Comments: The 20th Century of Central Banking is over.

In the mid and late 90s ... there was some expectation that telcos would take over the payment industry.

The scenario was that they had highly efficient technology developed for call record processing. They were supposedly going to leverage this high performance technology to take-over the micropayment arena and then leverage those volumes to take-over the rest of the payment business.

Some number of telcos made forays into this arena ... basically payment charges showing up as line-items in phone bill. It then seemed to fall apart and the telcos participation seem to disappear.

Afterwards the explanation was that telcos hadn't the infrastructure to handle the financial risk (and defaults). Telcos had a fairly high default rate on bills ... but were able to absorb a lot of it ... since it was for services ... but didn't actually represent "real money". The (defaulted) payments actually represented money that telcos provided to merchants.

Its been a decade and some number of proposed cellphone payment activities seemed to have lost that institutional experience (this is analogous to lost institutional memory about difficulty in supporting PC serial port devices ... between the time home banking moved from dedicated dialup to the internet ... and the attempt to introduce PC serial port smartcard readers in the consumer market).

In last couple yrs ... there have been announcements by some of the payment processing infrastructures about installing some of the higher-efficient database technologies (that had evolved for telco call-records). This presumably should help further drive down processing overhead costs and possibly help enable new generation move into micropayments.

In parallel with this is the significant fees that are part of the current infrastructure. A couple yrs ago there was an article that the payment transaction fees represented nearly 40% of the bottom line for US institutions (although less than 10% of the bottom line for EU institutions). For some operations like C-stores ... payment transaction fees are claimed to be their largest expense. The existing fee structure is motivation behind some amount of search for alternatives.

Posted by Lynn Wheeler at February 16, 2009 12:49 PM

One thing that isn't clear to me is ... where does all of this leave fiat currency?

Posted by gyg3s at February 17, 2009 12:07 PM


Central Banks have many roles, but in banking, they only have one economically strong role, that of the "lender of last resort." In the above, I am referring to the Central Bank in that role (because banks got out of banking, we no longer need the "lender of last resort" or at least we can't justify it any more using any modern economic theory).

Fiat currency is a different role, of course, and fiat currency can be issued by any agency. That said, the fiat currencies we have now are in for a big bunch of over-issuance and inflation. Also, as other get more into the future, there will be more competition from other issues. However this effect is practically immeasurable; for various reasons, government-issued fiat currency will remain the dominant force for the next century.

Posted by Iang at February 17, 2009 03:04 PM

From Tom's post:

This story suggests the enormous possibilities inherent in the new mobile phone technologies and networks. - t.h.g.

How mobile phone banking is empowering the poor

13 Feb 2009 15:11:00 GMT

Written by: Natasha Elkington

Six years ago on a whim, I was lucky enough to buy a farm with two friends in my native Kenya. The farm borders the Shimba Hills National Reserve, high above the coastal plain. It's an enchanting other world, but also very remote. As I live in Britain at the moment we've hired a caretaker, Samuel, to protect the land from squatters and wild game that occasionally breaks through the fence looking for food.

The problem is how to pay Samuel when the nearest bank is 50 km (30 miles) away in Mombasa. The answer - as improbable as it sounds - is by mobile phone. Two years ago, a new phenomenon hit Kenya that allows money to be transferred between people using text messaging called M-PESA (pesa means money in Swahili).

This system, known as "branchless banking", lets people set up remote bank accounts that are accessed through their mobile phone or other technology.

It's a financial revolution that has taken Kenya by storm and will probably do the same across the rest of the continent by giving Africa's poor access to financial services for the first time. Africa has seen phenomenal growth in mobile phone subscribers - with 278 million users by the end of 2007, according to Britain's Department for International Development (DFID).


Posted by Thomas Greco's blog: "How mobile phone banking is empowering the poor" at February 23, 2009 04:19 PM

Just in,

Hawala system legal in England and Wales. Hope this is of interest.

Posted by gyg3s at February 26, 2009 02:46 PM

"I think on this point Dave is economically correct and will be eventually be totally exonerated, but this time he has gone too far, and will have to explain himself to the secret committee for economic purity. Nobody challenges the fat cats in Paris"

Given this paragraph, I couldn't resist pointing that I have been invited to an meeting at the OECD in April!!

You are much too kind in your comments Ian, but thanks.

Posted by Dave Birch at March 6, 2009 01:53 PM
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