[Dave Birch] Technologists (and I include myself in this category) generally tend to overestimate the short term impact of technology but underestimate the long term impact. This is as true in payments as in any other sector: we tend to assume that because technology B is “better” than technology A it will automatically supplant it. Yet there are many entirely non-technological reasons for things being the way they are.

One of the key reasons seems to be that new technology is deployed in support of existing business processes. It’s long time since transistors, laser beams and computers arrived in London yet it still takes three days to clear a cheque. Technology has been used to “digitise” existing processes and mechanisms (banks, clearing houses, settlement cycles and so on), not to support more efficient or more effective processes.

This is why the next generation of digital money will be different, because it will bring the bastard son of BPR (business process re-engineering) and non-bank competition to bear on the payments industry.

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A business school case study often used in this context (and, in fact, many others contexts) is the introduction of electricity into factories. When it was first introduced, electricity was used replace steam to power the large central machine in a factory (which inefficiently distributed power through belts and so forth). It wasn’t until the second generation that the electricity was distributed around the factory to machines that had their own motors.

It strikes me that the first generation of digital cash schemes fell into this pattern. To recycle another familiar tale, you could use Mondex cards in Swindon in the places that acquired bank-issued payment cards (eg, supermarkets) but not in places where digital cash had a real competitive advantage: on the Internet, in vending machines and at the corner newsagents.

But back to the point. Technologists underestimate the long term impact of technology because they don’t understand the social, economic and other ramifications. I’m sure this will be true for digital cash. But having said that, can we have one or two guesses about what digital cash might mean in the longer term? I’ll have a go…

Once digital cash goes into circulation, then the marginal cost of trading (and, for that matter, creating) entirely new currencies (commodity currencies, community currencies, synthetic currencies and the like) will fall substantially. I see that as the second generation — not digitising existing cash but creating new kinds of cash — and the potentially disruptive innovation.


  1. I have had that same point of view from the beginning of all the “cash like” projects that failed, not just Mondex but Proton, Visa Cash, etc. Even in those days, there were numerous examples of dedicated currencies that worked quite well, but that had not been integrated onto payment cards. Things like transit currency of course, but we also had success in France with movie theater currency and rewards currencies for coalitions and town center merchant communities. Moving lots of dedicated currencies onto a single bank payment card always seemed like an attractive solution, but it hasn’t ever happened. I’m not entirely sure why. The best explanation I can find today is that it doesn’t solve a truly major problem for anyone.

  2. In answer to your last question, I’ve blogged last weekend’s continuing experiment in token money. (manual trackback, click on link below, except it is supposed to be HTTPS but most security sites abandon that 😉

  3. Aneace, the reason why the major efforts failed can be viewed from an FC7 perspective. In that model, there are 7 layers that need to be present. Banks and the like completely failed (and will continue to fail) to understand the 7th layer – Finance. That layer is slightly ambigiously named, it really means financial applications, or applications of financial import.
    In more depth, your average bank has no clue what the customers are doing with their payment systems. All of the bank efforts were marked by a strict view as to how customers would use the money, with no understanding that they were completely out of touch. Banks’ understanding of the trade cycle stops the moment the customer steps out of the branch.
    It is for this reason that you will see telcos do better – they are in touch with their customers’ use of the technology in a way that banks are not. (FTR, Frank Trotter I generally credit with the observation that digital case would turn up in telco, mass transit, and courier fields. He then went on to run a bank!)

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