Story by Carla Bridglal
Marla Dukharan is a well-respected economist, known across the region for her work in the financial sector. But not even her stellar record could help her circumvent the complicated and often frustrating endeavor of what should be a routine banking service.
“My aunt asked me to be a joint holder on one of her accounts, and I thought it would be a simple enough task, but one of the requirements was that I needed a utility bill in my name as a proof of address. Unfortunately, all the utility bills that come to my home are in my husband’s name. Now, I worked in a bank. I paid my taxes. I don’t do anything illegal. Yet still I wasn’t able to meet the basic criteria to open a bank account. And if I couldn’t, imagine all the people from the informal economy for whom this would be even more difficult,” Dukharan told Business Day.
Figuring out a way to make basic financial services available to everyone, especially lower income individuals, was one of the inspirations behind her decision to take up her new job as chief economist for Barbados-based financial service start-up, Bitt.
Dukharan, former group chief economist for RBC Caribbean, said during her years in the banking sector she started noticing more and more people, and even nations, becoming unbanked or demarketed because of derisking—where financial institutions attempt to reduce risk by severing relationships with entities they believe have not met the increasingly stringent criteria for anti-money laundering and terrorist financing.
“People assume you won’t be unbanked unless you break the law or do something illegal, but the vast majority are people in the informal sector, who aren’t necessarily paying taxes because they have low-paying jobs. These legitimate people albeit lower income people were being subjected to higher and higher financial requirements, which they could not necessarily meet,” Dukharan said.
And this, she believed, was regressive, setting the Caribbean back in achieving its sustainable development goals.
“Financial inclusion, while not specifically a goal, is critical to alleviating poverty, income inequality and gender inequality. If people have no means of transferring wealth or income, then it hampers their ability to lift themselves out of poverty,” she said.
Bitt is hoping that its “digital wallet” service can transform the way the Caribbean moves money.
Through the Bitt mobile phone app, users can create and access their own digital wallets while avoiding the hassles traditional banks. That’s not to say the system is less secure. The company has three levels of know your customer (KYCs) requirements based on the type of transaction; the greater the value, the more stringent the KYCs.
People who need to launder money are not likely to move $100 at a time, so what is the purpose of three months’ worth of bank statements from someone who needs an account to receive remittances, Dukharan said.
The value of remittances to the Caribbean and Latin America in 2017, is estimated to be US$76 billion (World Bank). For some of the poorest people in the region, this is a significant source of their income, Dukharan noted, and it is an unnecessary strain when fees to receive this money run anywhere from ten to 15 per cent of the sum value.
For most people who just want to move a relatively small sum of money from peer to peer, the service is free and doesn’t require as detailed a profile as traditional banks.
Blockchain Technology, Cryptocurrency and Digital Money
Bitt’s digital wallets are built using Blockchain technology, which adds to its safety and security.
A blockchain is a continuously growing list of records (data structures) that are linked and secured through cryptography (codes). The setup is designed to be inherently resistant to modification in data, so transactions can be recorded and verified in a permanent way. That is, once it has been recorded, the data in any set (block) cannot be retroactively altered without altering all subsequent blocks, since the blockchain is typically managed by a peer-to-peer network, where tasks are equally distributed and each entity is equally powerful with equal privilege to the application. No change can happen within the blockchain unless there is collusion among the majority, making the network secure by design, since no entity has more privilege than another.
Blockchains were originally designed for cryptocurrency transactions, specifically Bitcoin, the most popular form of this type of currency. Cryptocurrency as a medium of exchange is not regulated by Central Banks and as such differs from fiat currency, whose intrinsic value is usually determined by law.
While Bitt does facilitate the purchase and trade of cryptocurrencies, including Bitcoin, Dukharan stressed that this is not the company’s purpose.
Instead, Bitt prefers to deal with digitised fiat money. Every dollar operated by Bitt is backed by the Central Bank of Barbados with a physical dollar. Ultimately, she adds, the company hopes to be able to digitise currencies from around the region.
Dukharan does acknowledge the growing popularity of cryptocurrencies, and given their growth, she noted that some Central Banks — including the Central Bank of Barbados — have been considering whether they should add cryptocurrencies to their reserves, while international regulatory bodies are attempting to evaluate their impact on the global economy and monetary policy.
“The potential and usefulness of digital and cryptocurrencies can help people who are unbanked or remote; these (regulatory agencies) understand and recognize that, especially as it starts proliferating through the Caribbean,” she said.
Financial Regulation in the Digital Age
As it stands, Bitt is only operational in Barbados. But, Dukharan said, hopeful not for long.
“Our approach is we do not launch until the regulator has given permission. We are working with them to formulate the rules for this industry,” she said. “It’s to our advantage to have to regulator on board, as opposed to other similar services without that oversight.”
Bitt is currently working with regional regulators including the Eastern Caribbean Central Bank, the Central Bank of Barbados, and has had meetings with the Central Bank of Trinidad and Tobago.
Once regulators agree to a pilot, the plan is to have a “sandbox approach” where some currency is digitised and it use and operation of the system is carried out in a controlled environment. As the industry evolves, Central Banks will have to start considering how they manage two money supplies, a digital and a physical, as well as the attendant monetary policy concerns, including inflation.
“As time progresses and adoption increases I believe you will eventually have more and more of the money supply existing digitally, although we will probably never get rid of physical money,” Dukharan said.
Adoption and Evolution
She does acknowledge, however, that for adoption there needs to be trust.
“People in the Caribbean can be skeptical about online banking or mobile banking — wary of the technology. That’s why we have to educate people. Traditional banking models ultimately rely on traditional networks and system. We have blockchain, one of the most secure technology infrastructures in the world,” she said.
The level of financial inclusion in a territory will also be a factor — where there is higher financial inclusion, ironically, there might be a greater challenge to encourage adoption. In countries with higher remittance flows and greater instances of unbanking, it might be easier to convince people to try.
Ultimately though, all that is necessary is a good telecoms system that can support the application and connect users.
Dukharan cites M-Pesa, an African mobile money transfer service first launched in Kenya and Tanzania, lauded for allowing millions of people access to banking and financial services, as an example of how a service like Bitt can help societies evolve.
“They were able to leapfrog straight from old school banking into mobile because the technology existed and made it easier and inexpensive for users, encouraging adoption,” she said.
The Caribbean has a high mobile and telecoms penetration rate; once there is that trust in the product, then adoption can come right after because the infrastructure is there, she added.
So is Bitt going to be the end of traditional banking?
Not at all, Dukharan says. But commercial banks will need to adapt to changing trends.
“Traditional banking models have to look at their cost structure and how well they are serving their clients in an efficient and cost effective way. In the Caribbean it is especially acute. Margins have come down, credit spreads have gone down; whereas costs have gone up. They are now shifting their revenue streams to fees. Customers are dissatisfied with the service and fees for simple transactions. A natural evolution of that is innovation,” she said.
And digital money and wallets are as a result of that.
“It’s not a death knell, but a warning and wake up call to the sector. They need to determine if they are giving value for money. If not, you need to innovate. Perhaps they can even turn to digital wallet providers for help,” Dukharan suggested.