Time is Money: Cell Phone Minutes as a New Currency
Talking with other travelers while on the road is probably one of my favorite ways to learn about new ideas and gather material to write about. I heard about the mobile banking phenomenon from Jason, an American teacher from Colorado via Costa Rica.
While online purchases have increased dramatically in developed countries over the past decade, little has changed by way of how physical, person-to-person transactions take place. Cash transactions date back almost to pre-history, and the credit card that we now consider modern has changed very little since the 1950s.
But while the “developed” countries lag behind in forming better currency systems, third world countries have come up with an interesting solution that was undoubtedly an invention spurred by necessity: cell phone currency.
The M-currency movement began in the Philippines circa 2005 with the companies Globe Telecom and Smart Communications. Other companies such as M-Pesa, which started in Kenya, have been expanding into the mobile currency market. During the 2008 election violence in Kenya, mobile minutes were considered extremely valuable, to the point where they became a sort of currency. M-Pesa allows individuals to transfer both money and minutes to others with cell phones.
Imagine, instead of swiping a card, sending a code that gives the other user minutes. Later, Vodafone introduced an online account system that could hold up to £ 380 in actual currency.
Why this is useful:
Remittences from developed countries to the third world amount to about $414 Billion dollars per year, which equates to roughly 1% of World GDP. Unfortunately for migrant workers, it’s often necessary to pay stiff fees to unreliable transfer agencies.
For example, the cost of sending the equivalent of $200 from Tanzania to Kenya is $47.27 (about a quarter of the original sum).
But beyond remittances, M-Banking has huge potential in the micro-credit industry. Finally, there is a reliable way to transfer funds back and forth between rural and urban areas regardless of local technology (excepting the cell network of course).
Hackers: As with all currency systems, there are ways to counterfeit and subsequently devalue electronic currency. In the UK, power companies recently switched to a meter system based off of smart-cards that were designed to produce an algorithm-based code the the meter would recognize when the card was inserted.
Sure enough, someone managed to discover the algorithm that was used to produce electricity codes and began creating counterfeit cards, selling them for have the price. Power companies would have to update the hardware in their meters every time hackers discovered the new algorithm.
The codes created by service providers could be hacked in the same way, though this would be easily solved because the part of the system that validates the code is on a regional server that could easily be updated on a regular basis (though this would probably render unused codes invalid).
Regulation: So far, it seem as though the banking industry and governments don’t know what to make of this phenomenon. Most of the time, the amount transferred is minuscule, though collectively the transactions certainly add up. Also, making sure rates are fair, and being able to trace transactions remain challenges for the industry.
What’s the value of convenience? Most American credit card holders are willing to put up with exorbitant interest rates, policy changes, and seemingly random sets of fees, but for what? The original attraction of the credit card was the ability to pay at any number of locations without carrying cash. Now, the ability to take out short-term loans for purchases is also considered an essential of American life.
I have to wonder though, if short term credit were combined with cell-based currency, would we give up plastic for our phones?