Yesterday’s exposé in the New York Times has put the cat among the pigeons of the financial services industry. The report claims that the NYT investigation has linked an unprecedented acquisition of banking licences in Europe, Asia and the US with a new technology JV ‘Money-on-the-Go’ in which, it is alleged, Vodafone, Google and eBay are major investors.
The NYT has been investigating alternatives to credit card payments for gambling debts and came across ‘MotG’. In trying to ascertain the purpose and owners of the venture they uncovered the link to recent bank acquisitions.
With digital smartphones now outnumbering credit cards by ten to one, the partners must be hoping that a new mobile payments solution will become the de facto standard, across mobile and fixed networks, effectively disintermediating banks and card systems such as MasterCard and Visa from the payments process. An unnamed source at the US Treasury claims “With easy access to more than a billion customers, Money-on-the-Go could become a serious alternative to cash.”
If the rumors prove to be true, every time anyone makes a payment, for gambling or other purchases, it will add a few cents to MotG’s coffers. This move would effectively sideline eBay’s already highly successful PayPal business.
No one from any of the partners named in the NYT article was prepared to comment. MotG’s business base on the outskirts of Bangalore was, as usual, surrounded by blanket security. It remained a silent and anonymous compound.
Once money moves online, it moves out of the control of central banks, crippling their ability to run the economy. The Deputy Governor of the Bank of England said recently: “Once central bankers lose their monopoly over printing money, the successors to Bill Gates would have put the successors to Alan Greenspan out of business.”
ANALYSIS >> SYNTHESIS: How this scenario came to be
Cash in the Smartphone Society
Would you like to ditch your credit card and to pay for things online or via your mobile phone and have them charged to your phone bill up to three months later? Credit card issuers charge the seller a typical 3-5% or more in fees which, in reality, the customer ends up paying for.
A simple change would be some form of ‘electronic cash’ that could be passed from customer to merchant, without any intermediary.
All previous attempts at ‘electronic cash’ systems have failed. Services such as PayPal offer the customer a much more friendly way of making on-line payments, but rely totally on the existing bank and card infrastructure.
In a previous MindBullet we talked about the possibility of the US Treasury issuing eDollars. That would certainly be a breakthrough in true electronic cash. Each ‘note’ digitally guaranteed to ‘pay the bearer’ the nominal amount of the transaction.
The history of money and small payments
Money was originally a physical substance like gold and silver. It could even be alive – cattle were one of the oldest forms of money. Today, although much of the money used by individuals in their everyday transactions is still in the form of notes and coins, its quantity is small in comparison with the intangible money that exists only as entries in bank records. Perhaps coins and banknotes will become as obsolete as cowrie shells.
Consumers spend up to US$1.5 trillion a year on small purchases (under US$5 each – mostly payments at quick-service restaurants, vending machines, and parking facilities) using cash, but converting so-called micropayments into electronics will be one of the payment card industry’s tougher challenges – no single technology will crack this market.
The concept of cashless transactions appeals to consumers and suppliers alike. It reduces the overheads of handling cash, cuts down on the risk of theft, and the inconvenience of having to find the right amount of change for a vending or car park machine.
An eCash alliance with a billion customers
What about a confederation of global businesses launching an eCurrency and ePayments system?
Launched in 1995, eBay has made numerous acquisitions over the years, including the PayPal payment service in 2002 and the Skype voice over IP (VoIP) service in 2005. In 2006, EBay’s PayPal had 65m subscribers in 45 countries, and processed almost US$20 billion worth of transactions, an increase of 55% over the previous year. More than 20 million discrete users use eBay on an average day, and Skype is reputedly used by more than 100 million people. In 2006, Vodafone had more than 200 million subscribers to their mobile phone services world-wide. Google averages more than two billion searches a month – representing almost 40% of the search market.
With more than a billion customers between them, Vodafone, Google and eBay would be an obvious confederation for the launch of a new type of money – mobile phone ‘cash’ payments. Not simple PayPal messages or internet banking by phone – this ‘Money-on-the-Go’ system could be as pervasive, as anonymous and convenient as cash, and even more trustworthy. Thanks to the latest digital encryption and secure verification, large and small payments can be made directly from person-to-person and phone-to-merchant via Money-on-the-Go.
To bank or not to bank?
Choice is whether to compete with banks or not. PayPal and Fundamo are examples of those that choose to work with banks, but it’s in banks and card companies’ expensive processing systems that the real problem and costs lie. Mobile networks plus the internet already have a reach ten times greater than any card or banking network. A transaction on these networks also can be processed at a fraction of the cost – perhaps less than 5%.
But even for those services that execute payments without banks (such as BT’s click&buy service, who charge purchases to your phone bill) you still need to use banks to get money into your account! Unless of course your business can get it directly to BT – but then BT has to become a deposit-taking institution – they would need a banking licence and all the consumer protection that goes with it.
That’s exactly why eCash issued by, say, the US government would be such a revolutionary idea!
How gambling changed the name of the game
A major change in the nature of money would have significant unintended consequences. The advantages for criminals and tax evaders could be considerable. How can we maximize the benefits to society while reducing the risks? And, who will tackle the establishment head on?
But what if some powerful businesses decided to take payments into their own hands?
The straw that broke the credit card camel’s back in this case came from unexpected sources. When the US Congress banned internet gambling in September 2006, the alternate payment systems market got a real fillip.
What the new law actually tried to control was the payment of gambling debts through the US banking system, making such practices illegal (except, of course, for intrastate gambling, for example a state lottery).
Once President Bush signed the bill, the bank and credit card companies had 270 days to come up with a way to prohibit you from using your own money to pay for gambling debts or – though far less likely – to keep you from receiving your gambling profits. The law covers not just credit card payments but also checks and electronic funds transfers.
It was here that the real impetus towards ‘Money-on-the-Go’ was spawned.