How peer-to-peer changes the financial world
Another factor of reimagining finance for the internet age is the very nature of person-to-person connectivity and peer-to-peer networking. These two factors are very different and also different in the nature of how people are connecting.
In the developed world, we have the viral connectivity of the smartphone; in the developing world, we have the basic connectivity of the mobile phone. Soon, both will transition into smart and mobile objects from cars and televisions to heating systems and refrigerators. In fact, with Nest and Samsung Home, it’s already pretty much there.
The banking system meanwhile is still stuck in a world of debit and credit transactional structures of volume and value based upon people paying for things. As we move from paying for things to consuming parts of things and as our devices order those things on our behalf, the banking system needs to rethink.
A great example is what we saw coming out the M-PESA success in Kenya. Many say this has not been successful in other countries, and yet one in three Africans with a mobile subscription are actively using mobile wallets today, more than any other continent. This is because Africans have realised that once they are on the network, they can do far more than just talk.They can transact, trade, text, transmit and telecommunicate. A world has opened to the billions of people who were formerly off the network and, as a result, they are reinventing the network. For Africans, airtime is a value store.
In fact, the M-PESA system created something interesting: financial inclusion. When the system launched almost a decade ago, only 2.5 million Kenyans had bank accounts; now, 15 million Kenyans are banked. This is because mobile transactions create mobile credit histories create bankability. More than this, when banks like Equity bank in Kenya saw the success of M-PESA, they woke up to the opportunity and eventually competed with them. From a service originally scorned as opening up fraud and theft opportunities, M-PESA has led to a rethinking of financial services.
Add to this the work of charitable trusts like the Bill & Melinda Gates Foundation and the World Bank, UNESCO and more, and we see other focus on mobile financial inclusion coming through. For example, how come there’s so many malnourished children in Africa? Live Aid and other big fund raising events have scourged into our brains the idea that Africans are regularly experiencing drought and famine. Why?
Sure, because there’s crop failure but how come they couldn’t insure themselves against crop failure? Because the system was not set up to provide insurance to people who lived on a dollar a day. So let’s imagine people living on the poverty line could bank half a cent a day as an insurance against crop failure. Just half a cent a day would be enough. Would they insure themselves?
Well the bet is that most would. So now project forward. A crop failure in 2020 in large parts of Central Africa, where millions of people with mobile telephones have taken out micro insurances against crop failure by saving half a cent a day to cover themselves against famine. No more famine in Africa.
That’s the dream, and dreams are becoming realities.