Doing good through for-profits: Wave and financial tech

M-PESA ATM Withdrawal

Get the rest of our series on doing good through start-ups by signing up to our newsletter.

Wave is one of the most high potential social impact for-profit startups we’re aware of, and it was co-founded by someone in our effective altruism community – Lincoln Quirk. Wave allows immigrants to send money from North America to relatives in Kenya, Uganda, Tanzania and Ethiopia with much lower fees than if they used Western Union or MoneyGram. (Though Wave existing is nothing to do with 80,000 Hours, someone we recently coached chose to work for Wave and help them expand into the UK.)

Why is Wave such an important company? Previously, if immigrants wanted to send remittances, they had to use Western Union or MoneyGram. Both the sender and receiver would have to go to a physical outlet to make the transfer, and worst of all, the sender would have to pay 10% in transfer costs! Lincoln Quirk and his cofounder Drew Durbin have built software that allows instant transfers from a mobile phone in the US or Canada to a mobile phone in Eastern Africa or Ethiopia – and they only charge 3%, a saving of 7%.

For each dollar of revenue that they make, they are saving $2.33 for someone in the world’s poorest countries. Assuming a 20% profit margin, the figure is $12 in savings for each $1 of profit.

The potential positive impact of this idea is huge. Annual global remittances are $450 billion, several times the total global foreign aid budget. The potential impact Wave could have, by lowering the cost of sending remittances by 70 percent, amounts to billions of dollars in extra financial flow from rich countries to poorer countries every year.

This business has became viable where it previously hadn’t been because of the rapid growth of M-PESA and other mobile phone based payments systems in Eastern Africa. These services are better than what’s available in the US or UK today.

Lincoln was a coder and spent 1.5 years working in the video game industry. He preferred the idea of starting companies, but wasn’t convinced he was good enough at it, and lacked good enough ideas. However when he met his co-founder Drew, he was sufficiently motivated by the product ideas they came up with together to try.

People in the Centre for Applied Rationality and the associated community encouraged him to pursue entrepreneurship to have a larger impact. Though he thinks he would have done so anyway he found their advice helpful in other ways:

”CFAR material was highly impactful in making me far better at startups than I otherwise would have been: For choosing what to work on, noticing rationalization and aversions; for being a good communicator, asking for examples and listening to what people actually say instead of what you want them to say; for individual productivity, trading off time and money for attention, and installing conscientiousness systems.”

Early on he applied and got into Y Combinator. Their first attempted product was a dating app. This is a classic sexy Silicon Valley idea, that, while useful, is unlikely to change the world in a really big way because a huge number of such apps are already being funded by venture capitalists. Fortunately, their dating app didn’t work out, and neither did texting, location sharing or video chat. Lincoln’s explanation was that “although we created great products and were effective at distribution, we weren’t working on something people really wanted.”

They considered a bunch of other options, but decided to pursue Wave because of the larger potential to help people, and the fact that the Kenyans they spoke to were desperate to use the product even before it existed. In Lincoln’s words:

“The most sticky moment was the first week of researching the idea when we talked to some Kenyans and described our idea, and they were very excited and said “this will grow like wildfire” and “when can I use it?” That was by far the most excited anyone had been about one of our startup ideas, and it was multiple people. We looked at each other and said “we have to make this work”.”

Lincoln is glad he stopped trying to do good indirectly by just trying to become successful first:

“…during our prior startups we had previously been in the mindset of “make something successful first, in order to generate experience and get the resources to do something truly impactful”.

We realized that was a bad idea – we called it the “deferred life plan”. If you want a thing in the world, it’s much better to directly work on it even if your leverage seems tiny; we were rationalizing not working on it because the other path was more comfortable. In retrospect, the deferred life plan was one of the worst lifestyle choices I had made.”

Wave has the wind behind its back in part thanks to the many benefits of being a for-profit (rather than government program or non-profit):

  • You can fund your growth through your own revenue;
  • You can raise capital more easily because you have the promise of future revenue;
  • Because you have access to money, you can hire talented staff who are motivated by a higher salary;
  • Thanks to your growth, you can reach a huge number of users and do a lot of good, even if you benefit each one less because you have to charge.

If Lincoln had chosen to become a software engineer, he likely would have made between $150,000 and $300,000 a year, half of which he might have given away to people in poverty in Kenya through GiveDirectly. As it is, his company only needs to move $8 million in remittances to have a similar level of impact.1 While the company is tight-lipped about its exact size, it’s likely well above that. The biggest argument against this approach relative to earning to give is that a similar would have happened soon anyway, as competition between remittance companies has increased a great deal in recent years. Nevertheless, because the scale of the upside is so large, even just accelerating the process a little does a lot of good.

Lincoln thinks Wave can also do good by increasing the growth of electronic currencies across Africa. Lincoln commented:

”A huge aspect of our potential impact is that we’re trying to create our own mobile money. Mobile money systems have transformed Kenya – Kenya is rapidly moving to a cashless economy (40% of its GDP already goes through M-Pesa) – reducing transaction costs, theft risk, and providing a platform on which lots of incredible products are built, including Wave, M-Kopa Solar and GiveDirectly. If we can create the M-Pesa of Africa we could move the needle on the rate of Africa’s development as a whole.”

If you’d like to learn more, you can follow Wave on Facebook, or check out this interview with Lincoln on a Kenyan TV show. Lincoln also has a personal website.

For more on how to do good through startups, join our newsletter and we’ll send you the rest of our series when it’s finished. Or check out our interview with a startup founder who’s pledged to give all his income above minimum wage to charity.

Notes and references

  1. Our logic here is that half of $250,000 is $125,000. If Wave moves $8 million it will save people 7% ($560,000). However, the recipients of GiveDirectly's transfers are particularly poor for Kenyans - they have about a fifth the average annual income. So, if the value of money follows logarithmic returns, and the transfers go to people with a combination of people half the average income, the average income, and double the average income, they will need to save them about four times as much.

Robert Wiblin

Rob studied both genetics and economics at the Australian National University (ANU), graduating top of his class and being named Young Alumnus of the Year in 2015.

He worked as a research economist in various Australian Government agencies, and then moved to the UK to work at the Centre for Effective Altruism, first as Research Director, then Executive Director, then Research Director for 80,000 Hours.

He was founding board Secretary for Animal Charity Evaluators and is a member of the World Economic Forum’s Global Shapers Community.