Payments Views


Do You Want a Million Dollars?

I was delighted and fascinated to see that the Gates Foundation has issued a “Grand Challenge” on enabling universal acceptance of mobile money payments.  The Foundation’s previous best-known challenges have been in healthcare, notably for toilets and condoms, so this is quite a change!

The Foundation is soliciting two-page proposals on innovative devices, software or business models that can dramatically increase the acceptance of mobile payment solutions by small businesses and service providers “and other members of the ecosystem serving the poor”.  Winning applicants will receive a $100,000 grant, and may potentially receive a follow-up grant worth $1 million.

This is a very large problem.  Although there are more than 225 mobile money payments systems active in the developing world, almost all of them, including success stories like M-Pesa, are used primarily for transfer, with payers “cashing-in” to send digital value and “cashing-out” after receiving digital value.  And this phenomenon is not limited to the poorest of countries: many other countries, including China, Russia and even Japan, continue to have the majority of daily transactions handled by cash.  In the United States, recently published Federal Reserve Bank research shows that 40% of purchase transactions are done in cash.

I’ve thought (and written) a lot about this issue in recent years.  In my opinion, we will never get to what the Gates Foundation calls a state of “digital liquidity” (where money remains in digital form) until end-users (consumers and merchants) consider mobile money “as good as cash”.  That’s a somewhat shocking phrase to use in the payments industry in the developed world, where we have all built careers on replacing cash and assume it is a bad thing.  But for many people, cash is a very good thing.  It is easy to use, universally accepted (almost), and perceived to be free.  That last point is very important – it doesn’t matter if you do a million studies showing that cash costs small merchants money – if they don’t believe it, and believe that cash is free, then that’s the standard you have to beat.

And finally, you don’t have to have an account to get or use cash.  People talk about anonymity, but I think that’s a red herring.  The truth is that cash is intuitively simple: I have it, I want to give it to you, and I do so.  No account or service provider required.

Which brings us to… hmmm… what other system has that attribute?  Can you say Bitcoin?  Just a reminder to the industry – if we don’t get our “sustaining innovations” right, “disruptive innovations” are right around the corner.

So – if you believe (as I do) that mobile money and financial inclusion initiatives in general represent a tremendous opportunity to improve the lives of poor people, then solving this “cash-in”, “cash-out” problem is imperative.  It will be fascinating to see what comes out of this “Grand Challenge”. (And, not incidentally, how many responses involve math-based currencies!)

Kosta Peric at the Gates Foundation (previously the force behind SWIFT’s Innotribe initiative) says that this is an opportunity to “make financial inclusion a reality, and conquer one of the great challenges of our time”.  I agree!

This PaymentsViews post was written by Glenbrook’s Carol Coye Benson.

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