A Philippines Startup Shows How Emerging Markets Tech Firms Could Leapfrog Banking

By February 28, 2015Bitcoin Business
Click here to view original web page at www.forbes.com

Judah Hirsch has a business that many U.S. entrepreneurs would dream of. He’s just won a global competition that brings with it a $500,000 investment and the chance to pitch to regional VCs. His two-year-old payroll software and hardware company, Salarium, expects $2 million in revenue this year and is close to profitability.

And here’s an intriguing twist in Hirsch’s story: Like other financial startups in emerging markets, they are playing a role in a crucial social issue: banking the unbanked.

“A lot of people around the world are figuring out how to bank the unbanked,” Hirsch said. “The best way is through the salary.”

One of the systems his company offers is payroll deposits that land directly on prepaid credit cards. You can think of obvious problems with that if you’re thinking from the Western mindset (people are more likely to spend or lose the money, for instance). But it gets people out of a cash-only mindset, which is a huge obstacle to economic development in emerging markets.

“About 40% of the people here are unbanked, and credit card penetration is only 3%,” said Hirsch. “It’s very difficult to tell people that the paper money you know is worth something, put it in this bank.”

If Salarium makes its method of paying people cheaper than other solutions for employers, thousands of people who never used banks or credit card will have to — because that’s how they will be getting paid. In essence, their bosses will make the decision for them. Salarium has 50 companies as customers, with about 5,000 employees.

“We are doing an end-to-end payroll software company, trying to take something as unsexy as payroll and make it easy,” Hirsch said.

Salarium’s system includes a device that helps people clock in to work, a database that keeps track of hours and taxes, and software connections that get the money into employees’ bank accounts or onto prepaid credit cards. Companies in the United States offer similar systems. Salarium has just partnered with New York-based PyxPay to provide an e-wallet with the prepaid credit card.

Salarium won the Global Seedstars competition his year. The competition is a fascinating window into the way emerging markets are leapfrogging along the path to development in some ways. Many of the finalist companies are in finance, or merging ecommerce with finance. Scandid, for instance, uses barcode technology to help consumers compare prices. Nigeria-based Simple Pay, is an online payments company for small businesses and consumers.

Earlier, I wrote about Ghana-based Kitawa, which is building a Bitcoin-based online payments platform. And there’s Remit.ug, which enables people from all over the world to transfer money to mobile wallets in Africa.

The kinds of fast-growing Internet finance companies beg the question: What does an economy look like if it grows up with an electronic banking system, instead of one grounded in bricks-and-mortar institutions? What happens when you skip straight to Internet?

The Philippines is a huge country of $98 million with growth that has been averaging 5% a year. There are downsides of course: Internet service is slow and spotty, and Hirsch is thinking about building dormitories. If a typhoon strikes (as they do more regularly, lately), and his employees can’t get home, they can spend the night in the office.

According to Hirsch, who has lived in the island nation for a decade, payroll taxes are particularly onerous. “There are over 100,000 variations of payroll in the Philippines,” he said.

As in most places in emerging markets, the banking system is still evolving. That brings a mix of challenge and opportunity for a fast-moving startup to implant itself early into the DNA of electronic banking.

Hirsch, 31, was born in Pittsburgh and grew up in Israel. He earned a reputation as a manager, he said, operating call centers in Israel. He wasn’t afraid to fire people who didn’t show up on time. When his company, IDT Global, wanted to open a call center in the Philippines, he was tapped for the job.

Then he was off and running. He founded a professional services firm, providing legal and accounting services, and used the cash generated from that operation to get Salarium off the ground. The company has 11 employees, 10 in the engineering department, and is now raising its A round. Salarium charges $4 per employee per month.

The company may end up partnering with some of the other Seedstars companies, including Nigeria’s Simple Pay, which has mobile wallet services

Along with Scandid, these were the other Seedstars finalists:

Singapore-based 6degrees, described as a connected, self-updating phonebook that helps you search your friends’ networks, get introductions to new people, shops & businesses.

South Korea-based Krowd Pop, a concert crowd funding platform dedicated to K-pop.

Peru-based Busportal, which helps people find, compare and buy bus tickets in Latin America.

Brazil-based Ploog, which helps businesses manage their IT environment by simplifying the workstation concept.

Armenia-based Sololearn, an e-learning platform.

Argentina-based The Other Guys, mobile/social games studio creating immersive, episodic and story-driven “interactive series.”

Thailand-based WashBox24, a software and locker system to speed up your laundry service

Kenya-based OkHi, which gives every smartphone user a physical address

And here’s an intriguing twist in Hirsch’s story: Like other financial startups in emerging markets, they are playing a role in a crucial […]

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