The idea of the talk is to reflect on the impact of technology on the various functions of money: that is, as a unit of account, mechanism for exchange, store of value and means of deferred payment. We tend to jumble these functions together, but if we want to understand how money might develop in the future, we need to pull them apart and then look at what technology might do to each of them. I’ll therefore look at how the evolution technology has changed these in the past, leading to the evolution of money.
For the purposes of the talk, I will having another go at categorising money technologies, this time by dividing the evolution of the technology of money into four eras:
Money 1.0 was atoms: grain, gold, stone discs, wampun, whatever. Guildford had a mint making silver pennies (the only coin of the day) by the time Edward the Martyr (975-979) so I like to think that at Consult Hyperion we are part of a tradition of new money technology by the River Wey!
Money 2.0 was atoms about atoms. From the tally sticks of Norman England to the private “tokens” (ie, coins worth more than their base metal content), these items were convenient than the commodities they represented.
Money 3.0 was bits about atoms: that is, fiat currency banknotes, electronic transfers and accounts. Once these bits could move faster than a galloping horse, our relationship with money changed.
Our current era, Money 4.0, can be dated in retrospect to 1971 when Richard Nixon finally ended the gold standard and Visa introduced the Base 1 network for authenticating card payments based on the magnetic stripe. Money 4.0 is bits about bits, but we still apply the wrong mental model, and imagine it to be bits about atoms.
So what does this mean for the future? Well, we can look at three distinct sources of pressure for change:
The first of all there are the technology pressures. These are actually the easiest to understand, at least in the short to medium term. All of the technologies that will impact the world of money, payments and banking over the next generation already exist, it’s just a question of looking around the world to see which of them will have disruptive impact. We don’t need to look much beyond the mobile phone to understand the key platform, since the mobile phone (or, I suppose, more properly, the device formerly known as the mobile phone) will be the most disruptive technology across many sectors. The addition of the short range, zero configuration, medium-speed wireless Near Field Communication (NFC) interface to the mobile handset changes the handset from being the very edge of the network to a pivot between local and global environments that it can integrate in a secure uncontrolled way. A credit card replaces cash if you want to pay a shop, the mobile phone replaces cash if you want to get paid.
Next there are the business pressures. It’s interesting to reflect within the UK, cash accounts for less than 3% of the “money” in use but still accounts for nearly 2/3 of retail transactions by volume, which makes for cost, cost, cost. And when it comes to the dynamic new channels for online business, we’ve got by shoehorning the cards and so forth into the new technology, but we haven’t yet seen the new money for the Internet emerge: perhaps Facebook Credits will take over! Over the coming generation, the payment business and the banking business will become more distinct and as a result more dynamic and efficient payment businesses will find new ways to replace cash. Cheque clearing is scheduled to end in the UK in 2018, so Internet and mobile phone-based alternatives will need to be operational fairly soon.
Finally and most importantly, there are the social pressures. Right now, the retail payments sector is a deadweight of around half a percent of GDP (in Europe). This is largely due to the continuing high use of cash and cheques rather than more efficient electronic alternatives. Clearly, replacing cash would reduce this total social cost and make the economy more efficient but this by itself won’t be enough to trigger action. However, there are growing pressures for governments to reduce the use of cash because it is used to facilitate crime and tax evasion more than because it is inefficient. In if we just focus on Europe we can see that these pressures take different forms in different regions. There are streets in Amsterdam but no longer take cash because the city council has subsidised the retailers electronic terminals in order to reduce crime and lower the costs for smaller retailers. In Sweden, a broad alliance of retail and banking trade unions wants to see the use of cash reduced in order to protect their staff. Post-crunch, these pressures will grow as governments and citizens alike demand action. And since no-one other than tax evaders or drug dealers actually wants the stuff, perhaps change will be quicker than many people think.
I’ll be reflecting on these issues, and more, in my talk and looking forward to being put on the spot in an informed question and answer session afterwards.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]