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STATE OF THE ECONOMY

Next in the history of money: The Coffee Standard

Posted

I want to argue for a coffee standard in money! A standard that would be enforced not by national governments but by Starbucks. Let me explain.

The ultimate social network is money. Just like Facebook and Twitter, the value arises from its use by others. And where there is a social media, there are tech companies ready to monetize the information that can be gleaned from it.

Thus, it’s not surprising many tech companies have created their own payment apps. Here in the United States, leaders in this area are Google Pay and Apple Pay, but neither has much market share.

If you look around the world, the economy where payment apps have gained the most traction is not the United States, but Africa. And the issuer of these apps are not tech companies, but traditional telephone companies.

How did telephone companies come to dominate the payment system in Africa? First is the lack of competitors. Many people in Africa were unbanked, meaning that they did not have easy access to the payment system, like check-writing privileges.

Second, cell phone technology is much cheaper to deploy than a traditional land line system. It’s much less expensive to erect a cell tower every 20 miles or so than it is to run miles and miles of landlines between relatively isolated homes.

The development of cell phone technology has allowed for the roll out of telephone services in even very remote regions in recent years. The widespread availability of cell phones puts cheap computers into the hands of large numbers of people who previously never had access to traditional banks. 

Third was the establishment of a network of physical stores necessary to put those cell phones into the hands of consumers—stores that can serve double duty as impromptu bank offices.

This last aspect of African payment system is that telephone branch offices serve as the equivalent of bank branches. This is key. It seems that having physical locations one can go to for service is critical for a useful payment system.

Developed countries have built out banking systems that dominate the payment system. This built-out branch system give banks a competitive advantage that tech companies’ payment apps have not been able to overcome.

So, does there exist a company that both has a widely available app download onto many consumers’ cells that also has an extensive branch system to compete with banks. The answer is yes, and it is Starbucks!

The Starbucks app has 25 million users, which include about 40 percent of all mobile payment users, and there are 15,000 Starbucks in the United States, more than 30,000 globally. That is three times as many domestic locations as Wells Fargo, the bank with the most extensive branch network.

And let’s face it, coffee is much more addictive than ATM usage.

Christopher A. Erickson, Ph.D., is a professor of economics at NMSU. He points out that Kevin Johnson, CEO of Starbucks, is a graduate of NMSU’s College of Business. The opinions expressed may not be shared by the regents and administration of NMSU. Chris can be reached at chrerick@nmsu.edu.

Chris Erickson