Money, banking & insurance

Africans on the internet

It may be hard to imagine that Somalia, so violent and dangerous for foreigners, is also the place where half the population are under 18 - and they’re on Facebook. While Africa uses only 4% of the world’s electricity, with a population of a billion, villages have learned how to charge mobile phones and use the internet. There are 84 million internet-enabled phones in Africa, predicted to rise to 69% of mobiles by 2014. Thanks to some undersea cables, EASSY, Africans can now afford to talk to the outside world.

In 2000, Kenya’s largest mobile operator had 20,000 customers; now it has 12 million. Its service M-Pesa, allows people to send money using their mobiles. The internet-enabled mobile phone will be powerful communication tool for Africans because it will let them interact, participate, and to some extent be democratic and anonymous. One commentator claims social networking is the “emergent behaviour” in Africa.

Three companies are benefiting from this new Africa: Facebook, Google and Nokia. People don’t have to pay anything to use Facebook. About 17 million Africans, mostly at school or university, were using Facebook at the start of the year and there will probably be 28 million of them by the end of it. Commentators believe this will have consequences for African politics, for example, it will help African voters ask a lot more of their politicians. Citizen activism is likely to increase. More crucially, young people who once relied on teachers and parents for advice, will now go online for their information.

Google wants to pull down the traditional barriers to the internet: language and price. It will bring the price of connectivity down by establishing data caches in Africa to reduce download time, and offer knowledge, transaction and entertainment services in each of Africa’s 100 languages. For now it is concentrating on Swahili, Amharic, Afrikaans, Zulu and others. The purpose, Google says, is to release “trapped” indigenous knowledge.

Nokia is the third player in Africa and knows that most Africans can’t afford more than a “sachet” of anything. Its biggest seller is the Nokia 1100, a design classic. The cheapest internet-enabled phone from Nokia is expected to be a mere $25 by 2015. However, competition at the top of the market comes from Blackberry, whose rounded, fruity coloured phones are appealing to young African inspirational professionals. As Africa is one of the most oral cultures in the world, the introduction of voice-activated technologies will have wide appeal. Some might even say, optimistically, that Africans are claiming back their voice.

Did rising inequality cause the global recession?

It will be a while before people stop coming up with reasons for the GFC. After all, nobody wants a repeat of it. A new book, “Fault lines”, by Raghuram Rajan, claims that increased inequality and the response to it, helped to cause the crisis. Of rising inequality there is no doubt: in 2007, the richest 1% of American households had 18.3% of income, compared to 18.4% in 1929. Yet from 1952 to 1986, the richest 1% earned less than 10%.

Mr Rajan said that technological change increased relative demand for skilled workers, leaving other workers behind. Rather than spend on education and training, governments gave the less skilled workers access to credit. The government pressured both Fannie Mae and Freddie Mac to lend to poorer people, pushing the share of subprime mortgages from less than 4% in 2000 to 15% before the GFC. The boom in credit pushed housing into an unsustainable bubble, which eventually burst.

There are dissenting arguments, of course, one being that technological change began in the 1980s, long before the boom in credit. The unskilled workers did not become much worse off because they were in services that were difficult to automate, but those in the middle did. So it didn’t make sense for the governments to help the least skilled. Another argument is that increased access to mortgages only pushed up home prices by about 4.3%, a fraction of their actual rise. It may have had more to do with “irrational exuberance” or even gambling, than lending.

An august gathering of economists at the meeting of the American Economic Association (AEA) agreed that three forces were responsible – inequality, subprime lending and the Wall Street boom. To a large extent, the GFC seems to be a result of the human longing to have what other people seem to have – and in some cases, much more than other people.

AMEX goes down on the farm

In case you were wondering how to spend your AMEX points, you could buy a virtual pink tractor on FarmVille. FarmVille is an online social game by Zynga that attracts young women, particularly those aged 25-35. AMEX recognises the growing importance of social gaming and wants players to be able to spend their points wisely.

It may be hard to understand why someone would choose an intangible product over one they can actually touch (a handbag perhaps, rather than a tractor). Perhaps it is related to the way we use money today. It is increasingly intangible – credit rather than cash – and even online banking seems little more than clicking a few buttons, rather than actually spending or moving money. In fact, money seems so abstract as to be almost meaningless (until you owe a lot). So perhaps people can spend points on virtual goods because the money didn’t seem real in the first place.

Adweek, a marketing publication, says the rise in social gaming for women coincides with declining interest in daytime soap operas, and the ABC will pull two well-known soap operas (All my children and One life to live) off air from September.

Another social change is that poor people never had the money to buy things and were not allowed into the right shops to buy them. Today, everyone knows what the rich wear and where they dine, and they can buy anything online with a credit card. The market for virtual sales was about $US2.2 billion last year. So a few pink tractors won’t make much of a dent. No wonder AMEX is going down on the farm.

Digital wallets

Mobile phones are getting smarter, smart enough in fact to pay your bills. This is nothing new in hi-tech Japan or Korea. But in the UK, mobile payments are launching this summer in time for next year’s Olympics, thanks to Orange and T-Mobile. Phones need to be equipped with Near-Field Communication (NFC), which means you can wave them at a till from about 10 cms away to make a payment. It means you don’t have to get your wallet out – or even carry one.

Analysts at In-Stat claim 2011 will see 116 million people using mobile payments, increasing to more than 375 million in 2015. It depends on the availability of smartphones, infrastructure that supports mobile payments at point of sale (POS), and consumer comfort with paying in this way. Retailers need to be on side with this development and Co-op and Spar trialled this technology in the past year. Orange is already working with Barclaycard (UK) to launch the service and has more than 40,000 businesses willing to subscribe. It will begin with only small payments, up to 15 pounds.

Juniper Research believes 20%, or 300 million, of smartphones, will carry NFC in the next five years. North America will have 50% of available smartphones, with Western Europe coming second for NFC penetration. We hope NFC means it’s Not For Children, given their tendency to wave things around.

Life without credit

Imagine a world without credit cards! It’s not so long ago that the only debt most households had was their mortgage and perhaps a car loan. Now many households have all these debts and more, thanks to a plethora of ways to have what they want now. Some research by Javelin found that credit card use plummeted in America from 87% in 2007 down to 56% in 2009. If this trend continued, less than 50% would soon be using credit cards. It’s a sobering thought for the banks, who profit so mightily from interest on unpaid balances.

It would also dramatically change the shape of retail. If consumers thought more carefully about their ability to pay at the point of purchase, they may be less likely to buy in the first place. They would feel the “pain” of purchase and there could be fewer impulse purchases. More optimistically, more people would be able to save money, because so much less would be lost in repayments. We could all save for retirement!

This contrasts ironically with coming NFC mobile payments (NFC turns your phone into a wallet, above), which are designed to remove the “pain” of purchase with a mere swipe. As long as NFC payments are connected to credit cards, there seems to be little chance of credit card death in the near future. All an overreaction, perhaps.