on economic backwardness

SiliconBeat writes about SmartPay's B Round and the advantages of "economic backwardness:"

Shanghai-based company, SmartPay, enables people to make payments from their bank accounts using the cell phone...

...it has just raised about $7.8 million in its second round of funding, and that it includes Silicon Valley's Accel Partners among its backers, according to today's VentureWire (sub req). And RRE Ventures, a New York-based firm, invested even though the firm has never done a deal in China before.

Why? Because SmartPay apparently has a large, growing base of customers (more than half a million), and because China lacks a payments infrastructure:

"In China you do not yet have an easy mechanism to provide for electronic payment. You also don't have what we've had historically - a paper-based check writing system," said RRE's Jim Robinson.

This is called the advantage of economic backwardness. China doesn't have the baggage we have with older forms of payments, so they can leapfrog ahead of us when they do start investing in new technologies...

Personally, I can attest to the economic backwardness of some of China's payment systems. Registering for the ATI Entrepreneur Conference organized by Stanford, I got instructions to go to my local post office or bank to wire funds to the organizers, then produce a receipt for the transfer in order to confirm my spot. And a friend told us of his full-day ordeal trying to deposit a check into his local bank account. He'd made the mistake of folding it and putting it into his wallet, which, duh, of course, invalidates the check. He had to make several trips to the bank to straighten it out and in the end had to ask the check writer for another check. So I can definitely see how on-line transactions and one-offs are a huge opportunity.

But as far as an overall replacement for a paper-based check writing system, I think China's already made substantial progress in many areas. Running down the times when you might need a check: most everyone I know gets direct deposit of their paycheck into their bank accounts. While we get paper bills for our utilities we can take that bill to most banks and use an ATM to pay straight from our account, or we can go to almost any convenience store and pay cash. Otherwise, the only other times I have to deal with a wad of cash is when I pay our rent; it's cash or go down to the bank and do a wire. We've also paid cash for airline tickets to make the transaction easier for the delivery person and to save on fees. So some room for improvement, but paying utility bills down at the local bodega is pretty reasonable.

Where I think the "economic backwardness" advantage is maybe most prevalent is the other basis of SmartPay's model - cellphones. Most everyone in the city has one or more cellphones, even though many didn't have landlines recently and to this day some still go down to the corner to use the phones at the newstand.