In the mid-1990s, Bill Gates speculated that banks could one day be made obsolete by the Internet. That didn’t exactly endear the Microsoft Corp. co-founder to his numerous customers in the banking industry. As they began to understand the web’s boundary-breaking implications, many bankers came to view Microsoft as an all-powerful gatekeeper that could control access to important new technologies and perhaps pose a direct competitive threat.
Sensitive to allegations of monopolistic behavior — not only from bankers — Gates embarked on a diplomatic offensive, making himself available to the trade press and speaking at industry conferences. Whether because of Gates’s effectiveness in presenting Microsoft as a partner whose interests aligned with those of a healthy and presumably technology-savvy financial services sector or just a wider awareness that the high-tech revolution and its challenges were bigger than any one company, bankers toned down the rhetoric and turned their attention to developing their first generation of Internet-based services.
In retrospect, those tensions turned out to be instructive, a foreshadowing of Microsoft’s less imperious future and a proverbial wake-up call for the banks.
Today, as co-chairman of the Bill & Melinda Gates Foundation, the software billionaire is still in the business of stirring things up, promoting favored causes like education and disease eradication in the developing world. One of those causes is electronic cash — or, more precisely, in the words of Gates Foundation grant recipient the Better Than Cash Alliance, “accelerating the shift from cash to electronic payments.”
That is a philanthropic mission, not a business plan. It is focused on poor and emerging countries, and aimed at “helping governments, the private sector and development partners make that shift” as a way of promoting economic growth, efficient markets and “financial inclusion” for billions of people who lack access to banking services, explains Better Than Cash Alliance head Ruth Goodwin-Groen.
The Gates Foundation is not alone in this endeavor. The alliance has received funding from Citigroup and Visa — companies deeply involved in banking and payments — as well as the Ford Foundation, Omidyar Network, the U.S. Agency for International Development and the United Nations Capital Development Fund, which is the alliance’s New York–based secretariat.
But the connection with Gates brings cachet, while the Microsoft chairman’s history with bankers and the current involvement of Citi and Visa invite consideration of the business proposition.
Formed last September, the alliance threw down the gauntlet with a 24-page report titled “The Journey Toward ‘Cash Lite’ ” and had its coming-out during the World Economic Forum annual meeting in Davos, Switzerland, in January. A panel discussion that included government officials from alliance members Colombia, Peru and the Philippines caught the attention of Bloomberg Businessweek, which headlined its dispatch “Bill Gates Hates Cash. Here’s Why.”
The Better Than Cash Alliance lists five reasons. Cost savings — the inherently favorable economics of electronic transmissions versus currency handling and manual processing — is likely to resonate most with businesspeople. The others are not typical commercial selling points: access to markets and economic development, financial inclusion, speed and security, and transparency.
But those concepts are not without cost justifications. The World Bank has said that direct electronic payments can reduce the administrative costs of government programs by as much as 75 percent.
The alliance has a five-year mandate to hammer such points home and “catalyze a global movement,” says Goodwin-Groen. One of her mottoes is “shift, not drift,” taken from the “Cash Lite” paper’s conclusion that a full transformation requires a “purposeful, coordinated approach to surmount the barriers that exist to reaching large scale.”
Bankable Frontier Associates, the Somerville, Massachusetts, consulting firm that prepared “Cash Lite,” outlined a three-stage progression toward adoption by a given market: bulk payments by governments and large employers; spending by individuals, including person-to-person transfers; and the tipping point at which a majority of retail payments become electronic.
Might there be a fourth stage, spreading to developed economies that remain cash-heavy with significant off-the-books activity — like, say, the U.S.? First things first: Cash-only economies by their nature lack a “path out of poverty,” says the alliance, and without the accountability afforded by electronic disbursements, 20 percent of aid payments never get to the designated recipients.
Jeffrey Kutler is editor-in-chief of Risk Professional magazine, published by the Global Association of Risk Professionals.
