On a larger scale, we can imagine monitoring the creditworthiness of the entire financial system. Currently, financial institutions are supervised individually, but there is very little capacity to understand things systemically. This came through loud and clear during the recent global financial crisis. We were caught unaware of the extent to which the risks of various institutions were correlated. The financial system has no “brain” to process systemic risks. But there could be one. I believe it is possible to create a transparent Google-like system for pulling together information about such problems.
For all their desire to take a slice of the banking and payment market, what the new-breed players do not wish to do is to handle customers’ cash. They are more than happy to delegate the function of cashing in and out to traditional banks, which operate an extensive infrastructure of ATMs and branches for this purpose. The need for this expensive infrastructure has limited the reach of financial services, principally in developing countries, as there simply is no business case for banks to open branches and ATMs in rural areas or urban slums. The result: about 2.5 billion people in the world do not have access to a bank account—they are trapped in cash, without safe ways to store and transfer their money.
Banks in Brazil were the first to take deposit and withdrawal transactions out of banking halls and into retail shops that exist in every village and neighborhood. If you can find rice and soap and Coca-Cola at these shops, why shouldn’t you also find basic financial services there? With the right technology, exchanging money between physical and electronic forms can be done securely, and as naturally as exchanging notes for coins. More disruptively, in Kenya, the mobile-phone operator Safaricom has developed a network of 30,000 stores through which its customers can cash in and out of their M-PESA mobile wallet accounts. That’s 200 times the number of branches operated by the largest bank in the country. Five years after launch, 17 million Kenyans—about three-quarters of the adult population—can send or receive money via cell phone.
And what about banknotes themselves—how are they dealing with the technological onslaught? In the arms race against counterfeiters, banknotes have been stuffed with special inks, strips, polymers, and holograms, but still no electronics. I have proposed a new kind of smart banknote that would allow you to do a cash deposit by transferring money from banknote to bank account, directly from your mobile phone. Cash withdrawals would entail the reverse: transferring money from your bank account to a banknote. The banknotes would go on and off as a result, and the on/off status would be immediately visible—say, through digital ink that appears and disappears. You could then transport cash around cheaply in its deactivated form (sorry, Brinks!), and your mobile phone would become an ATM (sorry, NCR!).
I think there will always be some role for cash—a mode of value that has a fixed denomination (do you really want to be exposing your full bank account every time you make a payment?) and always works, even without an acceptance device. Rather than cheering for digital technology to put an end to cash, as some do, it seems smarter to reconcile the benefits of both and find ways to integrate physical cash into the electronic world.
Technology has made it faster and easier to move money around, but it hasn’t fundamentally changed how we think of it or use it. Because money and banking are highly regulated, they may be the last of the information-based sectors to be thoroughly shaken by the Internet. The intricacies of regulation make it difficult for banks to be truly customer-centric. But the direction of technological innovation is clear: in the end, nothing will stand between me, my money, and my devices.
Ignacio Mas is a consultant on mobile money and technology-enabled models for financial inclusion. He was previously deputy director of the Financial Services for the Poor Program at the Bill & Melinda Gates Foundation and a director of global business strategy at Vodafone Group.