Jun 29, 2019

The West, dragged into the cashless society

Alipay on the bus in Hangzhou. Photo: VCG/Getty

In a trend that has been coming for about a decade, the developing world is dragging the advanced economies into the age of cashless, credit card-less payments in which we will do most of our business by smartphone.

What's happening: Starting first in east Africa and spreading to China, internet-based, mobile payment systems may be on the verge of cracking the ultra-difficult U.S. and Europe markets, potentially threatening the long stranglehold of big banks and credit card companies.

The big picture: The world first began to move away from cash in a big way in the 1960s, when the advanced economies began to build up an immense payment infrastructure around convenient credit cards.

But this all-but left out the developing world. Then, a very different, localized revolution bubbled up.

  • In 2007, Safaricom, Kenya's mobile phone giant, launched M-Pesa, a long-shot service that allows its customers to text small payments to each other. M-Pesa took off, eventually growing to more than 30 million people in 10 sub-Saharan countries.
  • In China — where credit cards are also exceedingly rare — Alibaba and later Tencent meanwhile launched their own mobile payment systems linked to an app. They exploded in popularity to a combined 1.7 billion users — virtually the entire population of China, plus people outside the country.

Various similar stabs in the U.S. and Europe — Paypal, Venmo, Apple Pay and Bitcoin among them — failed to gain popularity in the same way.

But now, there is a new push to spread the mobile payment boom:

By far the most prominent is Libra, Facebook's planned cryptocurrency, which the platform announced 10 days ago. The idea is that, starting next year, Facebook users could message and receive money through WhatsApp, Facebook's Messenger, or standalone apps. As Axios' Kia Kokalitcheva wrote, "With more than two billion users, Facebook is arguably better positioned to roll out a global digital currency than any other company, government, or organization."

But, in a white paper released yesterday, the IMF and the World Bank said that several central banks are also in the game — they are on the verge of launching digital currencies like Bitcoin. They include the central banks of Sweden, the Bahamas, and the Eastern Caribbean Currency Union. European Central Bank officials have also thrown their support behind the issuance of a digital currency.

"We are going through a digital transformation in banking. It is accelerating due to these new technologies," Tobias Adrian, director of the IMF's Monetary and Capital Markets Department, tells Axios.

  • The shift is potentially "transformative" if it brings people currently outside the banking system — women, the urban poor and migrants — into contact with payments and credit, the white paper said.
  • In terms of the central banks contemplating digital currencies, Adrian said, "Whether they are going ahead with them, we don't know. But many are exploring it."

The bottom line: "I think that developed economies are on track to move beyond cash and cards," said Itay Goldstein, a professor at UPenn. "But it will take more time than in many developing economies."

  • "The current established infrastructure in developed economies is so strongly rooted that it is an impediment to fundamental changes," Goldstein said. "But better technology will eventually win, I believe. It will just take more time."

Go deeper

Obama praises young protesters, urges mayors to pursue police reforms

Former President Barack Obama called on all mayors to review their use-of-force policies and commit to policing reform in a virtual town hall Wednesday hosted by the Obama Foundation's My Brothers Keepers Alliance.

Why it matters: Obama has addressed the killing of George Floyd and the nationwide protests that followed on social media and in a Medium post, but this was his first time speaking about the past week's events on camera. His voice will add weight to the growing pressure on local, state and federal officials to pursue policing reforms.

James Mattis condemns Trump as a threat to the Constitution

Mattis on Fox in Septemnber 2019 in New York City. Photo: Steven Ferdman/Getty Images

Former Secretary of Defense James Mattis condemned President Trump for making a "mockery of our Constitution" in a statement to The Atlantic on Wednesday, saying he was "appalled" at the president's response to mass protests in the wake of George Floyd's killing.

Why it matters: Trump’s former defense secretary had refrained from publicly criticizing his former boss since resigning in 2018.

American society is teetering on the edge

Illustration: Eniola Odetunde/Axios

The COVID-19 pandemic, record unemployment and escalating social unrest are all pushing American society close to the breaking point.

The big picture: Civilizations don't last forever, and when they collapse, the cause is almost always internal failure. Even in the midst of one of our darkest years, the U.S. still has many factors in its favor, but the fate of past societies holds frightening lessons for what may lie ahead.