Thursday, May 16, 2013

Social Implications of Integrating Google Wallet Into Gmail

In case you haven't heard, Google Wallet is now integrated into Gmail.  I believe this is a very disruptive development in finance.  Conventional analysis focuses on the convenience it offers to American users of Google's integrated platform.  This is only the beginning.  We can expect some far-reaching effects.

This will be terrific for expatriates who migrate between emerging market countries in search of work.  Expat laborers send portions of their earnings as remittances to family members in the home country.  The World Bank believes the remittance market is over US$440B per year.  The OECD says that international migrant remittances are a major source of capital for developing economies.  Workers who currently pay wire transfer fees to send money home will be thrilled to attach micropayments to their email messages at no charge.  Goodbye, Western Union. The flow of development capital among emerging markets is about to become frictionless.

It will also enable more fraud, because Nigerian scam emails will have one-click enabling links their victims will be tempted to use.  Scams work because stupid people believe false promises from anonymous liars.  Enabling a monetary transfer with email eliminates the delay between responding to a deceptive offer and completing a fraudulent transaction.  Hazard is one click away but so is legal help.  Filing an online complaint about email scams is easy with IC3. 

Finally, this innovation will allow intelligence agencies to track hawala transfers to radical organizations.  The US Treasury has extensively documented the role hawala transfers play in money laundering for criminals and terrorists.  Some central banks are cracking down on hawala because unlicensed money transfer operations make their national economic climates less transparent for investors.  The growing resistance to hawala means non-state insurgent actors will turn to innovative methods of moving money.  Cybercrime components of US law enforcement agencies now have a golden opportunity to track and intercept hawala transfers from "persons of interest" to the Taliban's proprietary madrasas if jihadis use Gmail.  Google has given the US intelligence community a wonderful tool for justice.

There are no solutions, only changed problems.  Emailing money reminds me of the early days of the Internet boom when startups were pushing "digital cash."  The e-cash movement was stillborn when banks and brokerages built web portals that allowed customers to access their accounts from home.  The contemporary reinvention of the e-cash concept is Bitcoin, and it's not faring any better because the US government just shut down a major Bitcoin exchange.  New forms of money are not the future of finance.  Existing money  will simply flow to new means of transfer.

Full disclosure:  No positions in any companies mentioned.  BTW, I do not participate in Bitcoin.