If cash is king, the king is dead: Money, value and trust in a networked society [Video]

“The financial world is a bit like the insurance world, where it was set up to be complex because it’s then very hard for individuals to disrupt it. I think what technology does, is that it enables us to simplify it.”

Rachel Botsman

Ericsson has launched the latest in its Networked Society series of short films, this time focusing on money, value and trust in a connected world.

This follows on from the Swedish telecommunications giant’s previous short film, Thinking cities: The challenges of urbanization in a networked society, which explored the challenges and opportunities of urbanization in a digital world, which itself followed a skit that deep-dived on the future of learning.

On The Money looks at money systems and how connectivity creates “a new game” when it comes to trading – in both value and trust. It’s well worth a watch, but here we summarize some of the highlights of the video, which can be watched in its entirety at the bottom.

“A lot of the way credit and the financial system is set up, it locks a lot of people out,” says Rachel Botsman, Collaborative Lab founder and a 2013 World Economic Forum Young Global Leader. “It really centralizes wealth and control, and production, and that’s had a real effect on economies, and innovation and the way people live.

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“I think what’s most exciting in the entrepreneurial community, is that it’s kind of a blowing-up of power – you see this power moving from the center to the edges and that’s incredibly exciting, because you can suddenly exchange new ways,  you can bring people into the financial system that have been previously excluded.”

Mobile money & Uganda

“It’s estimated that two billion people still do not have access to a proper financial system,” explains Kosta Peric, Deputy Director of Financial Services for the Poor at the Bill & Melinda Gates Foundation.

“You cannot build a business without having a financial system, it’s just impossible,” he continues. “You need loans, a safe way to pay for things, you need a way to track your wealth, and if you don’t have all of that, how can you grow? There is no way. Now people have noticed that, these people that don’t have a bank account, well, guess what? They have a mobile phone.”

Indeed, Uganda is used to highlight how mobile phones have emerged as a default payment mechanism in some countries, a trend that started to gain traction around 2008.

“Nine million Ugandans are using mobile banking – people in offices, villages, small towns…everywhere,” says Vincent Kiyingi, Head of ICT at Pride Microfinance Limited, Uganda.

“A drug shop-owner can treat people using mobile money, and receive money for drugs with mobile money – she makes on average 100,000 Ugandan Shillings a day,” he continues. “In the past, she’d have to travel every week, so there was a risk that the 500,000 that she’s keeping for the whole week in her drawer, that someone may steal it. Now, she banks it every day.”

Indeed, the telecoms companies have seized this as a business opportunity, while the government of Uganda has built what Kiyingi calls a “conducive environment” to make this happen, while the people of Uganda have embraced it. “Cash is king…the king is dead,” says Kiyingi.

Indeed, Botsman reckons within a few years, we’ll all be learning from what’s happening in Africa – including banks – to see the way people think about money and transactions. Why? Because it’s like a blank sheet. “You’re not dealing with people’s prejudices and norms, and that’s one of the biggest challenges to changing the future of banking,” she says. “It’s about unwiring everything that we’ve learned to be true, so when you look at those emerging markets, that is why it’s so interesting.”

Crowdfunding

It’s often said that one of the first funding conduits for entrepreneurs is the so-called ‘3 Fs’: Friends, family and fools. But, of course, venture capitalism plays a key role in really getting ideas off the ground. This is changing.

“Entrepreneurs have been at the mercy of the venture capital industry for years, and one of the things that’s a legacy from the industrial age that doesn’t make sense anymore is this centralization of power,” says Botsman. “Anything that disrupts that and redistributes it, I think is a very good thing. Because you see a redistribution of wealth, and a redistirbution of access for people.”

What we’re taling about here, of course, is crowdfunding. The Kickstarter-funded lifelogging camera Memoto (now called Narrative as of five days ago) is used as a case-in-point. Having side-stepped the venture capital route for the power of the crowd, Memoto managed to secure its $50,000 goal within a staggering five hours of launch. It went on to notch up more than $500,000 in funds by the end of its 5-week campaign.

And a crucial point here is that unlike venture capital, crowdfunding draws in the customer base from the start, who then go on to propagate the message off their own free will. Sure, raising money’s a big part of the process, but building a community around the product is just as important.

Looking to the future, Botsman says that whenever equity is offered as a standard part of the crowdfunding process, this will move things to the next level.

“The next wave of crowdfunding, and where it will get really interesting, is in equity,” she says. “You’ll see a lot more entrepreneurs actually opt for crowdfunding models, because while they do have to give up equity, they’re giving it up in a very different way – they’re building a support base. I think you’ll see a lot of startups that are half crowdfunded, and half through traditional venture capital finance.”

The reputation economy

“The notion of value I think is changing,” says Peric. “In the virtual world, there will be things that have value that are not expressible as money today. In the same way as money is a physical asset in the real world, reputation is going to become a digital asset.”

Indeed, in many ways reputation has been a currency for many years already, and with the rising popularity of reputation-based services, Botsman reckons we’re going back to old-market behaviors.

“If you were going to trade with someone, it was based on their reputation,” she says. “My grandma remembers being lent money and food in the war, because she had a good reputation in her community. The difference today, is that in the past, reputation was largely contained within small villages and groups as there was no way of aggregating, measuring or tracking. Technology and data changes all that.”

With Airbnb, for example, the capacity for people to trust complete strangers by inviting them into their homes, often leaving keys under flower pots and never actually meeting them in person, is quite staggering. It certainly speaks volumes for the currency of reputation.

Meanwhile, you can check out the video for yourself below, and it’s well worth 16-minutes of your time.