On the technology side, we have the Internet, mobile phones and contactless infrastructure. The last time that the banking sector had a real go at revolutionising the means of exchange, back in the early 1990s, none of them were mass market. In fact, it could be argued that, in hindsight, efforts such as Mondex and Proton, Danmont and VisaCash, were optimally wrong. A bit like chip and PIN, they were designed to succeed in an environment that was on the verge of vanishing, luxury ski runs down a melting glacier. They were designed to flourish in an offline world, and none of us knew that the world was just about to go online. Now we understand that the technology that is changing money forever is not the smart card — not even the Internet — but the mobile phone. It is personal connectivity that is the currency catalysts, the transforming element. Yes the industry, it has to be said, tried many experiments around mobile payments we well. Mobile payment systems have changed the landscape forever in Kenya and the Philippines, but they haven’t yet got traction in Western Europe. There was an X-factor missing. Consumers consistently said that they would like us to use their phone for payments, but they constantly rejected what they were offered. It just wasn’t convenient to send and receive text messages with codes in at the counter in W.H. Smith, even when it did work.
Meanwhile, another big industry — transit — was already rolling out contactless cards and consumers in London, Hong Kong and Tokyo were enthusiastic adopters. Combining the “tap ‘n go” convenience of short range “proximity” interfaces with the power of the mobile phone and the flexibility of the Internet looks like a winning recipe. Even before the first commercial Near-Field Communication (NFC) payment service was rolled-out in Malaysia last year, pilots and trials around the world had already shown an astonishing customer reaction to the mixture.
The social drivers are all in place: people sort of expect mobile phones to handle payments. They don’t need convincing. We have the technology and we have consumers.
That’s not enough, though, because there needs to be a business. Here there is the potential for disruptive innovation. The basic charges against the payments sector — too slow, too expensive, too opaque — still stand despite progress in recent years, but can be restated (as I found from working on the CSFI’s Fellowship in Payment Innovation) as opportunities for disruptive innovation — stakeholders making money in new ways — that may include new options for replacing cash as the dominant mechanism for low-value payments. But the reason for the resurgence of interest is, in my opinion, a readiness to consider radical alternative solutions in the post-crisis landscape. The global credit crunch has left many people feeling that simply patching up the banking and restoring bonus payments to their pre-crunch levels isn’t really a strategic way forward and — because of the increased moral hazard — makes another crisis even more likely. Money, and payments, are only one of the aspects of the global financial system that are being re-examined in the light of the last couple of years.
I was reflecting on this because of some of the conversations at Mobile Payments Services in Barcelona. A1 from Austria presented on their experiences as an operator: they got fed up trying to deal with the Austrian banks to create mobile payment services so they just start their own and now they have a successful business. What if payments just aren’t a banking business and the reason for the surge of interest in money and technology reflect this business and social dynamic (since the technology has been in place for a while)?
“If banks were doing their job correctly there wouldn’t be a PayPal or a Mint” says Richard Aberman.[From Partnering with start-ups can pay for banks | Banking Review]
Is this really true? Isn’t it a bit like saying that if airlines were doing their jobs properly, then there wouldn’t be trains? Or if Microsoft was doing its job properly there would be no World of Warcraft? Payments are not a banking business, and as the Federal Reserve Bank of New York wrote back in 1997, economic analysis cannot explain why they provide payment services on such a large scale. You could just as easily put it the other way round: the existence of PayPal as a payment mechanism shows that banks were doing their job — which is to create credit — and being focussed.
The reason why there is a resurgence of interest in the future of money is, in an analogous manner, because it is no longer seen as being a state monopoly. Just as we will be using non-bank payment systems to send value around the network, that value will not be the fiat currencies of today. If you think these are the ravings of a madman, fine. If you think you might want to hear some smart people discuss this more, then mark 2nd and 3rd March 2011 in your calendar because that’s when the 14th annual Digital Money Forum will be held in London and there’s going to be an expert panel discussing alternative currencies there: you won’t want to miss it.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]