On the streets of Nairobi, the hustle of trade consumes everything around you, yet much of this happens without a banknote or coin in sight. In 2012, Uber made it possible for you to pay for your taxi by your phone, but this was possible in Kenya since 2007. In Kenya, you can pay for almost anything with your phone through the means of simple text message.
Once you are registered, you are able to pay into the system through any of the country’s 40,000 agents who credit the money to your M-PESA account, much like an Oyster Card top up in London. From here, it is now possible to trade with all others with an M-PESA account by quickly transferring funds by mobile text message. For these trades to occur, you do not need the latest smartphone straight out of California, but a basic $15 text-and-calls phone is sufficient.
M-PESA (“pesa” means money in Swahili) was launched by Vodafone’s Safaricom operator as a means of making small money transfers between users through text message. This new system grew, and until today more than 70% of the volume traded is done through this electronic means and not through cash. Vodafone’s system has an estimated user group of 30 million users today and records up to 529 transactions per second in everything from simple money transfers to loans to healthcare.
The mobile phone trades in Kenya are beneficial; they have been heralded by humanitarian aid organisations for their abilities to provide a simple method in a lesser economically developed country for workers in the cities to send back money to their families in rural villages. The sheer simplicity of M-PESA is what allows it to bring so many people into the financial world. Being backed by Vodafone’s Safaricom, each trade that occurs is logged and monitored, which has the added benefit of preventing money going into the black market economy and being used for crime as the cash economy is shrinking.
The funds held in Safaricom are not held by Safaricom contrary to popular belief: they are backed up by a trust and are out of the corporation's reach. The money is 100% backed up by pooled accounts in central banks and the M-PESA credits can be transferred to real money if needed. However, with the current widespread use of M-PESA with more than 2/3 of Kenyans using it, many do not have a need to convert M-PESA to cash, as so much trading happens through the mobile platform.
The developments in Kenya lead us to the question; what is the future of money? New technologies have seen a huge rise in plastic to be used over cash, with more and more people having credit and debit cards. Contactless payment and mobile phone payment is yet another new invention that allows trade to happen faster for small purchase items, reducing the need for people to hold cash. Some believe that with the rapid rate of technological increase, cash is coming to the end of its life.
However, the Bank of England is midway through the rollout of new polymer banknotes into the UK currency. The UK is not at the fabled point of a no cash economy yet. In less developed countries, the technology simply does not exist to provide a no-cash economy. So in the near future, banknotes and coins will still fatten our wallets, but Kenya acts as an example to all of us. It is possible to envisage a world without the need for cash through the use of mobile payments, however, that future is still a long way away, but Kenya is yet again first in the race towards it.