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You might think that you’re familiar with the idea of electronic money. After all, for most of us, most of our money flows in and out of our banks accounts as bits of data somewhere in cyberspace. But what if we didn’t have bank accounts, credit cards or any of the associated financial services? Obviously, we’d then have to rely on cash alone.

Until recently, this was everyday life in Kenya, where millions of people have had to use cash for all their financial dealings – despite the obvious transaction costs and security risks. But in the last five years a remarkable new development has transformed the situation. IEEE Spectrum reports:

  • “Kenya is now home to the world’s most expansive mobile payments scheme, M-Pesa… It was launched in 2007—not by a bank but by the country’s biggest mobile operator, Safaricom… The system’s nearly 15 million users can use their mobile phones to deposit cash into their accounts, using as a point of deposit any of the 28,000 shops around the country that participate. Users can then move their deposited money about with an application built on top of the text-messaging function of their phones. When they want to buy something, they just text the money to another person, shop, or bank that is also in the system; money is then debited from the payer’s account and credited to that entity’s account.”

Over the last decade, mobile phones have allowed emerging economies to leapfrog the landline stage of communications development. But now what we see is the use of mobile networks to leapfrog other developmental stages – in this context, conventional financial services infrastructure:

  • “A third of Kenya’s gross domestic product now flows through M-Pesa, and an amazing range of new businesses have sprung up to use it, none of which were envisaged by its founders. Farmers buying insurance to take animals to market, bars that operate cash free (and therefore robbery free), shops that use it as a kind of “night safe,” savings accounts that can be accessed only from online…
  • “Within a year of its launch in 2007 it had 5 million subscribers, more than all 43 of Kenya’s commercial banks put together.”

It's worth noting that the M-Pesa network was developed with support from our own Department for International Development – demonstrating that aid is not necessarily antithetical to trade. In any case, Kenya’s electronic money revolution is heading our way:

  • “In the U.K., the Payments Council—a coordinating body for the financial industry, set up in 2007 by government order—has begun working on a national mobile payment infrastructure.”

Of course, we already have widespread access to conventional financial services, but a mobile payments system in the western world could have a revolutionary impact of a different kind:

  • “…let’s assume that the mobile phone will take over and that in a few years’ time, you’ll be able to pay Walmart or your window cleaner or your niece with your mobile phone. In this world, switching among dollars and euros and frequent-flier miles and Facebook Credits and Google Bucks and any other form of money will be just a matter of choosing from a menu on the phone. The cost of introducing new currencies will collapse—anyone will be able to do it.”

The idea that “anyone” could create a new currency is somewhat disconcerting. Surely, this is an area best left to senior politicians and central bankers? Oh, hang on…

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