by David Wolman
One night in early 2006, Sinha awoke around 2:00 in the morning and called his brother. He had it. If buying minutes was something you could do via cellular infrastructure, why couldn’t that same system be used for other, more everyday, financial transactions? He’d read about cellphones sending and receiving funds. But what if they could be programmed to do more than that—to work like a virtual bank teller?
His new company, Eko, is essentially a conduit between people and their bank accounts. The software enables mobile customers to open savings accounts with the State Bank of India, the largest and one of the country’s most recognized banks. Eko makes the transactions possible with its transfer and security codes, ensuring that you are you before relaying the transaction data. Earnings come from small fees, which Eko shares with the telecom companies on whose networks the information travels between phones, Eko, and the bank. When I visited the pharmacy in West Delhi and met Kumar the electronics repairman, he said the fees don’t bother him. He was looking at his phone while answering most of my questions. Compared to stashing his money or trying to get to a bank, “this is just much better,” he said.
Money, as you know, depends on trust, and Sinha knew from the start that people, not only in India but anywhere, probably wouldn’t entrust their money to an unknown startup. But most everyone in this country of 1.2 billion people knows of, and is more or less inclined to trust, the State Bank of India. This reputation stuff is key because it means Eko doesn’t have to pretend to be a bank. It just makes the connection between the accounts and, Sinha hopes, millions and millions of people. The money, meanwhile, rests with the bank, and is insured just like an old-school deposit.
Caveat time. Many companies and nonprofits are trying to get financial services to the poor, and they don’t all rely on cellphones. People like the Gates Foundation’s Mas, digital-money man Dave Birch, and hundreds of experts believe that the phone is the answer, but that hardly makes it so. Other models use smartcards, for example, which you can think of as a hybrid driver’s license and bankcard equipped with a chip for storing data. All you need to do to conduct your banking at the local corner store is bring your smartcard, which allows you to do the same basic suite of transactions as Eko. The rub is that the storeowner has to be equipped with a relatively expensive reader, which looks a lot like a credit card terminal. On the other hand, this sort of system might prove to be more secure, or more reliable in extremely remote corners of the world where cellphone coverage remains spotty.
But the advantages of phones are compelling. They don’t require any additional investment in gizmos. They have also already become such an everyday part of our lives: people know what it means to trade in electronic value through the phone, because they know about buying, using, and transferring airtime minutes. As of October 2011, Eko had opened more than 200,000 bank accounts, and had another 800,000 people using the service to send money. That may sound like a lot, but the heat is on for Sinha to ramp the operation up another notch if he’s going to prove the company’s worth.
As big-hearted as this model may be for encouraging savings and all the rest of it, Eko and other mobile banking initiatives are still businesses. One pinstriped-suit wearing Indian telecom executive put it this way: “This is not about corporate social responsibility or public relations. We want to get paid.” In the same breath, however, he painted an idealistic picture of branchless banking, and of what this technology could mean for his country and for the hundreds of millions of people in India struggling against abject poverty. “The backward classes and all that shit has gone on too long,” he says. “Every man should be socially included. To do that, you need financial inclusion.” To do that, you need a way out of the cash trap.
IT’S DUSK DURING my last drive with Sinha through the choked streets of Delhi. I watch an old man with no shoes weave a bicycle with a flat tire through the snarl of automobiles. Sinha keeps pointing to kiosks with signs for Vodafone, Airtel, Aircel, and other network operators, as if silently marveling at their presence over and over. Whereas I’m seeing countless dilapidated buildings, overcrowding, and borderline chaos, Sinha observes a cascade of transactions. It’s almost like he can see the movement of electronic money. “At all of these shops, people are topping up airtime minutes.” Others are paying for goods with airtime minutes, bypassing use of government-issued currency altogether.
The mobile money revolution underway in developing countries is something that technologists refer to as a leapfrog scenario. Two of them, actually. Less-developed economies never had good landline telephone service, if at all, which meant there were minimal obstacles preventing the implementation and adoption of a superior system. Now cellphones are everywhere.
