Tech in finance: Towards a cashless society

BY PETER WANYONYI There was a myth repeated across Kenya to young people back in the 1980s. If a young person asked where money came from, they were told that money was made in a secret factory by a man whose legs had been cut off so he wouldn’t escape with all the cash. Then, as now, the creation and printing of cash was perceived as a high-security affair, and for obvious reasons: once the banks created the cash using one or other method – typically by employing a variation of Fractional Reserve Banking – the government then authorised one or more companies to do the actual printing of banknotes and minting of coins. And printing money is expensive: in 2014, Kenya spent well over 2.4 billion shillings on printing money. This wasn’t the only cost associated with our physical currency, however: the banknotes and coins required, and continue to require, tight armed security, they must be transferred from place to place – between banks, from banks to the Central Bank and back, and so on – and the government also has to spend billions guarding against counterfeiting. And all that is before the cash finds its way into people’s hands and wallets – because it then becomes an incentive for crime and provides an untraceable conduit for corruption: the corrupt always demand cash. Cash, therefore, is expensive, inefficient, and dangerous. It is therefore surprising that, for millennia, humans have not found a widely-accepted substitute for cash. Until now. Technology in the 21st Century has revolutionised practically everything in daily life, and money is no exception. Readers will have been aware of the debate surrounding digital currencies such as Bitcoin and ZCash, with authorities in Kenya getting into a tizzy over the possibility that Kenyans were trading in Bitcoins. That worry, however, was misplaced: Bitcoin is a highly segregative currency, one whose adoption requires a more than average understanding and acceptance of computers and technology, and it is never going to catch on in a technologically backward place like Kenya. What the authorities do not realise, however, is that Kenya is well on the way to becoming a real cashless society – indeed, in many places, Kenya already is cashless. We still use Kenyan shillings, but we never carry them around – because of Kenya’s most important contribution to civilisation: mobile money. All across Kenya, merchants are accepting payment in mobile money – there is no exchange of physical cash, merely entries in electronic ledgers that move value from one account or mobile wallet to another. Currently, it is estimated that over 50% of Kenya’s GDP passes through M-PESA, our biggest mobile money platform. That’s an incredibly large sum of money – but the real impact of mobile money is in its ability to extend banking to the millions around the country who are effectively unbanked: they have no bank accounts and are unlikely to meet the snooty requirements that banks throw up before one can open a bank account. And so the debate that the world of finance has been having – whether digital currencies will replace actual currencies – has been the wrong debate. The real debate is not about replacing currencies: it is about replacing physical money with cashless transactions. In the West, this has already happened to very large extents: the vast majority of transactions in the West are carried out using electronic payment systems. Companies like Visa, MasterCard, PayPal and the like have pioneered payments systems that have more or less replaced cash in those societies. For a long time, Africa was behind this revolution, as debit and credit cards were a difficult sell in an Africa with a tiny middle class and without the usual risk mitigation measures that Western economies have put in place to safeguard their payment systems. But then the mobile revolution hit Africa, and everything went mobile. Our conversations are on phone, our interactions are on social media, and now our payments are on M-PESA. Where the Central Bank of Kenya had to print wads and wads of physical bank notes and distribute them around the country to facilitate commerce, they today are printing fewer and fewer notes because the number of transactions involving actual physical money changing hands have reduced drastically. This is a good trend, and the government must do all it can to encourage it. There are huge gains to be made: first, the government will not need to print so much money, saving – ironically – money! In the end, we will not even have to print money at all. Second, mobile money transactions can be tracked and traced from origin to destination, with extensive logs of who sent what and who received what. These are permanent records that will always be there, and they make it easier for the government to collect, account for and predict revenue: taxes and the like are so much easier to pay and receive when it’s just a mobile transaction. Third, corruption is easy to spot and stop when mobile transactions are used. Today, a corrupt government official will receive money in a briefcase in his house or at the bar in the evening and no one will ever realise what’s happening. But in a mobile transactions society, suspiciously large amounts of money moving from or into a given mobile account can easily be flagged and tracked to establish just why the money is changing hands, and to confirm whether the exchange is legitimate or a bribe. In the end, the transition to a cashless society in Kenya will depend on what incentives the government puts in place. But with a mobile penetration of over 80%, and with over 70% of the population having mobile money subscriptions, it is in the interests of this country for the government to begin pushing us towards cashless transactions riding on mobile money.

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