Finance in the digital age is defined by the dissolving of traditional boundaries set up by the banking industry. In the internet age, the way we perceive currency is undergoing a radical change. This transformation will affect how we borrow, lend, transfer, and manage money. The amazing subtext of this unfolding story is that some of its more striking developments are occurring in unlikely places.
Digital finance is democratising on a grand scale. More money is accessible to greater numbers of people across the globe than ever before. I want to break this down into two stages for a closer look. There’s the digital provider of the money and the mobile means of its transfer. The provider problem isn’t new to the internet. No bank likes giving out short term, unsecured and small loans. The risk doesn’t seem worth the effort. But that doesn’t mean the demand is absent! Wonga (which is slang for “cash” in British English) decided to test the hypothesis. And sure enough it found that in its primary markets of the U.K., South Africa, Canada and Poland there exists a huge appetite for so-called digital short-term loans. This means, of course, sidestepping the time-consuming approval process with a quick and easy click of the mouse or on-the-go mobile solution. But when there’s a will, there’s an app, and so it is with Wonga!
As far as money transfer goes, who knew the epicentre of mobile money is actually Kenya, and not financial hubs like London or technology start-up powerhouse Tel Aviv? M-PESA is the mobile money transfer service run by Nairobi-based Safaricom. Amazingly, it answers some common problems of developing economies. One of them is the lack of trust in financial institutions due to market or political instability. Another problem is the socio-economic reality of people needing quick infusions of cash or not having cash handy – to, for instance, pay for a taxi, doctor’s appointment, or send to a relative- so both internet-based services work for their native financial ecosystems.
The growth of banking and lending over mobile have grow in leaps and bounds due in part to meet the needs of the rural communities that are in need of service. In fact, there has been a massive shift in banking from that of centralized branches to mobile platforms working over extremely basic platforms. Let us say for instance that there is a farmer in an outlying rural village that requires a small loan to help him buy seeds and equipment for the coming season. At one time, he would have been forced to travel to the nearest city to look for his financing. Chances are that he would only have a limited number of choices for lenders from which to request his loan. Our friend the farmer would then need to make numerous trips back and forth to the city until he finally received approval for his loan. With the advent of these new services, the farmer can now apply for a loan via his simple phone over text message. He has more lenders to choose from, giving him better options for rates and conditions. Perhaps best of all, he can now do most of his banking from home, giving him more time to focus on growing his business.
In the fall out of the banking crisis that led to the Great Recession in 2008, even those in Western countries are looking for new lending solutions that do not involve many of the traditional lenders. One company that is starting to make waves is Orchard (http://www.orchardplatform.com/). This US based start-up is helping to drive the demand for person to person (P2P) lending over digital connections with their unique platform. Investors can connect with potential entrepreneurs to help build a less centralized business environment from which to expand.
Wonga is designed more for the responsible urban professional who is able to understand itslending policy. In other words, Wonga is the right cultural fit for the London scene. The same goes with M-PESA with its bootstrapping and relatively primitive platform (this is not app-based smartphone savvy target population we’re talking about) that nevertheless gets the job done in Kenya. As the demand for capital grows more globally, a space has been created for new movers in the market to step up to meet those needs. With developing economies like Myanmar just moving into the age of ATMs, it will be interesting to see what solutions they’ll devise to improve their own digital financial futures.