Digital Currencies and Mobile Money
The Bank of England recently announced its plan to introduce a digital currency based on blockchain. Similarly, earlier this year, the European Central Bank has started its investigation phase of the digital Euro and Nigeria would be the first African country to soon launch a digital currency called the eNaira. All are convinced of the utility and efficiency of digital payments will be reached with the blessing of central banks. Whether these were fast-tracked by the announcement of Meta Platforms Inc. (previously, Facebook Inc.) willing to launch its digital money, one can argue about it but the simultaneity is remarkable how a trend is being set.
All these new upcoming digital currencies can be considered as financial innovations that could impact the stability of economies but also contribute to financial literacy (the competence in financial concepts or knowledge of financial concepts) and mainly to financial inclusion (the access to useful and affordable financial products).
One hurdle to overcome is regulation. Typically, central banks in Africa have stringent definitions on what they consider to be a currency. Additionally, countries within the CFA region still heavily rely on France who handles the printing of their money. Hence, the question would be whether the French authorities would have a say in a digital currency. If so, would this still be handled by them? On the regulation front how/who will create these currencies and more importantly guarantee their value remain a concern as well.
Next to that, in the meantime in Africa and around the world, mobile financial instruments like M-Pesa, Paytm, Airtel Money, MobiKwik Orange Money and others are already on the market commonly used for the transfer of money in certain environments.
Hence, in that case and in some parts of the African continent, the barrier of literacy plays a bigger role than just coming up with a technology that essentially helps only a small part of the population.
Therefore, adapting all these elements would not change much if the local population is not assisted within an environment that inspires trust. Financial literacy could effectively contribute to establishment of trust but the operations of the institutions must imperatively be enhanced as well. Moreover, trust could be helped by attaining a critical mass of users. By that, we mean having users across regions having access to digital currencies. However, currencies serve first and foremost as a store of value. It remains to be seen if tokenisation (such as via the creation of a digital coin) would stabilise prices and values. Take Bitcoin for example, whose value this year alone has had multiple spells of crush and boom. Would banks guarantee against these market fluctuations, and in a purely digital world where transactions would be instantaneous, how would users’ security be preserved? On the other hand, mobile money who serves as a medium for transactions backed by currencies held in physical vaults and also recognised by consumers, digital coins are less familiar.
As such financial innovations must be coupled with financial literacy to attract customers to financial service providers. Furthermore, trust and expectations between the financial service providers and customers were the centerpiece of the introduction of an innovation like M-Pesa. (Morawczynski and Miscione, 2008). M-Pesa essentially allowed a customer owning a mobile phone to send and receive money securely to and from another phone without having a bank account, initially only an informal account was required with Safaricom to be able to cash in (Hughes and Lonie, 2007).
The remarkable element with financial innovations such as mobile banking and microfinance institutions is how their service gained the trust of its users. This being said, it is important to keep in mind that a microfinance institution provides financial services to low-income individuals or groups who are typically excluded from traditional banking (Finca, 2021). A research on trust in mobile banking conducted in Kenya by Morawczynski and Miscione (2008) demonstrates that the most common complaint was related to two elements. First, at peak texting times, the service would delay the tendering of the money as the system uses a phone network. And Second, a large portion of the population would not trust the M-Pesa agents, responsible for the conversion of currency and or deposits.
However, later on, the research revealed that the users of M-Pesa controversly seem not to fully understand the functioning of the service but also admitted to like and trust Safaricom, which is a well-known and leading telecom company in Kenya, providing the accounts to users enabling them to handle transactions themselves (Morawczynski and Miscione 2008). The research also explains that because of Safaricom’s image and ‘fame’ in the country, customers had more faith in the ability of the renown telecom company to protect their deposit (Morawczynski and Miscione 2008).
Therefore, it is clear that trust in the institutions that are aiming to bridge the gap of financial exclusion is not to be neglected, especially institutions that can incorporate a mobile banking service. As long as the Internet evolves, the future of mobile banking is known to be very promising in terms of trust and capability, particularly as people like to do their transactions themselves and it is convenient for the developed and under-developed economies in the world (Shaikh and Karjaluoto, 2014; Brown, et al., 2003). In 2015, the former Governor of the Congolese Central Bank stated in an interview that mobile banking reportedly contributed to the increase of financial inclusion in the DRC from 7% to 36% and will contribute to the development of the continent when the financial systems and mobile services will all be interlinked on a national payment system (Bouquet, 2016). Hence there is no reason not to find a way to continue to use financial innovations to rise up the level of inclusion in a country such as the Democratic Republic of Congo
Now with the rise of blockchain and introduction of digital currencies around the world, it would be interesting to see how the different economies will react and to determine whether this unprecedented trend will affect financial inclusion.
This being said, it all feeds our curiosity but also raises several interrogations such as: Will there be a common ground found between digital currencies and mobile money? Can digital currencies contribute to the development of a country? For countries that have less elaborated financial institutions, can a digital currency be seen as an added value? What would be the impact of a combination of digital currencies and mobile money.
All the above questions are potential topics for conferences/articles/projects etc. The Congolese and African youth in general must be encouraged to dig into such subjects that can be the source of new financial innovations. Komala ambitions to be your hub for the provision of information but more importantly, to assist you in the creation of financial innovations.
Aton Lubanda Buense & Rety Lubala Lulando
