Digital Money Forum

Camp community

[Dave Birch] There was another thought-provoking BarCampBank in London last month. Many thanks indeed to Frederic and the gang for pulling it together and a special mention for Sun's super hospitality. As well as catching up with friends and meeting new people, I got to sit in on a series of fascinating discussions. Some of the ideas being kicked around were fairly mainstream, but some were really out of the box (I particularly liked the lunar phase model for hedge fund investment). All I ask from such an event is to go away with more ideas than I came in with, and once again the format and the audience delivered. But what I've been reflecting on since the event is one specific thread: community. During the day there were some excellent discussions about community banking, community currencies and community enterprise. Now, obviously, I tend to look at these through a very narrow prism -- which is: how can my customers make money from this? -- but I'm also aware and in many cases enthusiastic about the link between the business case and the social case.

In Canada, there's a branch of CIBC that already sells "Toronto Dollars". I'm going to be in Toronto next month so I'll see if I can check them out report back. What I'm curious about is the relationship between "conventional" banking and "unconventional" money. Although it's hard to put a finger on it, there's clearly an opportunity for the mainstream to take advantage of a number of trends but is it as a distributing and marketing channel or is it at a more fundamental level? There are clearly opportunities for banks to integrate with alternative payment mechanisms, although that's not to say that the opportunity will come to them automatically.

All these alternative payment methods are showing huge growth, according to Javelin’s consumer surveys, and they present the opportunity to link with specific merchants and generate revenue from business-to-business services, ranging from acquiring to deposits and cash management. But banks must fight harder to make sure these opportunities do not migrate to other companies, and to ensure that the payment alternatives remain bank products.

[From Javelin Strategy and Research » New Opportunities for Banks in Alternative Payment Tools]

What I'm thinking about here, though, is that the Totnes Pound and the Toronto Dollar are not simply an alternative, local payment mechanism that banks (and other businesses, of course) can use as part of broader strategies implemented at local levels. These currencies mean more than that, so banks need more sophisticated strategies to deal with. I'm not a psychologist or ethnographer, but even I can see that alternative currencies have meaning beyond the medium of exchange.

Bruce Davis, the social life of money

[Dave Birch] Bruce is has been a pioneer of ethnographic approaches and insights in the development of new brands and businesses. His work on the social life of money was the basis for the creation and launch of www.zopa.com which was named internet innovation of 2006 at the CNET Network awards. A personal favourite is his “ethnographically inspired” whisky www.monkeyshoulder.com, created for William Grant & Sons which is following up its success in the UK with the aim of becoming a global brand.

By carrying out several major ethnographic studies in the UK over the last 9 years, he has built up a detailed and powerful picture of the trends and behaviours that are shaping the UK in the Noughties and into the “Teens” – told from the perspective of different individuals and communities. He has been ‘deep hanging out’ in many corners of our society including looking at issues of maintaining family life for single parents, working behind the counter of independent shopkeepers, what it’s like to be an anarchist on May Day, and the impacts of changing social attitudes to money and finance. He is a regular writer and speaker on the subject of branding, innovation and social trends and has started an excellent blog on the social life of money at Oikonomics.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

I bank, you bank, we bank

[Dave Birch] I was at the National Endowment for Science, Technology and the Arts (NESTA) get together, weBank ("can people replace institutions"), as were a number of Forum friends including James Gardner and Giles Andrews, Anthony Evans from BarCampBank and many others. I was really surprised by the turn out, as I had no idea how many people are interested in social banking and such like. There were a lot of different P2P lending organisations and institutions, a wide variety of organisations in the audience, and an interesting overlap with the world of digital money and alternative currencies. The speakers were Giles and James together with Umair Haque and Christian Alhert. (Umair wrote a piece about "next generation currencies" that I was going to blog about before I realised that we was going to be at weBank -- now I'm going to blog about it and podcast him.)

