Commentary@ITREALMS:
Behavioral economics guru, Richard Thaler — this year’s
Nobel Prize laureate in economics— has showcased that people are economically
imperfect. Since humans are irrational we don’t fit neatly into economic
models; we have cognitive limitations, social preferences, or, dare it be said,
big problems with self-control.
When it comes to decisions about saving our money or
investing wisely in order to ensure predictable returns and a safer future,
forget it. We tend to procrastinate, and most often, worse, we opt for instant
gratification. The easy fix, even when we know better. It’s in the numbers. The
sad truth is that we are hot-wired to make bad economic choices.
Unless — and here is the brilliant twist …. unless we get
paid to act counter-intuitively. If rewarded most people will do almost
anything. Now let’s make that sound good: meet financial incentives (FIs). With
FIs it is possible to influence the human decision-making process. Crudely, you
have to pay people to take money. In the development world though, this is a
golden fleece.
A study in rural India found that rewarding mothers with
lentils once their child completed a stage of immunization, increased full
immunization from 5% to 38 per cent In Mexico, the federal government issued
micro cash transfers to low-income families on a monthly basis as a reward for
school enrollment, which increased by nearly 15%. And in Northern Uganda where
I conducted research on Unconditional Cash Transfers (UCTs), we found that 85.7
per cent of participants reported turning a profit with their businesses after
they received UCTs.
Fast-forward to the rage of ICOs and the shower of crypto
tokens raining fresh funds onto the world of social impact start-ups and
blockchain solutions to global problems. Can the reasons why people put off
getting regular health checkups be remedied by FIs? And can the newly
discovered token-system of nourishing solution providers become FIs and applied
as the miracle tool against poverty?
The United Nations’ number one sustainable development goal
is to eradicate poverty. A huge part of the challenge is that sheer number of
people without access to any financial services, an estimated 3.5 billion
under- and unbanked people globally. If crypto coins were part of a behavioral
approach to financial services, the results just might be a redefinition of the
term tokenism. A significant portion of the world’s poor could be on boarded, a
first step to increasing economic well-being.
The challenge is admittedly tough. Inflation and currency
depreciation regularly wreak havoc across emerging markets, the very markets
that are experiencing rapid growth and are the ripest for financial revolution.
With low banking engagement, young populations, and high mobile penetration, an
economical solution to financial services clearly requires something new and low-cost,
like cryptocurrencies.
Consumers living in poverty require low-cost, instantaneous
transactions. Currently, the flavor of the month is still mobile money, which
has processed over $269 billion over the last 12 months in transactions.
Two-thirds of these transactions had a total value of under $0.80.
Mobile money has been a step in the direction of
greater inclusiveness but it continues to fall short as a viable option for
impoverished consumers as they simply cannot afford to pay the 2% or more of
their earnings just to receive it.
Welcome the cross-border cryptocurrencies, or crypto-tokens
built on the blockchain. Some are calling them the next iteration of
incentives, Crypto FIs not only represent cheaper transaction costs and offer
smaller divisibility — but the potential to incentivize behavior will enable
global inclusive finance.
*Courtesy: Tricia
Martinez is the Founder and CEO of Wala a
mobile financial platform built on the blockchain for emerging market
consumers.
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