[Dave Birch] Continuing with the theme of looking forward and trying to find ways to develop practical strategies for organisations looking at the future of retail payments, I’ve been thinking again about the difference between trends and disruptions. Many of the trends around retail e-payments are pretty clear, and hardly disputed. Consider this, perfectly reasonable, analysis from last year.

For the foreseeable future, retail banks will face a weakening of consumer demand. Personal savings rates will remain higher, banks’ balance sheets will shrink, commercial real estate will falter, and tighter regulations of products such as credit cards and overdraft protection will restrict profits. With all this, retail banks can anticipate a lower return on equity than in years past.

[From Six Industries in Search of Survival]

Sounds fair enough. So what should, in this case, banks be doing?

In this environment, the focus of banks will shift from acquiring new customers to building deeper relationships with existing ones. Banks must carefully identify and capture growth opportunities within their customer base by understanding demographic shifts and focusing on attractive segments for growth. These include: affluent and retired consumers, generation Y and small businesses.

[From Six Industries in Search of Survival]

Again, fair enough. And there are plenty of other uncontroversial responses to the general trends.

Additionally, to succeed over the long term, banks must bring down operational costs — not just by capturing traditional back-office savings but also by taking a hard look at distribution costs. Booz & Company research shows that mass-market customers prefer to conduct their banking at branches, which account for 70 percent of traffic and resource consumption. Yet mass-market customers are only half as profitable as mass-affluent customers. The rise of Gen Y will put further pressure on the traditional bank branch network, which banks may soon be unable to afford. Indeed, we expect that a major rationalization of branch networks will emphasize electronic channels and alternative formats. In the future, for example, branches may cater to specific customer segments, becoming “wealth” branches or “small business” branches, with fewer expensive, resource-hogging generic branches open to all.

[From Six Industries in Search of Survival]

All this is perfectly reasonable. But this kind of analysis of trends misses the revolutionary developments, the unexpected consequences, the “black swans” where technology drivers, business opportunities and social change come together to do things in a new way. I can’t help but think that the shifting of tectonic plates in the financial services sector is being disrupted by the earthquake of financial crisis: the plates are slipping. Looking at trends doesn’t help us as technologists help clients to work out what to do: we have to look out of the corners of our eyes to spot the new landscape coming into existence. Sorry about all the mixed metaphors and anaemic analogies. Here’s something concrete:

Retailers like near field communication payments. For one thing, security is better than for regular transactions using cards because account information is encrypted directly in the chip rather than as part of the communication between the store and the credit card issuer. Plus, businesses can tie its use to loyalty programs to gain more and easier access to customers’ buying habits. Retailers will be able to target frequent customers when they walk into a store, thanks to tracking technologies in the chips and smart phones.

[From The cashless lifestyle catches on – chicagotribune.com]

So changes being made to the retail payment infrastructure will have consequences for the whole retail experience. I don’t think this is much of a prediction any more. Let’s look further.

Part alternative currency, part barter system, part open-air market, the Volos network has grown exponentially in the past year, from 50 to 400 members. It is one of several such groups cropping up around the country, as Greeks squeezed by large wage cuts, tax increases and growing fears about whether they will continue to use the euro have looked for creative ways to cope with a radically changing economic landscape.

[From In Greece, Barter Networks Surge – NYTimes.com]

Perhaps Greece will lead the charge to become cashless in more ways than one. After all, another likely effect of the current crisis will be to encourage European government to try to reduce the use of cash and thus reduce tax evasion and other crimes. Perhaps we’re coming to some sort of cusp. As I wrote some time ago

What I mean by this is that if a combination of technological advance and dissatisfaction with economic arrangement reinforce each other, then we may find ourselves not only replacing the medium of exchange (ie, notes and coins) but also the store of value that it animates (ie, Sterling).

[From Digital Money Forum: What will replace cash?]

In other words, the long-term impact of Square, M-PESA and Google Wallet may be more interesting, and more important, than simply facilitating retail trade. I stress, as always, that I’m not the only one out there who thinks that the combination of factors that mean real change in the e-finance world seem to point away from a single currency and more towards an explosion of currencies.

