Money In The Age Of The Net

When Marco Polo returned to Venice and told of the empire of the mighty Kublai Khan, where travellers used to carry parchment scrolls from one end of the empire to the other and that the scrolls would substitute for gold coins, none believed him. The Venetians laughed at this "idiot" who thought that parchments could substitute for gold.

Ex ante before the fact, to have tried and predicted how a revolution like paper money would change the world would have been difficult. We are now on the verge of technological changes of a magnitude more intense and more accelerated than the introduction of paper money, an event which, in contrast, seems quite trivial.

The Internet by its very definition is a network. It does not represent a one-to-one relationship between two individuals but a web-like network across millions of individuals. And we all know that the power of a network is greater than the sum total of individual one-to-one connections. So what does this network do to the financial world?

Today, using eBay, I can auction my watch and find a buyer in Iceland for the same. Just think about it. A power that was available only to the largest of corporations is now suddenly available to two ordinary individuals at two ends of the world-to buy and to sell a watch!

Using a portal like priceline.com, I can go in and state a price that I as an individual am willing to pay for a particular product or service. Doesn’t this remind you of the first course in micro-economics you had at college? The consumer specifying the price he or she is willing to pay? Again, until now such raw "auctioning power" was only available to the largest of institutions. The Internet makes it available to each one of us.

As we start extending these analogies into the world of banking, brokerage, financial planning and insurance, it is clear the permutations and combinations of choice that will become available to individuals are on the verge of exploding exponentially. There’ll be search engines and portals which will investigate the rates, terms and conditions of 100 different providers of house loans and actually advise me as to which is the best deal that I as a consumer can get. At one stroke, there is a major shift in the balance of power in the financial relationship.

Sitting in my study, I can have instantaneous access to mutual funds and shares traded on 40 bourses around the world. In earlier days, the minimum lot size was something only millionaires could afford. Now, people are willing to sell 1,000 shares, 500 shares, 100 shares and, I suspect, in the future we can buy scrips one share at a time! Again, the balance of power changes in favour of the consumer.

But once you get past the euphoria and start clinically analysing possible trends, you come across the irritating paradox that a surfeit of choices and an excess of information may actually swamp the consumer-not help him or her. In other words, is this yet another revolution that increases complexity and tension for the ordinary human being, while all along claiming to make life easier?

Think of life before TV: was it simpler? Think of life before the cellphone: was it simpler? Sadly, reverting to an innocent, simple past is not a viable option. We are condemned to live in the present and the future. If the romantic past is not an option, what then of making the future really live up to its promise, not just create hype and then deliver confusion? But like all complex questions, the answers are not easy. For example, what about the poor who will be disenfranchised by lack of access to the Net? What about the distinct prospect of inequalities increasing, rather than decreasing? What about the possibility that the financial cornucopia of the Net increasing instability in the world rather than reducing it?

And finally, what can be a good weapon in the hands of the just can be as dangerous in the hands of the wicked. What if the Russian or Colombian mafia managed to move billions of dollars over the Internet in seconds and launder all their sins in the process?

One can only repeat that ex ante before the fact you never know where you are headed. All we do know is that we are headed for radical change, for complex breakthroughs which we can only dimly predict, never completely understand. There is cause for optimism. The poor will probably have access to the Net through shared PCs in kiosks (think of something similar to the ISD/STD booths across the length of India). The huge inefficiencies in the financial system can finally be addressed (and those of you who don’t believe it’s inefficient, just think of how long it takes to clear a cheque from one town to another). And the beneficiaries of the reductions in these inefficiencies will be across the entire spectrum of the economy.

The gurus are predicting that the big boom over the next few years is going to be in b-2-b (business-to-business) electronic commerce. If this happens, across the entire economy inventories will come down substantially, receivables will come down, reconcilement costs will come down and all of these should lead to a reduction in interest rates and in prices. The nature of payments will definitely change. Payments on the Internet will be faster and more efficient than payments in the physical world. Of course, there will be concerns of security and, needless to say, technologies are evolving and will continue to evolve to address these concerns. The irony of technological change is just this: we all like to believe that the new paradigm will eliminate the old-what it really does is to radically modify the old.

It took a long time for people to accept that a letter from your bank stating that it held money on your account was good or better than gold coins under the pillow. It is going to take much less of an effort for people to live with instant money transfers, with micro payments (you pay one paisa for every 10 minutes of reading an article, or you pay a tenth of one paisa for downloading a favourite photograph and so on).

Each of these happenings and changes will provide a source of excitement as well as of fear. It will provide opportunities for some to get rich and pitfalls for some to lose their business propositions. What is it that might remain constant?

I was talking to my 18-year-old son and we both concluded that Steven Spielberg would’ve been a great man even if he had lived 400 years ago. He would have just been a great fresco painter. Today, he happens to be a moviemaker. Oddly enough, content will remain king. Irrespective of the technology, whoever provides the best content is likely to succeed.

In the financial world, the banks, the brokers, the insurance companies, the financial consultants who provide good quality service, who commit no mistakes, who tailor their services to fit the need of their customers, who distribute products at a competitive price-they are the ones who will succeed. And guess what? The formula seems completely unchanged from the past. Another way to look at it is: may be Marco Polo knew it all!

( Jerry Rao is co-founder and chairman of MphasiS Corporation, an e-business solutions company .)