Money has changed a lot in recent years - and it doesn’t take a financial genius to see it. Most transactions take place with plastic, rather than paper, for example. And, of course, debt is so ingrained into the system that it is no longer seen as necessarily a bad thing. Then there are the technological aspects of banking. High Street banks have emptied, with many branches closing down as people start using online services. And, there are apps, too - including pay by phone affairs that could see the end of the debit card one day.
In many other walks of life, this jump with technology would signal services are becoming more available to the general public. New ways of doing things are typically reserved for the wealthy. Tech allows these benefits to trickle down - a democratisation, of sorts. But does this happen with money? On the surface, you might say ‘yes’. However, with a closer look, you might form a different opinion - for the moment, at least.
In a recent interview with CNBC, PayPal’s CEO Dan Schulman is somewhat cynical about the democratisation of finances. For now, at least. “For the truly affluent, checking is free, credit is plentiful and cheap," he says. "And fees for dipping below an account balance minimum are seldom a concern.”
But, he also points out an important problem. If you don’t have money, banking can be expensive. Your borrowing rates are far higher than the average, not to mention the fact it costs $3 to take out some money from a cash machine. And, let’s not even go into the expenses if you can’t afford basic banking. Alternative financial services bring even more charges with them.
So, the big question is; will money ever become democratic in a real sense? There is progress, of course. In the UK, for example, credit unions are just about as democratic as you can get. You pay in, make sure that you save, and one day, you might be able to get a loan at a good rate. And, the developing world is catching up, too - albeit in a slow manner. According to an article in the FT, Mastercard is bringing payment cards to Nigeria. Mastercard’s Ann Cairns is clearly delighted. She calls the move “digitalisation, democratisation and financial inclusion all rolled into one.”
However, let’s be clear about this. All Mastercard are doing is allowing access to financial services to 100 million Nigerians. It’s an encouraging move, no doubt. But, it’s only catching up with the West, from which Nigeria been lagging behind for many decades. There is still a long way to go before those same Nigerians have anywhere near the level of access that we enjoy.
It’s doubtful, then, that real progress will be made in the developing world. This, despite many successful and eye-catching programs. The work in Mexico by BBVA to try and improve efficiency for its customers, while reducing risk is fantastic. And, with mobile tech allowing payments to be made throughout the world in places as far-flung as Kenya and Latin America, there are good signs. But it’s here in the West that we should be pushing towards more considerable progress.
There’s no doubt that there are plenty of things afoot in the finance and technology worlds. FinTech startups are springing up all over the place - a quick visit to London’s Old Street will confirm that point. And, although startups come and go, there are still some interesting success stories. It’s hard to believe that PayPal, for example, is still a company in its youth. There are young upstarts like Square, too - although time will tell if they are as innovative as many people were hoping.
Going back to the CNBC article, Dan Schulman as some interesting ideas. He proposes a three-step plan to tackle the many issues that the democratisation of money faces. First of all, it’s vital to make it easier to access digital financial networks. Regarding the UK, we’re doing well - as is the rest of the Western world. But in underdeveloped countries, there is an awful lot of work to do. So many people around the world still have zero access to any networks at all - not even with the old 56kbps modems.
The second principle is all about something that has plagued the financial service industry for many years: security. It’s vital that however someone pays, be it a money transfer or bill payment, it is safe. Without confidence in the security of a product, it’s going to be impossible to persuade people to jump on board.
The third and final point is, perhaps, the real kicker. Schulman states that a lot of work needs to be done to embrace genuine financial inclusion. That doesn’t involve the simple setting up of a bank account, of course. It's “access to credit along with the ability to accept payment", says Schulman. It will also give people the chance to "send money to family or transact business across borders.”
But, Schulman’s big plans don’t end there. He also thinks that the financial sector should take more responsibility. Most people would want more contribution to local communities. And, when you throw in help for charitable causes and investment in everyone’s future, it's a no-brainer. In an ideal world, all banking systems and financial opportunities will be fair, and accessible to all.
If this all sounds like a pipe dream, then it’s no surprise. But, the public is hungry for change. You only have to see the recent economic turmoil attributed to the traditional banking services to see why. If a suitable system can be thrashed out that will provide stability, opportunity, and safety, it’s going to catch on. As with any new democratisation process, there will be many issues to sort out before any of this happens. But, when you put a wet finger up in the air, there is a definite feel that the financial winds are changing direction.
Who knows when the democratisation of money will finally occur - and it even might be happening right now. All the rest of us can do is sit and wait - or get working on those new ideas for FinTech products!
Are you working on FinTech? Why not share your plans in the comments section below?