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Smartphones outran bank accounts
Banks and phones
Banks go back to Roman times and the Middle Ages, so bank accounts have been possible for millennia. People who do have accounts rarely have access to dollars the way they would want, probably fewer than 10 percent of them. Everybody wants a dollar, and everybody wants a bank account.
Life without an account
Without an account, people are pushed toward payday lending, check cashers, and high remittance fees. It is hard to own anything or build savings, and hard to protect what has been saved from expropriation or inflation. One family lost all its savings three times in Argentina, in a number of places where redenomination happened.
Unbanked in America
Even in the United States, by the Federal Reserve's own numbers, 20 to 25 percent of Americans are somewhere between underbanked and unbanked. Underbanked means banked at a level where a person can't get real utility from the account. Blockchain is open, so anybody can enter the financial system through it and potentially hold dollars.
Why did phones spread faster than banks?
A phone needs a signal and a handset, and carriers sell prepaid airtime in small amounts. A bank account requires identity documents, a branch or agent network, and enough balance to cover the cost of servicing it. Because opening and running an account costs a bank a similar amount whatever the balance, small accounts tend to be unprofitable. Mobile networks spread across Africa and Asia without any of those fixed costs.
How did M-Pesa work without bank accounts?
M-Pesa launched in Kenya in 2007, run by the mobile operator Safaricom with Vodafone. Customers handed cash to a local agent, who credited their phone with the same amount of electronic value. They could then send that balance to other phones by text message, and the recipient cashed out with another agent. Because it used ordinary phones and agents in shops, it needed no bank branch.
How does redenomination wipe out savings?
In late 2001, Argentina froze most bank withdrawals in a measure known as the corralito. In early 2002, the government converted dollar-denominated deposits into pesos at an official rate of 1.4 pesos per dollar, while the peso soon traded at roughly three to four per dollar. Savers who had held dollars ended up with pesos that had lost most of their dollar value. The conversion was known in Argentina as pesification.
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