Digital Money: The Way Ahead

Technology has had a huge impact on monetary transactions around the world. Historically, we have seen the movement of physical goods as in the barter system to the flow of electronic money via networks. Digitising money will help the government, business and consumers in their own space. Here’s an in-depth analysis by Anirban.

Whenever, the species is in danger, adaptation has been the key. The same goes with the concept of adaptation of digital money. Historically, we have seen the movement of physical goods as in the barter system to the flow of electronic money via networks. Digitising money will help the government, business and consumers in their own space. How will this adaptation take, and how long — that is the question that we need to explore!

PIC 1- Snapshot Courtesy: Citi and Imperial College Notes on “Digital Money”, Circa January 2015

Reasons for Resistance

The frequent use of physical money is not encouraging, especially in the case of financial inclusion. In some advanced countries, where mobile penetration is also high; we have seen peer-to-peer (P-2-P) networks and point of sale (POS) enablement using tap-to-pay has not been very successful, owing to the stubborn resistance of the physical cash-flows. We can conclude that each country has some specific rules and guidelines, which extend its interests towards this physical cash flow; albeit, the magnitude and materialism of the digital money are too enormous. We can conclude that-

1. One simple size cannot be a default to other: Not every market is the same in terms of readiness or needs. Replicating can have sub-optimal results. ‘Culture’ and ‘Context’ has to be kept in mind while designing solutions in one country to other.

2. Both Businesses & Governments have to come to a focal point to drive end-user convergence: Government and market support and technology and telecom infrastructure are necessary implications for the convergence of success. In Kenya, M-Pesa had to be widely accepted as a concept before the move was transitioned to savings to money transfer, to overdraft protection from money lending.

3. Partnerships are very important, rather critical: Specific industries such as telecoms, financial industries (mainly banks), retail and private sector can offer various good moves in the money readiness curve. All of them should connect to the same focal point. As a market matures through the need-value-experience hierarchy levels, new conducive conditions come as an opportunity.

The Curious Case of M-Pesa

M-Pesa is a success in Kenya. The few underlying reasons for this are:

  1.  The presence of a national identity (ID) system, which has a concrete KYC requirements
  2.  The Kenyan market is extended by Safaricom, the M-Pesa proponent
  3.  The deployment and scaling up preceded the regulation
  4.  Domestic remittance was very high as compared to other options








Key Tenets to Success

There are three main keys for success:

  1.  Partner for know your customer (KYC): Signing-up for partners or users of this end-product. Employing KYC norms, registration and standards. Partner with the banks with the background for compliance with the regulatory environment.
  2.  Partner for Distribution: Build a wide-distribution foot-print by ensuring rural area success.
  3.  Partnership for value added services (VAS): Introduce a range of VAS for the monetary transactions, so that the scaling up is build gradually.
  4.  Government disbursements are an important use-case: Governments can disburse payments through early adoption of digital money using a partner and an operator.
  5.  Retail is advantageously placed at the POS and the digital commerce capabilities: The retail industry is better placed for penetration of bank accounts, card penetration, credit monitoring service, logistics and the industry can easily add digital money as a top of their service.




Table 1- Characteristics of digital money, currency, cheque & credit card


Benefits from the digital money transactions

The three main benefits of digital transactions are:

  1.  With a greater financial inclusion, the whole pie of monetary benefits seems to be at an advantageous position post-implementation.
  2.  The digital money can reduce the high cost of handling and process time.
  3.  Migrations of thoughts on concepts from physical transfer of money to digital transactions are happening, and can be cashed upon.

Hence, we see that the industry is in a definite lane of progress, and based on the benefits; further progress can be made to the entire eco-system. And India can definitely catch up in this entire eco-system against the rest of the world.


  1.  P-2-P – Peer-to-Peer network, where there are many interconnected seeds and no specific client-server agreement
  2.  POS – Point of Sale or the place in a retail shop where the monetary transaction for the bought goods take place
  3.  M-Pesa – A system of mobile money in Kenya- which has achieved a huge success
  4.  KYC – Know your customer or a protocol followed by banks which contains all the details of the customers
  5.  VAS – Value Added Services or the services that are provided by a mobile carrier other than the core layer of voice
  6.  Face-2-Face Transactions – Transactions on the spot where money is debited from the
  7. account directly
  8.  Non Face-2-Face Transactions – Transactions that need time to display on the debit side
  9.  Need-Value-Experience – The hierarchy of needs states that a particular need of a customer translates to value after the need is achieved. Also, the value turns to an experience after multiple satisfying values being assessed.



  1. Digital Money: A pathway to express economy– By Citi and Imperial College, Circa 2015, January

  2. Monetary digital implications of digital money– By Aleksander Berentsen, University of Bern, Circa 1997

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Anirban Kar

Anirban Kar is a technology and business consultant, who has earned his education degree in two continents, the USA and from India. His work started from 2003 in TCS, and comprised
of various clients ranging across geographies. His area of interest is business modeling,
enterprise architecture and investment analysis.