The transformative power of fintech

I have been amazed by the transformative power of technology in finance over the past two decades. From mPESA in Kenya to Alipay in China to NuBank in Brazil to PayTM in India, we have seen a massive shift in the world of finance. The fact is that today, wherever you are, whoever you are, you can talk, trade and transact. That is phenomenal and a huge shift from the world of 2000, when it was mainly those in Europe and America who had this privilege. Now, as I predicted years ago, the person in the remotest village of any country in the world can find someone with a mobile telephone and pay. More than this, the person in the remotest village of any country in the world can find a decentralised currency that works globally and pay. This is a fundamental change in how the world works.

Driving this home is a story I shared on LinkedIn the other day.

It is a slow day in a small village. The streets are deserted, and it is raining. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day, a rich tourist is driving through the village. She stops at the local hotel and lays a 100 Euro note on the desk, telling the hotel owner she wants to inspect the room upstairs in order to spend the night. The owner gives her the keys and, as soon as the visitor has walked upstairs, the hotelier grabs the 100 Euro note and runs next door to pay his debt to the butcher.

The butcher takes the 100 Euro note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the 100 Euro note and heads off to pay her bill at the supplier of feed and fuel.

The guy at the farmers’ co-op takes the 100 Euro note and runs to pay his drinks bill at the tavern. The bartender slips the money along to the local escort drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.

The escort then rushes to the hotel and pays off her room bill to the hotel owner—with that same 100 Euro note.

The hotel proprietor then places the 100 Euro note back on the counter so the rich traveller won’t suspect a thing. At that moment, the traveller comes down the stairs and picks up the 100 Euro note. As she pockets the money, she says that the rooms are not satisfactory and leaves town.

For a village reliant on external cash, it may seem like a bad result for the money to not enter their economy or, within the economy, that no one produced anything and no one earned anything. Yet the whole village is now out of debt and looking to the future with a lot more optimism.

How?

Because 600 Euros’ worth of goods and services were actually produced, and each of those six people earned 100 Euros each.

Before the tourist arrived, the village folk didn’t have the liquidity—aka cash—of their own, and thus borrowed goods or services on credit. When the tourist arrived, her 100 Euro note became the liquidity needed to repay what each of the six people borrowed.

Two comments hit me after posting this.

One is that the above represents the economic understanding of a ten-year old. Nice. My answer to that one is that money makes the world go around and sure, we could have digital payments, card payments and more, but everyone makes a percentage on every transaction whether you like it or not. Money makes the world go around.

The second comment is that money is the Lub. The Lub? The Lub is the opening of your heart to push blood around the body (the Dub is the closing of your valves). I really liked this comment as it implies that money is the Lub, the opening, of the economy and life. The more you can invest in a village, the more you have the Lub of life. That was a good thought.

Which brings me back to the global transformation of finance through technology and one of the most astonishing examples is India.

India created a national identity scheme, Aadhaar, in the 2000s and followed it up with the Unified Payment Interface (UPI) in the 2010s. Last week, UPI reported a record high of over 16 billion transactions worth more than US$279 billion (Rs. 23.5 trillion). Bearing in mind we were in the festive season of Diwali (the Indian festival) it may be even more impressive that, on October 30th (the day of Dhanteras which is the first day of the festival), 546 million transactions were made in one day. A record of sorts.

There are different stats, but this is a reflection of the fact that Aadhaar and UPI, along with the other tech changes rolled out over the past decade and a half – commonly referred to as the India Stack – has seen a massive change in access to finance across India. In 2011, about 44 percent of Indians above 15 years of age had a bank account. Ten years later, there is a significant change with 78 percent of Indian adults having a bank account in 2021.

Source: Statista

The power of technological change is shown right there (and across Africa, the Americas and Asia).