Category: History and future

Long experience has taught me to pay no attention whatsoever to any expression of public opinion on the topic of electronic transactions or the future, and most especially on the future of electronic transactions. So I don't know why I started reading this story that arrived via the excellent "The Paypers" concerning a WorldPay study.

As the study indicates, over three-quarters (77 percent) of those interviewed predict certain coins will be discontinued within the next ten years and that cheque books will cease to exist (76 percent).

[From The Paypers. Insights in payments.]

This is an interesting result, because the public is in this instance correct about what should happen but probably wrong about what will happen. Yes, low-value coins should be withdrawn, starting with the 1p and 2p pieces. I don't see this as being in the least bit controversial. It is obvious sense and I thought it was interesting that this snippet of public opinion correlates with an experiment about to begin over the Irish sea.

More than 240 businesses in the Irish town of Wexford are preparing to ditch one and two cent coins in a rounding trial being run by the country's central bank.

[From Finextra: Irish town ditches small change in rounding trial]

There is no reason I can think of to continue messing around with 1p and 2p coins, but unlike the forward-thinking inhabitants of the Emerald Isle we Brits are bizarrely conservative about money so I rate the chances of this obviously sensible move at about fifty-fifty. Cheque books should of course vanish in a ten year timescale, but the Chancellor of the Exchequer made saving the cheque (and making them clear slightly quicker for the economically unfathomable reason of helping small businesses, when the way to help small business get paid quicker would be to get rid of cheques altogether) a central plank of his payments "plan". Anyway, Worldpay went on to ask people about the devices that they would use in the future.

Nearly two-thirds of people (60 percent) believe that they will regularly buy purchases via their mobile handset or other card payment methods. Nearly half of UK consumers (48 percent) believe they will be using fingerprint recognition systems to authorise the payment of their household grocery shop.

[From The Paypers. Insights in payments.]

On the issue of the payment devices and the authentication method, the public may well be right. There is no doubt that the mobile phone will become the most important device in retail payments and improvements in the authentication methods available to make the use of the mobile phone even more convenient will have a ready market. Right now, you'd have to agree that biometrics look promising and with Apple's apparently imminent announcement of fingerprint sensors in iPhones the mass market will tip.

Furthermore, the report reveals that over one third (39 percent) of UK consumers predict that they will be relying on their genes to rush through the paying kiosks, using facial recognition or iris scanning technology. 32 percent of respondents believe that they will be able to speak to pay by using voice command payment systems.

[From The Paypers. Insights in payments.]

Setting aside the Hollywood-inspired nonsense about genes, I'm unconvinced about automated face recognition or iris scanning because these are passive biometrics that may draw a public backlash. There's a big difference between me as consumer putting my finger on something, an act of active invitation to recognise me, and a retailer (or whoever) passively tracking me.

And so to the point. What I thought was the most interesting part of this survey (and, I'm sure, the real reason for it) though was not the part about using mobile phones to pay but the part about using mobile phones to get paid.

The survey also unveils that many consumers are consciously choosing a supplier that accepts card payment over one that does not, as they form a negative impression (72 percent) or consider it as a sign of poor customer service (28 percent). Nearly one fifth of UK consumers consider non acceptance of card payments as a sign of a business being unprofessional (19 percent) and in the past year, one in five (20 percent) UK consumers have abandoned a purchase as a result.

[From The Paypers. Insights in payments.]

Hurrah! It looks as if I may not be as far from the main stream as I thought. When I stop in somewhere to buy a coffee or a sandwich and the retailer doesn't accept cards, particularly contactless cards with their reduced interchange rate, I naturally assume that they are a front operation for organised crime or tax fraudsters. I consider them unprofessional as well. And I have more than once put down the drinks / sandwiches / whatever and walked out when cash is demanded, so it's nice to see so many other people doing the same. But are the comments specific to cards? I might think the coffee shop outside the station to be unprofessional for insisting on cash, but do I care whether they accept cards or maybe have their own app?