That same thing is happening with mobile money and mobile banking. As one expert I spoke with likes to put it: the leading edge of this technology isn’t in Silicon Valley; it’s the African Rift Valley, West Delhi, and rural villages in Brazil. In the West, we have our (relatively) convenient online banking and our plentiful supply of ATMs. Our financial lives don’t feel tremendously burdensome, and although it’s cool that banks are rolling out apps for our iPhones and reducing our need for cash, alternatives to physical money aren’t life-changing for us in the ways they can be for the poor. In the developing world, most people have no experience when it comes to financial services. That means there are no entrenched behaviors or mediocre precedents. The slate is clean. Poorer countries could hurry ahead of all this silliness with ATMs, expensive cash management, bank robberies, and easy tax evasion, and jump right to it with options that are better than cash.
The gridlock brings the car to a stop. Sinha nods toward one street-corner store beneath a faded awning. It’s filled with magazines, drinks, newspapers, cookies, pens, tobacco, and a kaleidoscope of other merchandise. “The individual accounts for our customers are very low balance,” he says. “That is the point. Banks will never want to serve these customers with a traditional branch. But look at how the economy works at the shops everywhere. In India, they sell single pieces of candy and cigarettes by the stick.” Businesses find ways to succeed at a scale and price that works for the people. Sinha wants to do the same with banking and money transfer, and to do so where it works best for the population: on their phones.
“Why do you call yourself ‘the assassin of cash’?” I ask.
“Think about the people and how they live,” says Sinha. “They spend small amounts of cash, maybe three or five times a day, commuting to work, buying a lunch, getting groceries—things like this. Eko is not about assassinating the transactions that have already been replaced by credit cards. We want to go after all of these small cash transactions.”
He’s talking about the “final mile.” Digital money nerds use this expression a lot, to indicate that while cash has largely been displaced, it seems to have an immovable position as the world’s favorite method of payment for small-value transactions. Finding an equally trusted, fast, and universally accepted medium of exchange to unseat cash’s place within this niche constitutes the final mile before arriving at a fully cashless society. The task sounds so daunting that many people just assume it can’t be done, or at least not for a long time to come.
But as Sinha sees it, mobile changes everything. Why would people bother with paper money when they can just use their phones to flash a few dollars or rupees from a bank account to a vendor’s bank account? “You have to look beyond this infancy period for mobile money. Everyone is still figuring out the models. But we are already seeing cash getting pushed aside.”
Earlier in the week, I had visited a few other shops around the city. At one of them I met Ravi Chandan, the owner of a stationery store. He had recently begun selling Eko accounts and depositing electronic money for customers in exchange for their cash. Three of the city’s 500,000 rickshaw drivers were drinking tea just outside the store where Chandan, thirty-six, sells notebooks, pens, highlighters, badminton rackets, and Vicks-brand suckers. He told me that he
knew a couple of twelve- and thirteen-year-olds in the area who are using their parents’ accounts. The deposit amounts are small, just 200 or 300 rupees here and there. But already the kids have saved more than 2,000 rupees (about $40). “They’re learning to save now,” says Chandan. “I’m proud of them.”
Before I left his shop, Chandan told me that he sees a point at which the cash in all of this would be irrelevant. A few of his regular customers have already started using money on their phones to buy goods in his store, without ever having to involve physical currency in the transactions. “This is the future,” Chandan told me. “It is working.”
BACK HOME, when I mention to people that we’ll soon just be texting money, they immediately worry. Is the money really safe? Won’t this be a boon for aspiring money launderers and terrorists? Are my transactions boon for aspiring money launderers and terrorists? Are my transactions private? Part of the allure of cash in hand is that it usually doesn’t vaporize. It may get spent, stolen, and suffer from devaluation, but it doesn’t go poof. When money is converted into and traded in electronic form, what assurances do we have of its continued existence?
