[Dave Birch] I’ve always been of the opinion that one of the key drivers for digital money is that it will grow the overall economy because it means that trades can take place where no trades could take place before. The Internet, for example. Many years ago I wrote an article called “The Red Button” for Microsoft’s “Finance on Windows” magazine pointing out that if there were some form of e-cash then one might expect new kinds of business to emerge because one of the limitations on a great many entrepreneurial ideas in the web boom was that there was no way of getting paid. Or, to put it another way, why is it that people will pay a euro for a stupid cartoon on their mobile phone but not for reading a great blog? Answer: because they can.

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Actually, this theory been proved to be true by people who know much more about this stuff than I do, some of them at the Bank of England. They published a paper last year showing that a “fair” payment system (ie, one that buyers and sellers choose to use) absolutely definitely increases net welfare if it means that more trades take place. A rather obvious example of this in practice would seem to be Paypal. I was thinking about this when I was on a panel with Geoff Iddison, the UK CEO of Paypal, and he had some figures from their merchants that seemed to show that the great majority of people paying with Paypal at (certain) merchants were new customers. Some of these were presumably customers switching from other online merchants, some of them from offline merchants, but given the numbrs some of them must have been new online customers: to the payment mechanism increased the number of trades, much to the benefit of society as whole, not just the participants and Paypal.

Incidentally, for historians, here’s the 2001 article for Finance on Windows…


My opinions are my own (I think) and are presented solely in my capacity as an interested member of the general public. [posted with ecto]


  1. The PayPal example is interesting because it takes the hassle out of online auctions and so enables more of them to take place. If all auctions had to be settled by cheque, they would take much longer and a lot more people wouldn’t be bothered with them. Garages and lofts would still be cluttered.
    Micropayments for content are tricky because there isn’t much of a precedent for them, with the possible exception of music (does buying one song from an album count?). To get people to use micropayments, you need to not only make it easy to pay, but also need to break the perception that content is free.
    For sites that carry advertising (including sponsorship based on expected traffic levels and ppc adverts), charging for content could cut the total revenue if more people google for a free alternative instead of paying up when confronted with a micropayment button.
    I wonder how successful Amazon’s Honor System is (US only). Although that’s for donations (which means you only get a warm glow in return for payment, rather than access to locked content), I suspect that most sites find its screen space is better used by Google Ads.

  2. The real impact here will be in the developing world where the mobile phone will become the payment device of choice very rapidly.
    The potential impact of millions of new traders and entrepreneurs in the developing world able to transfer funds securely through bank accounts run through their mobile phones could be huge….
    Interesting to think what impact this will have on the regulatory authorities when millions of new consumers simply bypass existing paper driven processes and do everything through mobile.

  3. Actually, there is a pretty good precedent for micropayments in iTunes – their Fairplay system is used to sell millions of songs a months for about 99 cents each.

  4. Actually, there is a pretty good precedent for micropayments in iTunes – their Fairplay system is used to sell millions of songs a month for about 99 cents each.

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