Financial Services (105)

Google will launch its first credit card that is specific for AdWords. The card makes it easier for small businesses to pay and track spending for their AdWords campaigns. For the moment, the card can be used only to purchase AdWords, but it should be opened up in the near future for other useful business related activities.
 

Why it matters

With this initiative Google is entering the financial business world. Google has the power and means to stretch into almost any industry. While its one of the most recognisable brands globally, it has often come under fire regarding user privacy. Will consumers trust it enough to share their financial information with Google?
 

A southern Spanish village has started using a new currency, complementary to euros, called “Pitas”.  Pitas can be changed to euros or labour time, where one Pita is valued at one euro or six minutes of labour. So users of the currency can buy whatever they need and pay with 24 minutes of ironing or washing dishes if that is the value of the product or service.
 

To avoid seeing a devaluation of the currency, it must be used within the first 3 months or it loses 10% of its value.  It also has an expiration date and its total value will be lost if it’s not used within a year.
 

The village celebrated its 1st Pitas fair, a marketplace where people used euros or labour to obtain pitas or buy products they needed with the currency. 
 

Why it matters

Our global economy isn’t based solely on euros or dollars. In times of economic crisis, fluctuating currency value and loss of confidence in the traditional banking system, an alternative currency system – such as a barter economy - could be of interest for consumers. Could service brands follow this trend and propose alternative ways for consumers to pay?
 

One of the biggest challenges that poor urban entrepreneurs face is lack of access to capital. Banks and financial institutions are hesitant to lend to these individuals due to credit risk and small money lenders charge almost usurious interest rates. State Bank of India has developed a unique model where small sums (sometimes as low as $100) are loaned to individuals who form ‘Self Help Groups’ that together add up to a significant corpus. The bank benefits because the default risk is spread across multiple individuals in same social circle. Additionally peer pressure helps to prevent defaults.

Why it matters

The Self Help Group model of micro-financing helps BoP consumers move up in life through entrepreneurship. It also creates more employment opportunities for the local community by driving financial inclusion without sacrificing the profit motive. Will more banks world wide see this as an opportunity to help their poorer communities and introduce similar schemes?