The challenge of convincing people that a technology is trustworthy is nothing new. In Japan, consumers have long been comfortable making cash deposits into ATMs, whereas in the United States, many people are still reluctant to do so, perhaps because of a cultural mistrust of machines, and in spite of data indicating that most banking mistakes are made by tellers of the human variety.17 Luckily, humanity has a solid track record of warming to innovations, including money-related ones. Online payments provider PayPal once sounded precarious. Making a check deposit via ATM initially struck people as chancy, and, a century ago, holding a deposit certificate instead of a satchel full of coins was seen as wildly risky.
The latest technologies will always be a tough sell for the risk-averse; even car radios once had their fifteen minutes in the antitechnology spotlight. On the other hand, when the pluses afforded by a new technology outweigh the perceived risks, people dive in. Look at the thirteen million M-Pesa users in Kenya who’ve welcomed mobile money into their lives, or the nearly one hundred million people who use PayPal accounts.18
Still, there are nontrivial concerns about mobile phones and money that need sorting out. One understandable reason for skepticism is the wireless network itself. Anyone who has ever had a call fail can imagine why. A dropped call is one thing, but you had better not drop my money. These systems must be engineered with enough redundancy to ensure that money moving through networks is treated distinctly from a voice connection. Any hiccup or true screw-up—in your phone, at a cellular tower, on Eko’s servers, or at the bank—can’t result in lost money or interrupted transactions. If there is even the slightest hint that mobile money might be less safe than cash in a tea canister, people will reject it. The risks are too severe, especially for people already on the margins.
But keep in mind that these are matters of perceived risk weighed against benefits, not absolute security. Credit and debit cards make for an interesting comparison. Although modern-day plastic is hardly impervious to hackers or identity thieves, the security failures are infrequent enough that customers keep coming back. Mobile money, given enough time, should be able to achieve at least that level of robustness.
Another concern, though, is protecting peoples’ funds in the event that the mobile operator itself goes under or decides to quit the mobile money business. Part of what makes a bank a bank is rules. However imperfect they may be, these rules exist to keep the bank behaving responsibly, so that depositors’ wealth is protected. By and large, regulations give us confidence that no one will walk away with our savings, even if the bank fails. Federal deposit insurance, at least in the United States, boosts that confidence even more. If M-Pesa, Eko, or similar initiatives fail, will customer savings go down too?u
When he’s not trying to explain why cash is the enemy of the poor, Ignacio Mas’s other job is to get financial regulators rethinking what constitutes banking. “The tradition is that the central bank gives you a license to open a branch. It has to have a vault to meet such-and-such specifications, glass this thick, a kitchen for employees—that sort of thing.” But those rules are anachronistic now that mobile technology is enabling “branchless banking” accounts, allowing people to convert cash into electronic money almost anywhere and send it to a savings account. “That pharmacy you visited in Delhi—that is not a bank branch,” says Mas. “The stores are essentially selling electronic money (for cash), just like they would sell rice. They don’t hold anything.”
Nor do the conduit companies. For M-Pesa users, Vodafone’s subsidiary in Kenya doesn’t hold the money. M-Pesa customer funds are pooled and held in trust in a regular old bank, depositor insurance and all. Should Vodafone go bankrupt tomorrow, or if executives suddenly decide they want to ditch the mobile money business and buy the Chicago Cubs, peoples’ money would, or should, be safe at the bank. The same goes for people using Eko: the money is with the State Bank of India and insured like the funds of other bank customers, whether or not Eko thrives or dies in the years to come.
OK, but what if hackers decide to worm their way into these new electronic money systems? Anyone who runs a software company will insist the system is hack-proof, and any highly trained computer scientist will tell you that is a lie, or at least a fib. No one can say with certainty that a software program is absolutely unbreakable.
