Cash is Dead, Long Live Cash?

In the 13th century, Kublai Khan, the Chinese emperor (and grandson of Genghis Khan) put forward a radical idea.

He believed that money — which at that time took the form of sea shells or gold coins—was valuable only because people trusted it.

Ruling at a time when there was no single currency in China, he quickly turned this to his advantage by creating a unified currency.

This initiative heralded the birth of the paper note as we know it.

Khan’s paper money not only provided a common currency for his empire, it was also far superior to gold and silver coins for an extremely obvious reason: It was both lighter and cheaper to manufacture.

And by virtue of being lighter, Khan’s paper money made trade faster.

Today for most of the modern world, the average cash transaction can take anywhere between 5 seconds and several working days.

Using mobile money solutions such as M-PESA, over 400 transactions can be processed in a single second. The corresponding impact on trade is quickly becoming apparent.

Launched in Kenya in March 2007, M-PESA now has over 21 million customers in Kenya and over 85,000 Agent outlets countrywide.

Already, 80% of the world's mobile money transactions are happening in East Africa, driven by Kenya, which is now becoming known as the epicentre of mobile money innovation.

Currently, 93% of Kenyans are mobile phone users and 73% are active mobile money customers.

They trust M-PESA because it both increases the velocity of trade and is reliable and secure.

Mobile money is projected to become a $617-billion industry by 2016, according to researchers Gartner, who predict mobile transactions will reach $171-billion this year.

With over 8 million transactions a day in Kenya alone, are we seeing the seeds of an even ‘lighter’ currency that has already started building trust in the same way Khan’s paper currency did in the 1200s?

In reality, cash still fuels 80% of transactions in Kenya, meaning there is still vast opportunity for the growth of more mobile money solutions like M-PESA.

In addition, M-PESA’s success is heavily rooted in the banking system and in cash.

Without the two, M-PESA would not exist.

But cash only goes so far.

For decades, development advocates implored banks to open branches in remote places, but it made little business sense: nearly half of Kenyans live on just $2 a day or less.

They felt the financial transactions of the populations they were trying to reach were just too small to make commercial sense.

How small?

Imagine a world where you do not have enough money to buy water, or even power because the infrastructure to deliver those services just not exist.

Where you buy a dab of toothpaste because you cannot afford the entire tube.

The success of M-PESA lies in its ability to manage several small payments, the kind that in the past did not attract too much in the way of investment or financing.

For the residents of the village of Njogu-ini, access to M-PESA means they have access to a reliable water source. They built a modified pump that also has an M-PESA metre box and only dispenses water if you text the code from the M-PESA transaction to the pump.

Villagers pay for clean water by texting M-PESA to this meter box -- which unlocks the pump. A villager can get a full month's worth of water for around $6. The fact that the pump only unlocks once payments have been sent eliminates the temptation of theft from the well, and means that every citizen in the village is now safe from theft.

This is where M-PESA succeeds where cash cannot. It provides a safe and secure new currency that can be more easily tracked and which is more accountable. Is it the future of money? See what Lesley Stahl from CBS 60 Minutes recently discovered on her trip to Kenya to see how M-PESA works and decide for yourself.