Money comes full circle (?)

(Ramblings below. Just thinking out aloud. Any guidance helpful.)

Currency evolved as a means of exchange of value, an improvement over the barter system. The barter system was in itself an exchange of value but it was not standardised and secondly, because the items exchanged varied from people to people, the barter system did not have the ability to duplicate/compare the value in two separate transactions. It could not “store” value  beyond one transaction. If you duplicated the same transaction in another situation with another set of people it may/may not have the same worth or value. It was each specific transactions that decided the worth of the exchange. The value of a transaction changed with the type of item exchanged and with the demand and supply situation of that item exchanged.

Commodity based currencies were the first to evolve, I guess, gold drops, silver coins, bronze coins. All created by nature and shaped into some form by men and introduced into transactions by a royal order. Standardisation arrived. Now, instead of the individuals deciding the worth of the exchange, the royal authority did.

Then came Central Banks and paper currency backed by gold, silver, etc. Now, instead of a small local kingdom, the value of a transaction was set decided by a Government. It created currency and assigned values based on gold stock available.Then the currency was de-linked from gold.

The Government or Central Bank now controlled the circulation and creation of more currency and hence had complete control over the value assigned to the currency.

With BitCoins, the creation of currency is decentralised to individuals instead of Central Banks or Governments. BitCoins interestingly do not represent a currency but a transaction . The worth of  a specific transaction is decided by individuals in that specific transaction. Its value goes up and down with the demand/supply. Is BitCoin a standardised Barter System with a central register where all transactions are authorised?

Will the on-demand economy lead to skewed availability of essential services?

a little bit ofOn- demand economy businesses (like say über, Elance, etc) do the great thing of connecting idle resources with those who need them, whenever they need them and all of this at a reduced or nil search cost.  So, on-demand economy platforms/marketplaces enable better utilisation of resources and improve overall efficiencies.

While most people normally prize certainty of income more than “freedom” from fixed long-term contract, there are some who do not want to be tied up in a fixed long-term contract. They prefer to take up a short-term engagement to provide their services as per the opportunity given to them by the on-demand business platform and continue to earn without having to bother getting the fixed long-term contract. Unfortunately, such elite groups are few in this planet and are usually comprised of people whose basic needs are already met from some other source. Such people stand to gain from the on-demand economy as well.

This means that the on-demand business model essentially leverages the marginal cost concept to make service available on a marginal cost basis instead of the marginal plus fixed cost that a user would typically incur when taking services from a service provider organisation that employs people under long term  contracts to provide the services. So, not  unusually, the services provided by on-demand service providers is often cheaper.

However, the benefit of the on-demand economy is when an “idle” resource is utilized. Meaning that, somebody who is otherwise employed with a full time employer (an employer that pays for his employee benefits and social security) is interested in offering his services in his free time to earn additional money to support his needs. The additional earning is expected to satisfy only incremental needs because basic needs and social security are already taken care of by the full time employer. Hence, he is able to offer his services at a cheaper cost than what his normal hourly rate would be with his employer.

Now, if this on-demand business platform works efficiently, his employer, who is currently paying for his social security as well as his marginal cost of services, might wonder if they should cut costs and take the services of somebody from the on demand business platform at a lower cost where the employer will just be paying for the services and not be paying for the social security.

Imagine a world where all employers or all people who need services think that  on-demand is cheaper and more efficient and hence they should all go the on demand way for all types of services.

Two situations can arise because of everybody moving to on-demand service platforms for getting things done:

Situation 1: Since there is nobody to pay their social security, the on-demand service providers will hike their charges per service to meet their social security needs and since they are now not sure of getting the next order/request for service, they will charge an additional premium to safeguard themselves. Which means the cost of each service will go up and the people who were earlier able to afford the on-demand service because it was cheap are now unable to get the service. Moreover since, everybody has moved on to provide on-demand service, there is nobody who can provide service even at the earlier affordable cost provided by the full time employers. Only the rich few can now afford a service which was affordable to many.

Situation 2: The competition keeps on increasing and on-demand service providers are unable to hike their charges because there is always more people ready to offer their services than there is demand. Hence, nobody pays for their social security.

Both situations are extreme and dangerous. But, both situations are possible in pockets depending upon local market conditions. The world is not perfect, it has a knack of amplifying the negatives in any good thing and so it will amplify the negatives in the on-demand model as well. Till we have a perfect world (!), we need to take caution to avoid the situations mentioned above but let us not stop walking. We need to appreciate the shortcomings of on-demand from the perspective of a more balanced world and take appropriate measures. Is the Govt listening?

On-demand economy businesses is great thing but we must find a way to avoid a situation where the entire world/ or a majority shifts to on-demand ways. We will then have a world full of informally employed where income is never guaranteed but is highly variable. Not everybody can handle the variability. Not every situation (say illness) a person faces can withstand the variability and that is why we value certainty of a job more than informal income. That is why we value full time employment more than contractual labour. That is why we value affordability of basic services.

Fact is,  on-demand services are a stylised version of contractual labour which has seen its share of criticisms because of the uncertainty that it brings to the lives of those who provide services and the lack of responsibility that it lets organisations live with. It creates a dis-balance in the garb of increased efficiency.  Contractual labour had negatively affected the lives of those providing the services. Unrestrained growth of On-demand in its current form threatens to affect both service providers and the customers of the service, unless a counterbalancing innovation/policy is found.

Why go cashless?

We want to make cashless payments to farmers, rural labourers directly to their bank accounts and hand them over a card which they can use to transact “business”.

By removing cash from the system, we have managed to remove chances of “middlemen” (our very own people handling payments) siphoning money out of the system before it reaches the farmer or the labourer.

But then, what does the farmer do with the card? Where does he get the cash? Nobody in his immediate neighbourhood accepts cards! He needs to pay cash to buy his food!

