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June 7, 2012

Digital money: The tipping point is here

Posted by Haragopal Mangipudi (View Profile | View All Posts) at 4:38 AM

Not very long ago, I was watching the news about the USD 1B acquisition of this company called Instagram by the social media giant Facebook. What struck me, when I read about Instagram, was that this fledgling company was premised on a very simple idea. The idea of giving people the joy of modifying their digital pictures to look like they were from the 1960s or earlier and then uploading these pictures on social media. A simple idea, that is now worth USD 1B.

Often, the simplest of ideas are the most powerful. Those that see potential in these ideas early are able to leverage and capitalize on them. As the head of a business unit, that develops and sells technology for financial services, I often ask myself what is the next big idea in our space. As technology providers, for financial services, we've always had to ask ourselves what we can do to simplify the lives of our clients. With the growth of digital channels, such as the Internet and mobile, we've enabled our customers to deliver their services cost-effectively. While digital channels continue to see steady adoption, consumers around the world are still wedded to their cash and cards as instruments of transaction. In some parts of the world, consumers have mobile phones but no access to banking services. Explaining away this disparity as 'time will take care of it' is equivalent to a comfortable illusion. To me, the answer to these questions lies in the concept of digital money.

Digital money is based on the simple premise that a digital device, such as a mobile phone or an Internet-enabled computer, can complement or even replace a consumer's wallet. The consumer can access all their payment instruments, such as bank accounts or cards, digitally and eventually even do away with physical cash and cards. When I think of what this idea can do for economies, our customers and the end consumer, the possibilities are endless. At a macroeconomic level, the concept has the potential to create a parallel digital economy with virtual currency transactions exceeding paper or plastic-based ones. I think of an economy where cash or cards may still exist, but digital currency will reduce transaction costs, frauds and transaction processing time for financial instrument issuers. Financial institutions will be able to reach more customers using digital channels and deliver transaction services on these channels. Both telecom providers and retailers will have important roles to play in this ecosystem, especially in the context of mobile commerce services. In many countries, we see win-win partnerships between these parties as they unlock new revenue streams and extend delivery channels efficiently.

And what of the end consumer? Think of a world where the bulky wallet disappears. Instead, consumers will most likely avoid long queues by instantly paying bills online, tap and pay at merchant locations, buy their movie tickets on the phone, and even transfer money to friends or family on a digital device. Skeptics may tell you that digital money, as a concept, has been around for a while now. However, we are closer than ever before to the tipping point of this space. As might have been the case with Instagram, or others before it, powerful ideas initially fly in the face of tradition but are eventually adopted by the majority. I believe that digital money is a simple yet powerful idea, whose time has come for the financial services space.

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