Cash is a special public good. The production and initial delivery of cash are financed by state budget which consists of taxes and duties.  The cost of cash for society is significant. As estimated by European Payments Council the size of cash industry in Europe is about 50 billion euros, around 14 euro cents per transaction.

But in practice it means that no matter how the customer pays for bread at a bakery in Paris, the part of the bread price will already include the cash processing fees.

Banks have cash handling fees for shipping, manipulation, storage etc. These charges banks recover from customers. Companies calculate the price of goods and services taking into account its costs of handling cash and bank charges.

Finally consumers pay all costs of the industry of cash that are included in prices and in taxes. But because of the public good’s nature the perceived cost of using cash is equal to zero.

This is the main reason why it is problematic to replace cash by MM, the other reason is the legacy of big cash industry.

To claim that your MM solution is better than cash and will replace cash is just a marketing argument. Other common mistake is to charge for MM transactions in cash-like applications.

Private solution MM will never replace public good cash, but will need a cash access. The necessity to include cash in solution architecture is specific to the project. In general, the smaller is the MM system MM, the bigger is the needs for cash gateways, and the harder is to obtain it.

Cash gateway

1. Standard approach

The standard approach is to use a standard existing cash resource: ATMs and banks. Two standard ways exist: 1) the direct partnership, customer pay directly to the bank , 2) disguised use, cash gateway is inside of MM system, customer pays to the MM system.

2. Innovative approach

In France we have alternative postal services:  Point Relays and Kiala. They use small local businesses instead of La Poste. MM system can use a similar partnership with small businesses. Anyhow, it is important to have as many users accepting your MM as possible.  Small businesses sell products, but they can also sell cash. There are more small companies then  ATMs.

3. Peer-to-peer approach

Theoretically, we can get the money wherever it exists. In the P2P MM system any MM user is able to become a virtual ATM. I can get cash even on the beach – I receive 11 euros per SMS and my neighbour delivers 10 euros in cash after Wi-Fi, NFC or Bluetooth exchange.



Caution: you can easily find complete explanations of basic economics’ notions like Money and Bank somewhere else. Here I intentionally simplify their functions in order to concentrate on the research issue.

Cash

We execute three main actions with money in cash: we receive it, we keep it, and we give it.

There are three discomforts with cash:

1. Change. We have to make ready small coin, to pay an accurate amount.
2. Travel. We have to transport money in cash, because we need to have a physical contact with the person to interact.
3. Security. Cash is easy to steal.

Business has additional costs related to cash manipulations. Authorities are not able to control and to tax all cash operations.

To send money to remote user or to keep it in the safe place we use a commission business: bank, post, Western Union etc.  For example,  we execute a remittance via postal money order.

Non-cash

Manipulation with cash is annoying not only for individual persons but for commission business also. Therefore for their operations banks use cashless.

To be the bank A means that the bank B has the record: “account A is an account of bank”. If 1 euro in cash is the real 1 euro coin, cashless 1 euro is just the record: “1 euro”. When the bank A sends 1 euro to the bank B, it says: “write: account A + 1 euro”.  Thereby actions with non-cash money are exchanges of orders: “receive”, “give” etc., performed among all participants: individuals, banks and business.

But because the world is not ideal, the crime exists and not all people are honest we need special safe infrastructure to transfer orders.

Orders instruments

Many tools exist for cashless orders transfers:  check book, bank card, bank account’s remote control (by phone or by internet). Banks have special interbank infrastructures such as SWIFT, clearing houses etc.

Everybody knows global largest payment network VISA.  VISA provides a complete solution for orders’ exchange. VISA’s business is to connect to as many players as possible, and securely transfer payments orders among them.

There are five discomforts with VISA:

1. Fee. In some countries you pay more using VISA than paying cash. If the local legislation prohibits to include VISA’s fee in the price (e.g. France), then businesses do not accept small amount payments by VISA (less than 10-15 euros).
2. Relative prevalence. In some countries VISA is not present.
3. Relative application. It is impossible to give money to your friend by VISA.
4. Speed. Since VISA is an intermediary, so its transaction time has to be added to bank’s transaction time.
5. Security. Fraud is big and innovative.  It is risky for users, and sometimes it is awkward because of VISA’s antifraud actions.

Legislations

Mobile Money’s projects biggest handicap is that there are under two regulations: telecom’s and financial. VoIP was able to overcome old-fashioned telephony because smart VoIP pioneers were able to avoid telecom’s regulation. Before any MM project’s startup you have to study business plan in three directions:  how to avoid legislation, how to avoid your user’s fraud, and how to avoid your responsibility for your user’s crime.

Mobile Money Start-ups

Now it is relatively easy to classify MM start-ups. MM start-up can be either a complete solution, or some technologic part of it. For example, on the current market there are visible players like VISA and Western Union, but also invisible giants like First Data and TSYS.

Ultimate disruptive start-up

The most complicated is to make simply

Mikhail Kalashnikov

Mobile Money ultimate value is: bankless, cheap cashless money. Because people don’t need banks.  Mobile phone is the perfect tool to hold, send and receive non-cash and the only thing it needs is just another mobile phone.

The point is in peer-to-peer technologies. There are serverless peer-to-peer VoIP solutions on the market that are much more complex than is needed for bankless P2P Mobile Money.

Will people adopt such a utopian product? Will people adopt the product allowing to hold, send and receive money 24/24/7 worldwide, cheap, instantly, securely, impossible to control and to tax?

On the one hand, people already have adopted Skype, eMule and Torrent. If you do it properly and call it something like “Twitter Money”, people will adopt it in 3 days. On the other hand, 90% of the time you will be in the 2L War: legacy war and legislation war.

Disruptive start-up

Mobile phone can totally replace any transfer orders’ infrastructure or create the new one.  The project’s details and architecture depend on infrastructure you will replace and the country you will startup.

For example you can replace VISA. Theoretically, if properly done, Mobile phone provides all you need for that – global coverage, unique ID number, connections and security. There is no technological restriction. On the contrary, Mobile phone is more advanced, and has no VISA defects noted previously. For your operations you can use the real currency or it substitute, it is the matter of legislation, your country currency value and gateways for cash.

In fact, such projects already existed or exist on the parallel market – Internet Money.  E-gold and Webmoney are interesting examples of that.

Sustainable start-up

In the majority of cases MM start-ups are improvements of existing infrastructures and interfaces. You can imagine manifold applications of new technologies in the old-fashioned money network system. Orders transfer by SMS, USSD, 3G; NFC applications; wireless connection to pay remote machines; etc. etc.

A particular case of sustainable projects is a complete replacement of interfaces by mobile. New mobile infrastructure is superimposed on existing money network of banks or Internet money. For more details you can read my related analysis (in French only).

Wrong start-up

Usually, wrong idea is about to copy African MM solution to the developed country.  The second wrong idea is to launch the pilot in Africa in order to verify how it will work in Europe.  In no manner. None needs M-Pesa in developed countries.

Players

Banks

Bank has ATM – useful cash gateway. Bank has interbank connection – useful for international transfers. Bank has customers and billing off-the-shelf. Bank has a financial license. Otherwise MM start-up don’t need banks.

MNOs

MNO is good for wireless connection. MNO does not like MM because MM will replace premium SMS and IPRS – easy MNO money. MNO will not cooperate in MM project that use MNO airtime money for small profit, because MNO’s airtime money are expensive.

Authorities

Authorities are happy with banks and VISA. They don’t like financial innovations; they don’t care for customers’ needs. If your start-up becomes successful without banks and VISA, authorities will accuse you of money laundering and an unlicensed money business. Authorities can upgrade the law against your start-up.