A Look into Digital Money By Dr. Ignacio Mas The rapid advancements in digital money and payment systems can be overwhelming, with established and new players enhancing convenience, safety, and robustness. The Consequences of Dematerializing Cash Cash’s tangibility is crucial; notes and coins are physical entities governed by norms. Transitioning to digital money requires abstract thinking, which can be challenging for underserved communities needing education to navigate virtual currency. However, many already engage with virtual money through informal practices like loans and community support. Modern-Day Problems with Hard Cash Cash has limitations. People in cash-centric societies struggle to connect with distant relatives for support. Their transactions are constrained by local financial institutions, which may need more visibility into their cash histories. The Original Form of Money As David Graeber notes in “Debt: The First 500 Years,” abstract accounting systems predate physical exchange tokens. Initially, money served as a unit of value, with payment and storage roles evolving later. Thus, virtual money is not new; it is the original form of currency. People manage gifting complexities, which can be more abstract than digital transactions, fostering connections while potentially perpetuating dependence. Gifts carry various emotions and implications, illustrating their complexity. Virtual Money is Ageless These insights suggest that individuals embrace digital money when offered clearly and securely. Money is fundamentally information, and digital currency reflects a trend toward removing physical limitations. There is no reason to believe that abstract digital concepts should deter individuals, especially those familiar with informal arrangements. The challenge lies in formalizing finance and helping people adapt to quantifying financial relationships. Sourced and extracted from “A taxonomy (strains) of digital money” – by Ignacio Mas. Share
Scaling Mobile Money: The Absence of Banks By Dr. Ignacio Mas About 2.5 billion adults need access to essential financial services, which banks must meet. Banks are unavailable as they find operating in poor and rural areas unprofitable. There are only two bank branches and 1.3 ATMs per 100,000 people in the poorest quintile, compared to 33 branches and 67 ATMs in the wealthiest quintile. It drives poor households to rely on risky and expensive informal financial tools. Changing Retail Banking Economics Banks, mobile operators, and payment providers are exploring branchless banking models to reduce costs by moving small transactions to local retail shops. Mobile money leverages existing infrastructure to convert cash into electronic value, allowing customers to transact securely. Mobile money changes retail banking economics by: 1. Using local retail and telecommunications networks to reach unbanked populations. 2. Converting fixed costs into variable costs lowers the revenue needed for operations. 3. Adopting usage-based revenue models that cater to poorer customers. 4. Expanding financial possibilities for users, enabling remote payments. Speed to Scale Mobile money systems struggle to scale due to: 1. Network Effects: The value increases with more users, complicating early adoption. 2. Chicken-and-Egg Trap: Attracting both customers and merchants is challenging. 3. Trust Issues: Customers must feel secure using non-bank outlets for transactions. These challenges become advantages once critical mass is reached, encouraging more users and merchants. Ensuring Consistent Customer Experience Mobile money schemes must develop a strong distribution channel to ensure access to cash and electronic money. It includes recruiting and training retail outlets and effectively managing cash and e-money. Concluding Thoughts: Getting to Critical Mass To avoid the sub-scale trap, scheme promoters should invest significantly in marketing, merchant commissions, and training after technical trials. It will help overcome barriers like network effects, the chicken-and-egg dilemma, and trust issues, enabling successful payment systems to flourish. Sourced and extracted from Scaling mobile money – By Ignacio Mas. Share
Making Digital Money More Like Cash Dr Ignacio Mas and Reza Jalili For most services, we expect diversity, such as multiple transport modes, power sources, and educational offers. However, in digital money, we often settle for a single format: account-based money from licensed institutions. This trend comes with increasing pressure to eliminate traditional cash, which has served us well for centuries. Digital money has improved safety and convenience, allowing us to view balances, make remote payments, and automate bills. Yet, we sacrifice functionality. Three aspects are overlooked: 1. Fixed-Denomination Bearer Money: We lack digital cash-like options to be held and transferred without involving third-party rails. This type of money would enable small transactions, allow users to carry only what they need, and serve those who cannot manage accounts. 2. Frictional Money: The current digital systems prioritize convenience at the point of payment, ignoring the importance of managing money before spending. Users should be able to customize how they apply friction to their money, like how we manage physical cash. 3. Tangibility: There’s a need for money that can be physically embodied, integrating seamlessly into our psychological and physical realities. Today’s cash operates entirely in physical terms, while digital money demands electronic validation. We need a system with interoperable physical cash and digital formats to bridge the gap between cash and digital money. One solution could involve visually and electronically embedding chips in banknotes for dual acceptance. However, this might not be feasible with current technology. Alternatively, Vaiu tokenizes money as six-letter codes, functioning like digital coupons. These codes can be shared digitally or printed, allowing for physical transactions linked directly to bank accounts. Creating a digital money system that mimics cash is essential for a cashless society. A Pareto Optimal system, which meets all existing needs while improving in some areas, is necessary to transition to digital money successfully. Emulating cash will help facilitate this transition. Share
Vaiu Global Unveils Tokenization Software to Enhance FedNow® Security and Usability in Banking In a groundbreaking announcement at Money 20/20 in Las Vegas, Vaiu Global has introduced its innovative Ephemeral Token Software, poised to transform the landscape of real-time payments within the banking sector. This advanced software facilitates the seamless adoption of instant payment systems, particularly the U.S. Federal Reserve’s FedNow®. As a pioneer in the field, Vaiu Global stands out as one of the first providers to offer value-added services that enhance the security and usability of FedNow®. The company’s cutting-edge software protocol allows banks to implement token-based transactions effortlessly, eliminating the need to exchange sensitive credentials—such as account details, personal identification, and contact information—during payments. This innovation not only bolsters security but also simplifies the payment process for users. The unique token system developed by Vaiu utilizes six easily recognizable characters, ensuring that payments are simple to read, write, and communicate. This approach delivers a consistent and universal payment experience, making transactions more efficient and user-friendly. Vaiu’s patent-pending software integrates seamlessly with existing banking infrastructures, paving the way for safer withdrawals, spending, donations, and deposits on industry-standard real-time payment rails. This integration significantly enhances the user experience by leveraging bank-backed ephemeral tokens, setting a new standard for security in digital transactions. Reza Jalili, CEO of Vaiu Global, emphasized the significance of this development, stating, “Vaiu fulfills one of the great promises of the digital economy: enabling secured money movement without the bureaucratic, technical, and cost hurdles of traditional and modern payment methods.” He further noted that the token-based protocol is uniquely positioned to accelerate the acceptance of FedNow and other real-time payment options, enhancing security and data protection throughout the transaction lifecycle. Beyond its immediate application with FedNow, Vaiu’s user-friendly interfaces offer a simple, low-cost solution for banks looking to promote secure real-time payments. The possibilities are vast as Vaiu Global sets the stage for transformative changes in how banks, businesses, and customers engage in financial transactions. In conclusion, Vaiu Global’s Ephemeral Token Software marks a significant advancement in digital payments, promising to reshape the future of banking by enhancing security, usability, and efficiency in real-time transactions. Share