There was a presentation about Zopa which gave an overview. There's no need to repeat it here except to say that the top requests at the moment are for car loans, weddings and (which I have to say I was surprised about) surgery and medical expenses. And a note to the Chancellor: they have only 0.2% bad debt.

There was also a talk from Kubera money, about "rotating savings and credit associations" (ROSCAs) but the chap said he didn't want to give away anything about the company because it was pre-launch so I didn't write anything down. He did introduce some interesting points about the way in which these kinds of credit associations work in existing trusted circles (and therefore don't need to credit check, which saves lots of money) and I thought that might be an interesting subject to explore at a future seminar.

Midpoint & Transfer introduced us to the "foreign exchange revolution". The idea is to match currency buyers and sellers directly and cut out the exchange (and spread) from f/x transactions. It all sounded quite promising -- I worked on a feasibility study for a similar idea for a UK-based financial services company about five years ago, only for a handful of major currencies, but they concluded that it was not something they wanted to pursue -- and I thought their claim that they would guarantee that any f/x would match intraday was bold (it turns out that they will buy the currency needed to make the match if no sellers are on the system).

I enjoyed the panel discussion, because I always enjoy panel discussions that have real experts on them and James, Giles and Umair all made terrific points. A couple of memes that I have flagged for future reflection: the cost of regulation (is it worth it?) and the scaling of social lendin (does it only work on a small scale),

Giles Andrews, Zopa

[Dave Birch] There's no doubt that something very interesting is going on in the place where social networks, P2P and banking begin to overlap. The idea of directly connecting, for example, lenders and borrowers subverts one of the core functions of banking in a modern economy -- but that's no reason not to do it. In fact, a few people are having a go. As John Clipplinger observes, in many ways it's rather surprising that these guys didn't get off the ground earlier and that there aren't more of them, but they are certainly attracting attention:

Social banking platforms - such as peer-to-peer (P2P) lending networks like Zopa and Prosper - will grow to control 10% of the worldwide market for retail lending and financial planning by 2010, according to research by consultancy Gartner.

[From Finextra: Banks facing increasing competition from social networks - Gartner]

This seems a bit far-fetched to me, but anyway I decided to go and talk to Giles Andrews to find out some more about the generally important area of social lending. Giles is the UK Managing Director of Zopa. Before helping to set up the social lending company, he spent 10 years in the motor industry, co-founding Godfrey Davis Motor Group. Then set up his own consultancy practice where clients included Tesco and Tesco Personal Finance. In this podcast he explains what Zopa is and where it may be going, and in passing introduced me to the utterly splendid idea of the personal bond market.

Retail not-banking

[Dave Birch] The relationship between payments and banking is, generally speaking, under some pressure from both developments in technology and wider cultural and business changes. Although these pressures exist in the developed world, they are most visible in the developing world where the lack of existing infrastructure means that technology and business change come together unencumbered. The result is called by some "branchless banking", although in the payments space "bankless banking" might be more appropriate. Anyway, the essence of the concept is access for the financial excluded through non-bank distribution channels. Why? Well, in many (if not most) countries, most people don't have bank accounts:

Statistics from the Central Bank shows that banks currently hold less than 3 million accounts, both current and savings across the country. The present development which is not healthy for the economy means that less than 15 percent of the about 22 million population in the country saves with the banks. According to the data, while the economy is cash based, 80 percent of cash is outside the universal banks.

[From 18m Ghanaians Shun Banks - ModernGhana.com]

Look at the example of Brazil to see how the technology, business and social factors can co-evolve: In Brazil, payments account for nearly four-fifths of bankless banking transactions. In other words, transactions that are performed over electronic channels (in countries like Brazil, this almost always means mobile, not the internet) are overwhelmingly payments transactions. Again in Brazil, 90% of the people who use some form of branchless banking, use it to make utility payments and other non-interpersonal payments. And of those people, only 5% have a bank account. This market shape is unlikely to change because the cost of providing these people with bank accounts that have the potential to deliver a wide range of financial services, but the cost base to go with that is simply too high. In fact, I would go further and say that it seems to me entirely likely that of the small number of people who do have bank accounts, many of them only really want payments accounts (if we can them that). Therefore if technology makes it cost-effective to deliver payment accounts into mass markets, then the demand for bank accounts at the low end will fall further.