To understand why, you need to delve into enigmas like the P versus NP problem. In simplest terms, it’s a speed question. Most of the digital security in our lives is based on the premise that computers can’t solve all problems in the same amount of time: 2 + 2 versus some insanely difficult equation—of course they don’t take the same amount of time to solve. Don’t be ridiculous. Most mathematicians are confident that this is the case, but they haven’t proven it. A proof to the contrary could unlock a bazillion secrets, and dollars, hidden behind what were once the most unbreakable blockades in cyberspace. (That proof will also win you $1 million from the Clay Mathematics Institute, for solving one of its seven Millennium Prize Problems.)
If our lives were dictated by purely theoretical understanding of computer security, we wouldn’t have bank accounts or feel safe conducting wire transfers, let alone shop online or allow machines to fly airplanes. The digital technologies we’ve incorporated into our lives have to be secure enough to satisfy our risk calculations. Mobile money still needs to earn its security stripes, but it shouldn’t be expected to do the impossible just because people worry about their money and tend to be tentative about the latest technology.
The thornier aspects of the mobile money revolution actually have to do with money laundering, terrorism funding, and privacy. Today’s banks are required to verify that potential customers are who they say they are, by gathering information like an applicant’s address, proper identification, references, and sometimes employer information. When people sign up for a money transfer service like M-Pesa, or a branchless banking program like Eko, how can banks, and by extension the authorities, be sure that the people opening those accounts aren’t criminals trying to hide money, or extremists who can’t wait to start distributing funds to their terrorist buddies?
Sinha, Mas, and other mobile-money enthusiasts aren’t nonchalant about these concerns, but they warn against creating unwarranted paranoia and against thinking too narrowly about what constitutes security. For example, limiting transfer amounts is an easy first step for deterring widespread abuse of these systems. Remember, target customers are people like Kumar, the electronics repairman, not millionaires who already have plenty of access to financial services, tax havens, and sophisticated methods of laundering their money.
Enterprising terrorists could easily end-run this transfer maximum, though, by having many people direct funds to a single operative. To prevent that from happening, the system could also have a maximum amount that can be received into a single account in a give
n time. The software could also have tripwires that alert authorities about suspicious activity, just like when your credit card company contacts you to be sure you really did buy that $20,000 necklace yesterday in Macau.
These are only a few low-level controls to keep the system kosher. As far as chasing the bad guys, Mas reminded me that the traceability component of mobile money should be attractive to law enforcement. “They want money in electronic form.” Digital-money lover Birch is more adamant: “If cash were proposed now, governments would never endorse it,” because it’s by far the most convenient way to conduct crime and remain anonymous. Besides, “it’s not like the war on terror and corruption is going to be helped by encouraging people to keep using cash.”
Let’s hover on this point for a moment, with the help of Acting Assistant Secretary of the U.S. Army Peter E. Kunkel. Writing in Military Review in 2008, Kunkel detailed “the unrealized strategic effects of a cashless battlefield.” It’s not the first thing that comes to mind when you think about the battlefield, but troops need readily accepted money. In Iraq and Afghanistan, U.S. Army units used (and to a lesser extent still use) cash to buy construction materials, flooring, tents, and bottled water. Greenbacks are used to pay tipsters, and even to compensate locals for damage to private property.
Every year between 2003 and 2008, the army used cargo aircraft to transport $1.5 billion in cash into Iraq, and used that cash for at least a million payments. “This heavy logistical burden endangers Soldiers [sic], both in the air and on the ground, transporting required cash to commanders at forward operating bases and combat outposts.” But that is only the start of it. With some $19 billion in greenbacks now circulating in Iraq—and who knows how many more in Afghanistan—insurgents, terrorists, and smugglers have a ready supply of the most readily accepted and untraceable payment mechanism in the world. Whatever your opinion about U.S. military operations abroad, you can’t be too thrilled that while there, U.S. troops have little choice but to hand out paper money that could indirectly come back to haunt them. The Pentagon, concludes Kunkel, should take a keen interest in promoting mobile money programs as a way to mitigate these dangers and bring more local commerce into the formal and, yes, traceable economy.v19
