Week of October 3, 2016

1. The End of Cash?: Ken Rogoff has a new(ish) book arguing for the end of paper currency. In the New Yorker, Nathan Heller explores Stockholm, one of the most cashless cities on the planet. The move away from cash in Sweden was strongly influenced by high profile robberies of cash depots, making the insecurity and anonymity (for criminals) of cash much more salient. In Heller's piece, there are a few references to issues of privacy, regulation and insecurity of digital tools, but surprisingly little reference to digital payments in less developed countries, or issues in countries where government is less trusted and less trustworthy than Sweden.

2. Cashless in the USA: The US is a very long way away from cashlessness, but one of the primary mechanisms for movement in that direction is prepaid cards. In the last decade they have become increasingly popular alternatives to bank accounts, and as a mechanism for delivering government benefits like food stamps and unemployment and pay to workers without accounts. The Consumer Financial Protection Bureau has released new regulations for prepaid cards to increase consumer protections and bring prepaid cards more in line with credit cards. The regulations include limited liability for lost or stolen cards and new requirements that cards that allow overdrafts have to evaluate customers' ability to repay.

3. Cashless Benefits and Financial InclusionWhile the federal and state governments use prepaid cards to deliver benefits in the US, even to people with bank accounts, there has been a lot of advocacy for making "government-to-person" or G2P payments digitally in other countries to drive financial inclusion. At Next Billiion, Beth Rhyne and Sonja Kelly of CFI, write that G2P as a mechanism for inclusion just isn't working, citing recent work by Guy Stuart in Colombia and Pakistan. The type of "inclusion" that G2P enables doesn't do much for poor households, in part because the banks still have little interest in serving low-income account holders.

Of course, this is a problem not just with G2P as a means to inclusion, but with inclusion itself as a goal. More than 90% of US households are "included" if you define that as having a bank account, but it's tough to argue that lower-income consumers in the US are getting what they need from financial services. I'm often surprised there isn't more attention paid to the US financial services market as a picture, and a warning, of what is to come in the near future for middle-income countries when it comes to financial access and quality services for lower-income households.

Meanwhile, in the world of G2P, Arvind Subramanian, the chief economic advisor to the Indian government, is making an argument for basic income in India.

4. The (Cashless?) Future of Microfinance: In a new paper, and a summary piece in Harvard Business Review, researchers and Karlan, Pande, Suri and Zinman, with Rebecca Mann from the Gates Foundation and Jake Kendall from Caribou Digital, lay out a vision for the future of microfinance, emphasizing the need to return to the underlying market failures--asymmetric information, high transaction costs, barriers to entry--to chart a course for more effective delivery of financial services to poor households. They highlight the potential for digital tools to overcome some of those market failures.

5. Profits Matter: Whether they are counted in paper or digital currency, profits (or the lack thereof) matter for businesses, be they banks serving low-income customers or small businesses in South Africa. That's the subject of a new paper from Anderson, Chandy and Zia based on a trial of marketing versus finance training. They find that both approaches can lead to higher profits through different channels. Marketing training is more useful to younger and narrower businesses by helping them grow, while finance training is more helpful to more established businesses by helping them trim costs. The fact that profits can be increased is perhaps the most surprising finding of all, given the mixed evidence on other efforts in business training.

A new MicroSave report looks at various models for cross-border remittances in Indonesia. Source: MicroSave

A new MicroSave report looks at various models for cross-border remittances in Indonesia. Source: MicroSave

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