Impact of Social Networks on Digital Liquidity

ITU DFS Focus Group Document: Social networks enable users to chat, share photos, and perform similar social activities. As social networks mature, they continually add commercial services such as person-to-person (P2P) payments, shopping at physical stores, and ‘conversational commerce’ via chat applications.

Social networks have become enormously popular and are themselves bigger than the largest ecommerce companies in the world. Importantly, social networks have determined multiple ways to monetize their user base, including advertising, digital content, and transaction fees. Revenue growth has been impressive: for example, Facebook’s revenue has grown from $2 billion to $18 billion in just five years.

At this point in time, however, this social networking and commercial revolution has largely skipped the bottom of the pyramid (BoP). In general, while social networks are present in most developing countries and view the BoP as a big opportunity, the poor are not participating – primarily due to low Internet adoption. But, increasing Internet adoption will not open the social networking floodgate. Feature phones, the primary device used by the poor, limit the social network value proposition. While smartphones offer the best user experience, they introduce new problems such as a short battery life and higher data costs. Even if social network adoption grows, the commercial aspects won’t materialize for the poor without financial inclusion – a consumer can’t buy unless they link a payment account like M-Pesa to their social network account.

Is this one more example of the digital and financial divide, or can social networks help the BoP economically?

Interestingly, social networks could help close the digital divide by providing various mechanisms, to the extent that they are allowed by regulators:

  • Digital on-ramps – Providing a simple, low-cost way of gathering information and communicating with others. For example, chat and VoIP services could reduce spending on SMS and mobile phone calls.
  • Platforms for BoP ecosystems – Enabling consumers and entities to create and manage groups, commercially oriented, or otherwise. For example, social network platforms could be used to organize agricultural value chains and enhance how farmers interact with produce buyers, agrodealers, banks, and other stakeholders. Alternatively, smallholdingfarmers could organize themselves into groups to share knowledge, borrow from banks, or negotiate better prices from crop buyers. Other examples include non-governmental organization (NGO) group lending programs and parent/school groups.
  • Payment networks – Providing a global, interoperable, multi-channel and user-friendly eMoney payment network. For example, social networks could resolve mobile network operator (MNO) interoperability issues by integrating with multiple MNO wallets and transferring money between users. Additionally, social networks could provide physical merchants with low cost payment solutions without chip terminal or barcode reader investments.
  • Marketplaces – Helping consumers shop better, merchants sell more, and entrepreneurs find more work. This could take the form of selling products to a larger audience, maintaining an ongoing dialogue with existing customers, promoting job skills, discovering employment opportunities, participating in ‘on-demand’ labour marketplaces, or even virtual entrepreneurship (e.g., YouTube celebrity/entrepreneurs).
  • Beneficial data collection – Improving access to credit and enabling targeted outreach and advertising. For example, transaction histories and merchant reputation ratings could provide BoP merchants with greater access to credit. Additionally, richer consumer data could allow NGOs and governments to target interventions on a large level, or on a very small level by simply allowing an individual to sell their bicycle within the local community.

That said, policy makers face a tough balancing act. On one hand, social networks can bring significant value to BoP populations and policy makers should therefore consider policies that encourage adoption. On the other hand, social networks are tremendously powerful and regulators should explore policies that protect consumers from potentially harmful effects, paying special attention to data privacy, market power, and other concerns.

In short, social networks have tremendous potential to enable new forms of commerce, benefitting BoP buyers and sellers and helping eMoney systems move towards digital liquidity, but a comprehensive, long-range perspective will be important for optimizing the value for all stakeholders.

 

Topic: 

Legal Disclaimer: The content appearing on this site is for general information purposes only and made available on an "AS-IS" basis. The law is subject to change and no representation or warranty is made with regard to accuracy or fitness for a particular purpose.