The role of the mobile phone in all of this is critical. Mobile banking providers have now both the products and the implementation experiences needed to open up much wider markets. They are held back or constrained in one rather obvious way, which is that they depend on the handset manufacturers and mobile operators to provide the platform for the functionality that they need, and this often constrains the customer experience, but nevertheless they are taking transactions to the masses.

M-Pound?

[Dave Birch] I was in a discussion the other day -- the circumstances aren't relevant -- when one of the participants (from a regulatory background) suggested that "third world" payment schemes (such as our very favourite mobile payment scheme, Vodafone's M-PESA) might actually be suitable for places in U.K. where people lack access to conventional financial services. So might Vodafone be prepared to try M-PESA out in a lawless wasteland, where life expectancy is 54 and falling (in Iraq, it's 67), where 170 gangs roam the mean streets and where a quarter of a million children are living in poverty? No, they're not ready for Glasgow yet, so they're going to Kabul...

Afghanistan GSM network operator, Roshan is to launch a mobile payments service, based on Vodafone's M-PESA service. The service, branded M-Paisa, is a mobile technology platform that provides financial services for those without access to banking and aims to facilitate economic activity in the region.

[From Vodafone Launches Mobile Payments in Afghanistan]

I'm sure this will be the first of many launches. The M-PESA model works, the technology works and the business works, so I'm sure it's going to go from strength to strength, especially given the size of the potential opportunity.

Mobile transactions carried out by 612 million mobile phone users will generate $587 billion by 2011, according to 'Mobile Financial Services: Banking & payment markets 2007-2011', a report released by Juniper Research on 30 January.

[From E-COMLAW.COM]

This is a colossal market, whichever way you look at it. And a great many of these potential users are people who are excluded from conventional banking and payment networks, so the impact of the mobile is very transformational.

Underdeveloped markets

[Dave Birch] Payments News points me to a new research report from the CFSI (not to be confused with our own CSFI: the US one is the Center for Financial Services Innovation, our UK friends are the Centre for the Study of Financial Innovation) called "Mobile Financial Services and the Underbanked: Opportunities and Challenges for Mbanking and Mpayments".  We often discuss the use of the mobile phone to provide financial and payment services to developing markets (a technology-driven strategy so obvious that even management consultants recommend it) -- and the overlap with other developing market financial trends such as microfinance -- but sometimes forget that there are a great many people in developed markets who are not served by current finance and payment institutions.  I thought it might be useful to look at the specific financial services highlighted in the report.

Technorati Tags: banking, mobile, p2p, payments, remittances

News(last)night

[Paul Makin] I trust you all watched Newsnight on BBC TV last night, and saw the piece on mobiles in Africa? One of our favourite digital money in developing country schemes, M-PESA, got some decent coverage, as did Safaricom's other mobile initiative (farm prices via SMS). You can read about it and watch the programme here.

Technorati Tags: micropayments, mobile

News(last)night

[Paul Makin] I trust you all watched Newsnight on BBC TV last night, and saw the piece on mobiles in Africa? One of our favourite digital money in developing country schemes, M-PESA, got some decent coverage, as did Safaricom's other mobile initiative (farm prices via SMS). You can read about it and watch the programme here.

Technorati Tags: micropayments, mobile

Mobile banking in Africa

[Dave Birch] The always excellent Payments News pointed me at a report called Mobile Phone Banking and Low Income Customers: Evidence from South Africa from the The Consultative Group to Assist the Poor (CGAP), United Nations Foundation (UN Foundation), and The Vodafone Group Foundation (VGF). Having had a chance to look through it, I found it confirmed our very bullish thinking on mobile payments in the developing world.

Technorati Tags: banking, mobile, payments