Bill Maurer is founding director of the Institute for Money, Technology and Financial Inclusion, funded by the Bill and Melinda Gates Foundation, and co-director of the Intel Science and Technology Center in Social Computing.
I have been using cash this weekend. Exclusively. On Thursday, my credit card was skimmed at a neighborhood gas station. Within 9 hours, the thief had charged up over US$800 at stores and gas stations all over Los Angeles. By looking at charge times and locations, you could almost imagine him or her on the freeway, driving from store to store, seeing how far and for how long my card would go. The experience taught me an important lesson: even in my relatively cashless life, it’s a good thing I have options. I have options because of redundant infrastructures. And I have access to redundant infrastructures because the payments industry in the developed world has relied on co-opetition—cooperative competition that ensured the rapid growth of the card networks and other payment providers. There’s a lesson here for telcos getting into the business of mobile money.
At the Institute for Money, Technology and Financial Inclusion, we have been synthesizing the results of 4 years of work in 38 countries, with over 100 researchers looking at the whole range of payment choices and monetary ecologies of the poor and underserved around the world. While we have found people receptive to mobile money in a variety of markets, we have also learned a few basic lessons that service providers would do well to remember. Those lessons have to do with infrastructure. And they’re sometimes contradictory lessons. Often, infrastructural failure impedes service uptake, and leads to distrust. That distrust can spread to the whole ecosystem of services relying on one infrastructure. It can start with incidences of fraud—like my experience—or service interruptions. Sometimes, however, new services ride the rails of existing infrastructures, producing a more robust ecosystem and competitive environment for different market actors. Other times, a lack of infrastructure is a good thing—innovation can step into the breach and find an eager market. Somaliland comes to mind here, as a mobile money sprinter where innovative services succeed because no comparable infrastructure exists.
Our researchers have found over and over that people are highly skeptical of the wisdom of using an electronic platform for value storage exclusively. They want a range of value storage and payment options at their disposal. In many places, they hold stashes of different currencies, since you never know when the value of one might rise or crash. People also have had the experience of institutional failure throughout their lives—financial crises, currency devaluations, displacement and war, not to mention commonplace theft or loss. Sitting in London or Los Angeles, we can sometimes forget that the power goes out. All the time. That the water does not flow from the tap with guaranteed regularity or safety.
IMTFI recently supported a project with researchers from frog design, who went on a trail from Ahmedabad to Delhi to understand urban water economies. The research team was interested in a “water ATM” that uses prepaid cards for wirelessly connected, purified water distribution points. Researchers found that in the absence of reliable public or private infrastructure for water distribution, water itself has come to serve as a store of value, added to the other stores of value people maintain in jewelry or livestock. A lesson here is that when distribution infrastructures are unreliable, anything carried over those infrastructures becomes subject to hoarding. Now, if the substance is water, then things like a house’s proximity to a water distribution point or water tanker’s regular stopping place ends up enhancing the value of the home, in monetary and status terms.
What if the substance is money? The question seems silly at first: money is different from water in that it comes in many forms and its use is not dependent on that form (cash or credit card, mobile money or wire transfer). Unless your card has been skimmed or the POS device is not working. But in places without reliable infrastructures money takes on some of the qualities of water described in the frog report. Some forms of money are “purer” than others (crisp notes more valuable than worn or dirty ones) and people closer to distribution points like institutions that are known to (generally) work—a bank branch, a longstanding MFI, a trusted and successful mobile money agent—have higher status, and more options, than others.
For me, this drives home the importance of infrastructure. The boring stuff—the wires and tubes, switches and plumbing underneath almost all modern systems. Just as we cannot look at the handset and forget about the towers, we shouldn’t see a payments innovation like PayPal and forget that, in the US at least, if you connect your account to your bank account, it rides the rails of the Automated Clearing House—old, clunky, federally-mandated, settling at T+2. But it works. And it’s spawned a whole ecosystem of new services riding the rails of the ACH, like PayPal or Square.
Now, as mobile operators, you may be saying, “but wait: I am not providing an infrastructure. I am not a utility company.” However, consider how M-Pesa is analogous to the ACH in some ways. A rich set of additional services has been added to it, layers on top of the initial infrastructure provided by Safaricom. The linchpin, however, is Safaricom itself. Outages that affect it now affect that whole ecosystem.
In another recent IMTFI project, researchers in Colombia found that lottery operators have become multimodal service points for a range of financial services as well as financial education. This may seem paradoxical: a gambling outfit providing sound advice and becoming a trusted provider? The trick is the multimodality: from one touch-point the consumer has access to a whole range of services—and a range of different infrastructures, from electricity bill payment to airtime top-up. If one infrastructure is not working, another probably is—the multimodality also insulates the game operator from any negative associations if one service is not working. There is always another service one can access from that same kiosk.
I had a problem that started with fraud, affecting my ability to transact on one infrastructure: the credit card rails. However, I could easily get cash from an ATM, using a different set of infrastructures, to make sure I could transact with minimal interruption. Some of my automatic bill payments will go through despite the card fraud since they rely on the ACH. My credit card problem did not impede the velocity of money this weekend. Co-opetition worked for me. But consider the case of water again. Absent reliable and redundant infrastructures, hoarding ensues. If scarcity of infrastructure is reduced, then money, like water, will flow better. Redundancy in payment infrastructures is serving me well, providing me the kind of choices that someone in the developing world might find fulfilled with gold, goats or a gambling game.