Digital money and innovation, again

[Dave Birch] There was a lot about corporate social responsibility in the Harvard Business Review that I finally got around to reading.  For us technical persons, Clayton Christensen et al on innovation is a set text so it was his (and his colleagues') piece that caught my eye.  He was writing about "catalytic innovations", which he says create systemic social change through scaling and replication, meet a need that is either over-served or not served at all, offer products and services that are simple and less costly, generate resources that are unattractive to incumbents and are ignored by existing players.  Should digital money be in this category?  There is a market out there made up from people who just need a simple payment account -- not a bank account with credit, statements and branches -- linked to a card (because cards are how retail e-payments are effected).  These people are either over-served, because they have to get a complicated and expensive bank account in the developed world, or not served at all in the less developed world because there are no bank branches or POS terminals.

Technorati Tags: banking, forum, mobile, remittances

Some organisations seem to have spotted them.  The GSM Association (currently active standardising NFC in SIM and so on) cheerfully point out that there are 6.5 billion people on the planet, that close to 3 billion of them have a mobile phone and less than one billion have a bank account.  Mobile communications operators and banks joined forces on Monday to make it easier and cheaper for hundreds of millions of immigrants and migrant workers to send money home by using their mobile phones.  Now, the GSMA and a group of operators are going to work with banks to provide services to migrant workers and take a chunk of the $230 billion international remittances market.  The aim is to reduce the transaction costs of sending small amounts of cash to just a few percent, from a current 20%+ for amounts as small as $50.  They hope to double the number of recipients of international remittances to more than 1.5 billion, while helping to quadruple the size of the remittances market to more than $1 trillion by 2012.  Mobile operators plan to partner with bank and MasterCard will pilot a global hub that will link together national markets and the local payment systems run by mobile operators in partnership with those local banks.  The idea is that people can load cash on their mobile, and order it to be sent to a mobile phone number in another country, where the recipient receives a message that money has arrived, making it as easy as sending a text message, much as they can with the Vodafone M-PESA scheme in Kenya, now extended in partnership with Citi so that people in the will be able to use their mobiles to send money to people in Kenya (with extension to Eastern European and Asian markets, such as Poland and India, in the near future).

Sunil Bharti Mittal, chairman and managing director of Indian mobile operator Bharti Airtel says that these developments will "revolutionise the money transfer industry with its advantages, such as reach, ease of use, and lower transaction costs and provide immense benefits to people in developing nations such as India", and I'm sure he's right.  But will it be a disruptive innovation.  In other words, will people make money in new ways, or will need people make money in the old ways (ie, transaction fees)?  India may well be a good place to find out, as it is both the world's fastest growing mobile services market and the biggest recipient of overseas remittances in the world, accounting for around 10 percent of the world market.  The State Bank of India, the country's largest, is also participating in the project, so what happens in India ought to be a useful indicator of how the scheme might develop.  Which remind me.  If only Mr. Leedladhar, the deputy governor of the Reserve Bank of India, had come along to the Digital Money Forum last year.  Then he would have know that his forward-looking suggestion that Indians in rural areas might be able to bank and make payments using a SIM card is actually rather old hat, since M-PESA (amongst others) has been up and running for some time.  He even goes so far as to suggest "This (SIM card) could function as a multi-application smart card, with some cash stored in it, in the form of e-cash."

My opinions are my own (I think) and are presented solely in my capacity as an interested member of the general public. [posted with ecto]

Comments

[Sanjay Dalal]

Dave, good insights on digital currency.

Nowadays, I charge everything from buying a cup of joe, grocery shopping, dining, and mall shopping on my credit cards. However, the pain has always been remembering to make payments on time, and sending in the checks or doing online payments.

I think pre-paid credit or debit cards would be a great idea - they work just like gift cards. Perhaps some of the banks are already doing this. You simply buy them in denominations of fixed amount ahead of time (it's like buying pre-paid air time on a cell phone) and use it as cash wherever you go. The only hangup would be if it runs out of cash in the middle of a transaction, and the need for refill.

The idea of a cell phone loading up cash makes sense as well. Beyond "texting" money to other cell phone users, it can also be used to transact at the point of sale. You buy items, and at checkout time, the scanner simply reads some code displayed on the cell phone (that indicates the available cash). There has to be a system that checks in real-time on whether there is enough cash available to transact.