Mainwaring said his team is surveying e-cash projects around the world and applying design techniques to what they find. The “message is that instead of digital technology creating some single universal form of money, it is actually doing the opposite: Forms of money and different types of payment systems are actually proliferating into all sorts of incompatible versions. And for the forseeable future we think that is what digital money is going to be like.”

[From EETimes.com – Intel designing wireless wallet for e-cash]

But this may not be a bad thing. In fact, it may be one of the most useful attributes of the new technologies that they allow easy, low-cost experimentation. So you can take the convenience of NFC, the alternative currency from Volos and the infrastructure of Square to create an entirely new phenomenon. And if it doesn’t work, try something else.

“In the last four years, there has been a renewed interest in local economy, local production,” said Witt, executive director of the E. F. Schumacher Society, a Massachusetts-based think tank focused on local production. “It just skyrocketed with the collapse of the global economy.”

[From Worldchanging: Bright Green: Local Currencies Grow During Economic Recession]

There has been a resurgence in these ideas because of the economic crisis, of course, but I wonder if there isn’t another factor, part of the general backlash against globalisation, capitalism and so on.

A small but growing number of cash-strapped communities are printing their own money. Borrowing from a Depression-era idea, they are aiming to help consumers make ends meet and support struggling local businesses… Workers with dwindling wages are paying for groceries, yoga classes and fuel with Detroit Cheers, Ithaca Hours in New York, Plenty in North Carolina or BerkShares in Massachusetts.

[From Communities print their own currency to keep cash flowing – USATODAY.com]

Could alternative currencies be part of the new landscape? Community-centric credit unions? Will a new European “war on cash” benefit banks, retailers or telcos the most? Will P2P lending accelerate or will new players bring new solution? These are the kinds of topic that are sure to be discussed at the 5th BarCampBankLondon “Unconference”. This will be taking place on Monday 6th February 2012 at the National Endowment for Science, Technology and the Arts (NESTA) at 1 Plough Place, London, EC41 1DE, with support from Consult Hyperion. (Please note that this is the day before Finovate Europe 2012, so if you’re coming into town for Finovate then why not come a day early and enjoy more thought leadership in very mixed company!)

The aim of BarCampBank is to foster cross-sector communication and innovation around new business models in the world of banking and finance. It is organised on a participant-driven agenda around the future for financial services in the now-traditional “unconference” format where the sessions for the day are decided on the day. Some of the topics that we expect to see raised at this event include P2P business models, new technology and financial inclusion, micropayments, the impact of new regulatory frameworks, and alternative and complementary currencies. We’re also going to try and have one or two more unusual panels. I’m fascinated by the ability of artists to provide imagination for technologists and so mixed into the rest of the programme throughout the day, barcampers will have a couple of opportunities to interact with persons of a more artistic bent—including the novelist Martin Baker, who wrote the novel “Meltdown” with its uncanny predictions about the financial crisis – and join them in a couple of sessions about imagining the future of money and payments.

“My back pay came to $892,746,012. Not in the form of bales of currency, fortunately; on Heaven they used an electronic credit exchange, so I carried my fortune around in a little machine with a digital readout. To buy something you punched in the vendor’s credit number and the amount of purchase; the sum was automatically shuffled from your account to his. The machine was the size of a slender wallet and coded to your thumbprint.”

[From Mobile Here… and There | My back pay came to $892,746,012. Not in the form…]

This quote comes from Joe Haldeman in “The Forever War”, widely regarded as a masterpiece, predicting a P2P payments system (similar to PayPal or M-Pesa) with a biometric second factor authentication. In 1974 this must have seemed unimaginable, whereas nearly 40 years later it sounds a bit like Square with better authentication. Anyway, do come along with an open mind and lots of ideas!

Note there will be a £10 charge for this event, payable via Paypal on registration, which will go directly to one of the charities supported by Consult Hyperion in connection with the annual Digital Money Forum. To register, or just to nose around at who is going, go to Meetup.

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers

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