He has to go to the bank which is in the next town to draw cash from the bank. All the farmers/labourers in his area get the transfer on the same day and so on one day of the month the bank branch in the nearby town is packed with villagers looking to withdraw their cash. It is a nightmare for the bankers and the villagers because they have to wait for hours and they have spend money and one full day to go the town.

To solve the problem, we got agents who carry a small authentication device and a bag full of cash. The agent then delivers the cash to the farmers at his doorstep. What if the agent gets the authentication and then does not pay the full amount of due like the earlier “paymaster”. Off course, the agents are “recruited” by organisations and hence the villagers have an institutional “back-end” to file complaints and given that this institution is smaller than Govt, it should be more responsive compared to the big Government machinery. But, does it really happen that way?

Moreover, the agent runs the risk of being robbed/killed because of the amount of cash that he is carrying. How do you prevent that?

What is the way out? Carry on with this till the kirana shops in the villages accept cards for payments? Given that mobile is now ubiquitous, how about mobile payments? How complicated is that?

An interesting article on the PSD World Bank blog: Read

Would you pay for “Information”?

The biggest problem plaguing rural supply chains is lack of information and/or information assymetry. However, owing to the developments in technology in recent years, it is now possible to reach out to the remote rural locations and make such information available at a fraction of a cost than what was possible in the past. The Govt. has tried several measures to reach out to the remote rural locations through pamplets, radio and now television to provide the information for free. However, the fact that there is a huge difference between the prices of vegetables leaving the villages and the prices of vegetables reaching the urban consumers’ table indicates that there is a certain case of lack of information (on how to sort vegetables, how to grow vegetables which spoil a little slower) or information assymetry (demand for the vegetable on a particular day).

 It is obvious that availability of such information with the rural entrepreneurs/rural masses enables them to improve the way in which they run their business/ take care of basic needs (like education, health). It is also true that technology has improved and penetrated to a great extent and permits the development of  a platform that can deliver information at a very low cost.

The hitch here is two fold: 1.) Would people be interested in paying for the information?

2.) Do they have the money to pay for the information?

When it comes to businesses or life saving information, the second question is not important. Off course, there is a need to share information for free (something like where is the nearest shelter in a floodhit area) but in cases where you get to know a better agricultural practice which can be implemented at almost no additional cost, would there be people who would pay for it?

The “sale” of information on better methods of crop production, crop prices, better dairy management, etc is something that a lot of people have considered with the use of technology but only few have been able to monetize it.

Is it completely impossible to monetise information dissemination? Is giving infromation as a Value Add to existing product or service sales the only way? Should the channel partners delivering products/services to the rural masses finance the cost of delivering the information or should the rural masses (who make use of the information and services to increase returns) also pay for it? How do we make them pay?

You may find it interesting to go through a presentation on the use of ICT for Agricultural development, which lists out the various methods used to make information available to the farmers using technology.

Mobile Banking

Today most of the large banks offer basic mobile banking solutions for their consumers. The most common services are:

* Account Alerts, security alerts and reminders
* Account balances, updates and history
* customer service via mobile
* branch ATM location information
* transfer verification
* mortgage alerts

Future expectations are mobile commerce, mobile payments, contactless payments, mobile coupons.

The different platforms used for mobile banking operations include Short Messaging Service, mobile Web and Mobile client applications.

*No common standards has yet been developed for banking transactions.

The banks normally choose SMS to start with and then may decide to progress with mobile web and mobile client applications.

SMS is ubiquitous and easy to use but has limited support for rish media.

Mobile web provides a richer experience but is limited when it comes to availability on the handsets. Not many people have handsets which are web enabled.

Mobile client applications provide best user experience and the most security but require users to download an application. This again is limited.

After having talked about the general facts, let me come to my area of interest, use of mobile phones for financial inclusion.

Mobile telephones have been imagined as devices to complete banking transactions directly. M-Pesa in Kenya, G-Cash and SMART Money in the Philippines and Suvidha/BEAM in India are some examples of banking innovation. It is easy to see the appeal as many of the unbanked are poor, and mobile technology offers the possibility of both filling financial gaps and improving the economic lives of the customers.

The core of businesses like M-Pesa rests with facilitating financial transactions via mobile telephones. In the most common application, microfinance customers can pay loan installments via telephone by entering a code that transfers funds from a personal account to the bank’s account. Transactions can also flow between customers directly, as long as the two parties are in the M-Pesa network. These transactions are facilitated by mobile phone agents in commercial areas.

Taken from:,%20Towards.html

The Asian Banker, a financial industry research group, estimates that a typical financial transaction in the Philippines would cost 80% less if carried out on a mobile phone instead of in a bank. Potential savings to clients, represented primarily by the convenience of m-banking, are also big. With the ability to make payments and transfers literally in the palms of their hands, clients no longer have to travel to the bank and wait in line when they get there to take care of financial needs.

Challenges for mobile banking:

  • Banking would entail using mobile devices to facilitate lending and deposit-taking.  Not impossible, but the models aren’t there yet.  One promise is that m-banking will generate troves of digitized repayment data that can then be mined to implement (or refine) credit scoring models, fundamentally changing the lending equation.  Changing the lending equation would come about by eliminating some of the face-to-face social aspects of financial transactions, and the great unknown is whether cutting back on social elements – dropping weekly group meetings say, or simply weakening the personal relationships between customers and loan officers – would undermine repayment rates.
  • the geography of mobile phone coverage and bank branch coverage today is largely overlapping—as are the populations served.
  • Trust. The poor aren’t lining up to use their cell phones for banking because they value face-to-face interaction when making business transactions.

Taken from:

Need to put some material on M-Pesa, G-Cash, SMART Money and Suvidha/BEAM.