Store of Paycheck: Digital Payments for the Developing World

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Logos Network

6 min readJan 25, 2019

Safe to save, easy to spend. We call this Store of Paycheck.

The Problem: Financial Exclusion and Inefficient Cash Economies

1.7 billion adults, or 31% of the world, including 25.2% of the U.S. population, are considered underbanked or unbanked.

Think about it. That’s roughly 1 in 3 people who do not use banks or have access to bank accounts and financial services, such as credit, savings, insurance, and pensions. Instead, they live their day-to-day lives only using cash (unbanked), or only relying on short-term payday loans and check cashing services (underbanked).

But why is the number of unbanked or underbanked individuals so high?

In addition to the lack of brick-and-mortar financial institutions in developing countries, traditional bank transactions can be prohibitively expensive. On top of variable rate fees, banks charge an average fixed interchange fee of $0.30 per transaction, which may seem insignificant in the developed world but is quite substantial in regions where the average transaction size is much lower (e.g. $1 in Kenya).

In these developing countries, the underbanked and unbanked populations face numerous financial challenges that limit their ability to build wealth or respond to economic shocks:

1.) Cash economies are extremely inefficient and risky

Cash is a high-friction, low-security medium of exchange. For example, consider an urban worker attempting to send cash back to his rural family by foot or car. This cash transfer could take days to complete with no guaranteed protection from theft or loss.

2.) Centralized fee structure disadvantages the poor

As for-profit institutions, centralized banks have fee structures that penalize the poor and limit their ability to maintain active bank accounts. For example, most large banks require a checking account balance of $1,500 in order for customers to avoid an average monthly fee of $10.99.

Many adults in developing countries also rely on cross-border remittances from relatives who have migrated to developed countries in search of higher paying jobs. Centralized banks and remittance providers offer a slow and expensive service here as well that further inhibits the underbanked and unbanked populations. For example, global remittance fees totaled $30 billion in 2017 with an average cost of 7.1% per transaction. Not only are these cross-border transfers extremely costly, but they can take multiple days to process.

3.) Inflation

Many underbanked or unbanked adults live in developing countries that also struggle with incredibly high inflation rates. High inflation turns the local currency into a poor store of value, which disincentivizes savings and investment in future economic growth. For example, the IMF projects that the inflation rate in Venezuela will reach 1,000,000 percent in 2018, rendering the local currency effectively useless. While people in these areas could use commodities like gold to transact, these would be even less efficient than the cash economies described above. What is required in these areas is access to alternative currencies that are more stable than the local currency. Centralized banks have failed to promote this level of financial inclusion through a prohibitive fee structure, opening the door for decentralized networks to mobilize cash economies and provide access to more stable digital currencies.

*Charts: Underbanked countries also suffering from high inflation*

Overall, these financially exclusive cash economies make saving, borrowing, and transacting a difficult and expensive process, which limits the potential for individuals to utilize their paychecks for economic growth.

Technology Ready for Mobile Payment Adoption

The proliferation of smartphones has opened channels for economic inclusion, as 3.7 billion people in developing countries are now connected to mobile services. Furthermore, unbanked populations already view mobile money accounts as trusted alternatives to central banks, as evidenced by the 690 million registered accounts worldwide.

Vodafone’s M-Pesa in Kenya is a prime example of how mobile money services can enable financial inclusion and economic growth. Through its network of 40,000+ agents (oftentimes individuals or small shops who accept cash and load mobile credit to M-Pesa accounts for clients and vice versa for withdrawals), M-Pesa’s mobile money transfer services are used by 96% of the Kenyan population and have lifted over 194,000 households out of extreme poverty.

Vodafone’s success in Kenya provides a clear roadmap for user adoption, so why do we even need another mobile payments solution?

First, public companies like Vodafone are inherently limited and misaligned due to their centralization and fiduciary responsibility to maximize profits for investors via transaction fees. In addition to higher fees, centralized services like M-Pesa are susceptible to local currency inflation, fraud, exchange rate risk, and high friction with cross-border transfers.

Decentralized networks (including blockchain and more generally distributed ledger technology) have the potential to dramatically lower costs and frictions by enabling direct peer-to-peer transactions via a natively digital currency on an open, trustless, and cryptographically secure network. However, existing decentralized networks have failed to gain mainstream adoption due to poor transaction capacity, speed, and price stability relative to centralized payment solutions.

Enter Logos: The Optimal Payments Solution for the Mobile Economy

As a decentralized digital currency, Logos vastly improves upon existing mobile money technology, offering a full-stack solution for users to extract the most value and optionality from their paycheck as a medium of exchange or store of value.

As a medium of exchange, Logos’ technology provides better performance than any existing centralized or decentralized payment solution in the market — and at a dramatically lower cost (see Logos vs. Incumbents).

Users can now make real-time, cryptographically-secure money transfers to anyone in the world at an all-in cost of just a fraction of a cent. For the equivalent of $1, it’s possible to send 100,000 transactions. This opens the door to a wide variety of frictionless and immediate use cases, such as remittances, direct deposits of payroll, bill payments, and purchases of goods and services.

As a store of value, Logos has native support for stablecoins pegged 1:1 with the U.S. dollar and other fiat currencies, allowing users to save with guaranteed price stability and cryptographic security.

Logos also offers a simple and intuitive user interface that makes it easy for anyone, anywhere with a smartphone to efficiently and securely transact, without having to worry about complex onboarding or prior knowledge of cryptocurrencies. Not only does this enable financial inclusion, but our best-in-class engineering allows for easy integration with other mobile applications for access to financial services and geo-specific solutions.