Banking on alternative systems

M-Pesa, the groundbreaking mobile payment system launched in Kenya, has already proved extraordinarily effective at liberating the “unbanked” – without any of the risks posed by a privately-backed cryptocurrency like Libra – simply by making it cheap and easy to transfer local currency via smartphone. Launched by Safaricom in 2007, M-Pesa is credited with bringing

millions of Kenyans into the financial system, spawning a host of start-ups and kickstarting local economies. By 2015, 17 million Kenyans were signed up and 25% of Kenya’s GDP was flowing through it. When it comes to scale, however, no one beats the Chinese. In 2017, Alipay and WeChat Pay (owned respectively by Alibaba and Tencent) together processed $15.4trn of mobile payments, more than 40 times more than the US total. And both are rapidly expanding internationally. The US is a laggard in comparison. The

capability is certainly there (think Apple or Google Pay), but retailers have been unresponsive: in fact just one company – Starbucks – accounts for some 40% of all US mobile payments. No wonder Facebook spied a

gap to turn the system upside down with Libra.

So should Libra be allowed?

Some argue that Libra would give the banking system and the woefully inefficient global payments system the digital shake-up they badly need. But others argue that until we’ve a better grasp of the full implications of an e-currency like Libra, it should never be allowed to proceed, especially as it could lead to the creation of a global “monobank”. Last week, it emerged that the European Commission is investigating Libra on anti-competitive grounds. In the view of Silicon Valley chiefs, however, it would be folly for Western regulators to get heavy-handed with Facebook, as so many other digital money systems are already in wide use in other parts of the world (see box). The genie, they point out, is already out of the bottle.