098 apiece on the Mt. Gox online exchange, fueled by speculators snapping up the virtual currency as it gains wider acceptance.

“There are no other market entrants trying to solve the problem of the very high cost of remittances in Africa,” Rossiello said.

Western Union and MoneyGram International Inc. deduct $10 to $17 to wire $200 to Kenya from the U.S., including charges to exchange funds, in a process that can take an hour to five days, according to the World Bank’s Send Money Africa price database. BitPesa will charge 3 percent on overseas transfers and says the money arrives the same day. At that rate, it would cost $6 to send $200 via BitPesa.

Kenya is sub-Saharan Africa’s third-biggest recipient of remittances, after Nigeria and Senegal, with more than 3 million people of Kenyan origin living abroad. North America is the main source of remittances to Kenya, accounting for about half, followed by Europe at almost a third.

Fast Growth

Overseas transfers to the East African country are growing almost five times faster than the sub-Saharan African average of 6.2 percent this year. The region is the world’s most expensive for remittances because of factors such as limited competition and regulatory barriers, the World Bank said.

BitPesa is in talks to partner with two Kenyan commercial banks, and it’s also considering working with at least one telecommunications company and one money-transfer agent, Rossiello said, declining to identify the companies. Pesa means money in the Swahili language.

Safaricom Ltd., 40 percent owned by Vodafone Group Plc (VOD), runs Kenya’s most widely used M-Pesa mobile-phone money-transfer service, which competes with Airtel Kenya Ltd.’s Airtel Money, Essar Telecoms Kenya Ltd.’s YuCash and Orange Money by Telkom Kenya Ltd., a unit of France’s Orange.

Bitcoin is used as an alternative to cash to pay for everything from candy to smartphones on the Internet. There are more than 12 million bitcoins in circulation, according to Bitcoincharts, a website that tracks activity across exchanges.

Risk Absorption

The rally in Bitcoin had gathered steam last month after regulators shut down the Silk Road Hidden Website, where people could obtain guns, drugs and other illicit goods using bitcoins. That generated optimism the digital money would become more widely used for legal purposes.

“The minute you confirm the transaction, the price is locked in,” Rossiello said. “We absorb all the exchange risk, and like anyone else with foreign exchange exposure we will hedge our risk.”

BitPesa will need to develop its reputation in Kenya to become competitive, said Sarah Wanga, a research analyst at Nairobi-based investment company ICEA Lion Group.

Market Share

Commercial banks handle about half of the remittance transactions to Kenya, led by Equity Bank Ltd., the second-biggest lender by market value, and Barclays Bank Kenya Ltd.; each controlling 14 percent of the market. Western Union accounts for 31 percent of business and MoneyGram 6 percent, according to a 2010 study commissioned by the World Bank.

“There is an element of reliability with banks, people have security putting their money there because it’s what they are familiar with,” Wanga said. “But if this new system markets itself right, makes itself a household name, and it’s cheaper, I think it could become a threat.”

Under the model developed by BitPesa, the sender will use an Internet-based service to make payments and the funds will be traded into bitcoins. BitPesa will then convert the virtual money back into a conventional currency at a competitive exchange rate for withdrawal by recipients through either their mobile phones or a bank account, said Rossiello.

Microsoft Said to Lean to Mulally, Nadella in CEO Search

Microsoft Corp.’s board is focusing on Ford Motor Co. Chief Executive Officer Alan Mulally and internal executive Satya Nadella as part of a group of more likely candidates to become the next CEO of the world’s biggest software company, according to people familiar with the matter.

While internal candidate Tony Bates and former Nokia Oyj CEO Stephen Elop remain in the mix, they’re currently considered less likely to be offered the job, said the people, who asked not to be identified because the deliberations are private. Preferences remain fluid and other people are being considered and could emerge as front-runners, said one of the people, without identifying any.

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Alan Mulally, president and chief executive officer of Ford Motor Co. Photographer: Peter Foley/Bloomberg

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Nov. 22 (Bloomberg) -- Peter Wilmshurst, executive vice president and portfolio manager at Franklin Templeton Investments Australia, talks about U.S. and European stocks. Wilmshurst also discusses Federal Reserve policy. He speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)

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Microsoft Corp. outgoing Chief Executive Officer Steve Ballmer. Photographer: Krisztian Bocsi/Bloomberg

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Satya Nadella, executive vice president of cloud and enterprise at Microsoft Corp. Photographer: David Paul Morris/Bloomberg

The board is aiming for a quick replacement for longtime CEOSteve Ballmer, who said in August that he will retire within the next 12 months. The Redmond, Washington-based company has seen its software leadership decline amid a shrinking of the personal-computer market, which was its core business. Microsoft is shifting strategy to focus more on hardware and Internet-based services and away from its software roots as it competes with Apple Inc. and Google Inc.

Frank Shaw, a spokesman at Microsoft, declined to comment or to make any executives available yesterday. Susan Sheehan, a spokeswoman for Nokia, which is still Elop’s employer, declined to comment.

“There is no change from what we announced last November,” said Jay Cooney, a spokesman at Ford. “Alan remains completely focused on executing our One Ford plan. We do not engage in speculation.”

Board Meeting

The board met on Nov. 18 about the CEO search, Microsoft chairman and co-founder Bill Gates said at a shareholder meeting last week. Gates said he and other directors have met with “a lot of CEO candidates.” He declined to give a timeline for the decision, adding that “it’s a complex role to fill.”

Ballmer was all smiles at the shareholder event, calling it a “fun meeting,” compared with the teary goodbye message he gave to employees at an internal companywide meeting in September.

The board is aiming to have a CEO decision this year, though an announcement could be pushed back until early next year, said one of the people with knowledge of the matter.

