Delegates were welcomed to Citi's Digital Money Symposium by Naveed Sultan, the bank's global head of Treasury and Trade Solutions, with an uplifting anecdote involving that renegade of digital money – bitcoin.

Sultan told the story of an Afghani woman who decided to learn how to use the internet thanks to an NGO where all the teachers were women. She started blogging about art and this came to the attention of a large art dealership in the US who said they would like to add her to their payroll. But paying her was going to be a problem. The company suggested using bitcoin.

"Now I'm not trying to advocate bitcoin here," Sultan paused to point out.

He said the company made an arrangement with Amazon that she could use those bitcoins to do shopping on Amazon. She ended up buying her first laptop, becoming fully connected and gainfully employed.

"What is the underlying point?" asked Sultan. "The underlying point is that in addition to social and economic inclusion, how quickly she got connected to the rest of the world. If you go by a traditional process of civilisation and economic development, probably it would not happen in her lifetime. So that is really the power digital money. And that particular role, which is really in my mind a civilisation-building role, we often tend to overlook."

This message was carried on by Carol Realini, co-author of Financial Inclusion at the Bottom of the Pyramid. She said in the next five years we are going to see big changes with digital money across the world, as countries manage to replicate the conditions necessary to allow the sort of adoption rates seen in Kenya.


The alignment of the stars in Kenya facilitated the big success story in mobile money, leaving technologists and philanthropists alike trying to reverse engineer similar circumstances other places. Some 46% of the total GDP of Kenya moves through a simple mobile phone wallet called MPesa.

In Kenya the regulations were supportive, doing KYC was affordable, and Safaricom was the only carrier and had universal coverage across the country. There was also a hugely compelling use case, in that most people who worked in Nairobi had family 50 miles or more from the city and so they wanted to send money home on a weekly basis.

"Why hasn't this happened elsewhere?" asked Realini. "The rest of the world has struggled; there are probably less than 10 scaled implementations of a similar system. To answer that question we can look at India."


Realini said India has figured out why it hasn't happened and is laying the foundation so that it can happen on a large scale. India is 30 times bigger than Kenya. It has 600,000 towns and villages: only 75,000 of them have a bank. To meet the scale of this challenge, India's public and private sectors have joined up to prepare an environment for digital money to happen.

Firstly, is the introduction of the Aadhaar identity system, a central government project to collect the biometric and demographic data of residents, and store them in a centralised database. With over 900 million users, it is the world's largest national identification number project.

This crucially drives down the costs of KYC. It typically costs about $15 to bring someone into India's banking system. "This isn't like a lot to us, but if you are trying to bring 600 or 700 million people into the banking system it becomes ridiculously expensive. A big part of that cost was paper forms and very weak ID systems; people would have state driving licences that all looked different and sometimes they would get wet and damaged."

Realini recounted how she was working on identity schemes in India, trying to bring people into the banking system in India. "We knew it was $15 because we measured it. So we worked really hard taking pictures of IDs and being really clever and we brought it down to $12.

"Then one month it went right back up to $15 and I asked my team what's going on here, why is it back to $15? And they said its monsoon season so everybody's ID is wet so the rejection rate is really high. When you are trying to bank 600 million people you have to deal with these environmental problems."

In addition, India now has a faster payment system, similar to what we have in the UK. And to ensure debit transactions are very low cost, the Indian government ran a debit system called RuPay to keep the costs of very small transactions down. It facilitates electronic payment at all Indian banks and financial institutions, and competes with MasterCard and Visa in India.

Then they tied government disbursements, which were previously cash-based, expensive, and slow, to the ID system. Last but not least, India added to its network of social and private banks, three new types of bank licences: pre-paid issuer licences, small bank licences, and payment bank licences.

"New actors are investing in these new models; all those things are in place now, so my prediction is in the next five years, India will eclipse Kenya in terms of the number of people brought into the banking system. It's a great example of what countries have to do, what industry has to do, to make this type of change happen."

Regulatory reforms

Realini ended with a special point about regulatory reform, which is essential if these types of digital money initiatives are to happen. "Many countries around the world do not have clear regulations and that's probably the hardest thing to deal with. The second hardest thing is when the regulators restrict non-bank actors from having any role in digital money.

"Then it becomes very difficult to leverage the assets of retailers or mobile operators to third party actors online like Google or Apple - they can't take a role if the regulator says everything has to be done by a bank."

Sandeep Dave, director of Citi's global digital strategy, carried on the theme, stating that "digital money solutions are necessary but not sufficient". There is a tipping point for adoption but mapping this out involves a complex cultural mix

Dave analysed flows of value that had a far reach and high frequency - retail payments, digital commerce, SME collections, government disbursements and remittances.

"Lots of markets opportunistically made progress by digitising one of these flows. So what we found was actually connecting flows was critical for uninterrupted digital transactions," said Dave.

He cited China's evolution where electronic commerce is 10% of overall commerce (US is 7%) and 96% of that happens on digital wallets like AliPay. He said the 2015 Chinses New Year saw over one billion virtual red envelopes sent.

In addition to India's ID scheme, which has 150 million bank accounts off its back, Dave pointed out that Nigeria also is implementing an ID system that will connect money flows digitally, and the Philippines, where the largest remittance market in the world is bleeding into domestic transfers and point of sale.

The FinTech Borg

Other highlights included the Izabella Kaminska of the Financial Times invigilating a panel looking at the storied explosion of fintech, which she likened to banks and financial institutions simply absorbing startup innovation – a bit like the Borg from Star Trek. She went on to question banks' potential use of big data to model behaviour whereby "we all end up in the Panopticon" - reserving the right to make bad financial decisions, such as buying Jimmy Choos instead of saving money.

A blockchain breakout session in the afternoon was well attended. It was hosted by William Knottenbelt, Professor of Applied Quantitative Analysis, Imperial College London and Morgan H. McKenney, global business head, cross currency payments, treasury and trade solutions, Citi.

Blockchain breakout

Knottenbelt was enthusiastic about use cases for smart contracts, automated parcels of event-driven business logic that can take custody over assets on a shared ledger. He used the example of a simple wager with value at stake held within the contract.

An oft-cited use case - not to mention proof of concept - involving smart contracts is the smart bond, operating all by itself within some blockchain-enabled financial future. Knottenbelt was asked what happens if the issuer is unable to pay the coupon; would a smart bond involve a pre-funded escrow account, like the wager example?

Apparently it's too early to say exactly, but Knottenbelt pointed out there could be regulatory penalties programmed into such an instrument in the case of default. Citi's McKenney fielded a related question about how blockchain models might tackle complex areas such as the netting down of securities settlements.

Asked whether blockchains would likely settle trades on a gross or a net basis, she plumped for gross, adding that this was an "off the cuff" prognosis.