A document prepared by the board for the CEO search describes the ideal candidate as one who has an “extensive track record in managing complex, global organizations within a fast-paced and highly competitive market sector; track record of delivering top and bottom line results. Proven ability to lead a multi-billion dollar organization and large employee base,” people with knowledge of the document have said.

Negative Rate Experiment in Denmark Seen Stretching to 2015

Linus Hook/Bloomberg

The headquarters of Danske Bank A/S, left, stand opposite the Danish central bank, or National Bank, right, in Copenhagen, Denmark.

Economists at Denmark’s biggest banks predict the nation’s benchmark interest rate, which has been negative since July 2012, won’t climb over zero until 2015 marking an historic experiment with extreme monetary policy.

Copenhagen-based Nationalbanken, which uses rates together with currency reserves to defend the krone’s peg to the euro, will be anchored in sub-zero territory by crisis measures taken by the European Central Bank, according to economists at Danske Bank A/S (DANSKE),Sydbank A/S (SYDB) and the Danish unit of Svenska Handelsbanken AB. Jyske Bank A/S (JYSK) and Nordea Bank AB (NDA) see negative rates until the end of next year.

How such a policy affects an economy is under renewed scrutiny as the ECB signals it’s ready to consider similar measures to revive growth in the euro area. In Denmark, a stable AAA-rated economy, the central bank has struggled to counter an investor influx that threatened its euro peg, resorting to negative rates after building up a record 514 billion kroner ($93 billion) incurrency reserves last year.

“If the ECB cuts its deposit rate, Denmark will go even lower to protect the peg,” Jacob Graven, the chief economist at Sydbank A/S and a former researcher at the central bank, said in an interview. “It’s what the central bank needs to do to defend the krone.”

Crisis Lessons

Since taking monetary policy to the brink, the central bank in Copenhagen has had fewer tools to work with in its efforts to defend the euro peg. The bank on Nov. 7 held its lending rate at 0.2 percent, following a quarter-point cut by the ECB to 0.25 percent the same day. It was the first time since October 2008 that Denmark didn’t follow an ECB move with a change in rates.

Denmark’s deposit rate is minus 0.1 percent, compared with zero at the ECB. The Danish central bank doesn’t hold scheduled meetings.

While commercial banks have only placed 145 billion kroner in the central bank’s deposit facility, the negative benchmark rate has dragged down the much larger krone money market, which has a daily turnover of about 140 billion kroner. Short-term Danish government debt also carries negative rates, with 91-day bills auctioned today at a yield of minus 0.17 percent. Bills due in 182 days were auctioned at a yield of minus 0.13 percent today, the central bank said.

Costly Policy

Though Danish banks stopped short of charging their clients to hold deposits, for fear of losing customers, lenders elsewhere did. State Street Corp. and Bank of New York Mellon Corp., two of the world’s biggest custody banks, revealed last year they were charging clients for Danish krone deposits.

“It’s costly for banks,” Niels Roenholt, a senior economist and vice president for economic research at Jyske Bank, said in an interview. “They have problems increasing rate margins.”

It’s also proving a disincentive to save in a nation that is home to the world’s most indebted consumers, according to figures provided by the Organization for Economic Cooperation and Development. Danish households owe their creditors 321 percent of their disposable incomes, the OECD estimates. Though partly offset by pensions and home equity, the central bank and the International Monetary Fund have warned those assets may be hard to tap when markets are squeezed.

To ease the cost of negative rates to the financial system, Denmark’s central bank has expanded a current account facility that pays a zero return. Even with the extra facility, Danish bank interest rate margins -- the difference between deposit and lending rates -- shrank in October to the lowest since January 2012, according to central bank data.

No Limit

Central bank Governor Lars Rohde said in May there’s no limit to how much he’s willing to cut Denmark’s deposit rate to defend the krone peg. The lending rate can’t drop below zero, he said.

Denmark’s currency reserves were 491 billion kroner in October. Though the buffer has eased since 2012, current reserve levels dwarf the central bank’s average holding of 189 billion kroner between December 2000 and the end of 2007, according to data compiled by Bloomberg. Rohde said last month the 2008 crisis taught the bank to keep reserves “high.”

The bank will only raise its deposit rate, which became Denmark’s main tool for steering theexchange rate in 2009, if demand for kroner abates and weakens the currency beyond its targeted 7.46038 against the euro, according to Nordea.

Normalizing Policy

That may happen in late 2014, Jan Storup Nielsen, Nordea’s senior economist in Copenhagen, said in an interview. Danske economist Jens Naervig Petersen, Handelsbanken’s chief economist in Copenhagen, Jes Asmussen, and Graven at Sydbank all say the deposit rate won’t rise above zero until 2015.

The central bank’s lending rate, which was Denmark’s main tool for guiding the currency before the global financial crisis, won’t be restored to its original role for the foreseeable future, according to Handelsbanken.

The shift will only occur once “monetary policies are returned to normal and central banks pull back the excess liquidity,” Asmussen said. “That won’t happen for years.”

EURUSD support turns resistance

The EURUSD pair have been trading higher again this morning following the lead from the GBPUSD in breaking to the upside. While this points to a bullish outlook for the pair, there are signs that we could see a pullback in todays session.

The four hour chart below shows that the pair has recent engaged with the green ascending trend-line which represents a previous key area of support and recent resistance. The previous occasions that this trend-line has been challenged has typically led to a reversal of sorts in the short term and this seems possible again today. The stochastic oscillator is overbought and turning back to the downside, whilst the CCI indicator is attempting to break back below 100 in a bearish move. Should we see a pullback the initial level of support would come at 1.357 and the 200 period SMA.

 

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