If I go to the station every day, or a few days every week, would I care about downloading an app specific to that coffee stand? No. It would suit me perfectly. I could open the app while I'm still on the bus, order my latte and pay for it and then jump off the bus and pick it up. There are companies such as LevelUp that easily provide an economical white label wallet for mom-n-pops to skin and you could easily see how it might work in practice: I download the wallet and the skin to buy coffee at a stand by Woking station and then when I go to download it again to buy lunch at a food truck in New York ithe system sees that I have the wallet already so it only downloads the new skin. I don't even have to add my payment card or bank account because the wallet already knows them.

You don't have to take cards to be professional, but you do have to take something and now is the dawn of the Something Present (SP) transaction era.

[Dave Birch] We thought it would be fun to loot the archives of our blogs to see how the world of transactions has developed. So here is another in our “Monday Museum” series, from 25th July 2006.

[Dave Birch] I suppose it had to happen. A new version of Monopoly has been released by Hasbro. Instead of paper money: electronic “debit” cards. Interestingly, newspapers are as bad at reporting on play e-money as they are on real e-money: one article says that the game comes with a “little machine that transfers money from one player’s bank card to another.” I wondered what had happened to these.

Here’s an excerpt from a review of the game: “What would Monopoly be like if it were invented today…? The world has changed amazingly over the last 70 years. This special anniversary edition celebrates 70 years of the world’s most popular board game with a modern day equivalent to the traditional game. Choose from a range of new movers including a mobile phone, roller blade or even a cheeseburger! The rent has skyrocketed sky high in a much more recognisable London. You can build property in Covent Garden, visit the London Eye or make millions in The City! Wheel and deal in the fast lane – millions of pounds, not just hundreds! This Electronic Special Edition features an Electronic Banker Unit and “Debit” Cards that replace the money. Just swipe and you’re away! “

I found some more on this via Joseph (a.k.a. “The Winner”, see below) at Techdirt. Although they’ve gone over to cards, apparently you’ll still be able to download PDFs of the money and print it out. I wonder if the European Central bank will go the way via SEPA and PCF…

Well, in the interests of research I got a copy of the UK Monopoly Electronic Banking Edition and turned to an enthusiastic Monopoly player for a more detailed evaluation.

[Aaron Birch, aged 9] I think that apart from being a good game, it actually teaches little children banking so that when they get older they’ll understand it. It really imitates the 21st century but on a board game. The idea of using credit cards is much more creative than using paper money because you never run out of money, you could go up to 500 million if you wanted to on electronic Monopoly whereas there’s a limit to the money you have in old-fashioned Monopoly. The Community Chest and Chance cards are really modern when some say ‘Your internet company has succeeded, collect 2 million’ which is a modern-day experience. The counters are also modern because there’s one roller blade, one skateboard, one burger, one airplane, one race car and one mobile phone, which are modern-day items. It raises the Monopoly level to a whole new standard because more people would buy the game when they know how much more fun banking is with an electronic device and having a modern-day item as a counter.

[Dave again] So that was two thumbs up from Aaron. Meanwhile, I’ve discovered something else about the game. The “bank” is recognising the player’s cards not by chips, contactless or even magnetic stripes but by detecting embossed dots. Therefore, I figured, any card with some embossing in that area might be recognised. It would be more fun to play with real cards, so I tried a few. Here are the results so far (note that many of the cards I tried weren’t recognised at all so I’m only listing the ones that worked) and I’ll update it if I find some more.

Player 1: First Direct debit card, Nectar loyalty card
Player 2:
Player 3:
Player 4: Prepaid US MasterCard
Player 5:
Player 6:

I just read about another new version of this wonderful game, the Monopoly Empire edition, which garnered comment because it was thought to be eliminating the “go to jail” (to keep it more closely aligned to 21st-century mortgage markets, presumably), so it looks as if one of the world’s favourite games is set to continue for another generation. On my bookshelf is the excellent “Monopoly: The world’s most famous game and how it got that way” which reminds that it was originally intended as a critique of capitalism. The law of unintended consequences strikes again.

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

[Dave Birch] There was some fun press coverage around PayPal's space payments event last week and since I rather like talking about the future of payments, which will inevitably include payments in space, I couldn't help but pay attention.

PayPal said very little of substance during this event. There were no details on timeframe, consumer expectations, how it will work, or any other pertinent details that would-be space travelers would surely want to know.

[From PayPal Galactic Press Event – Business Insider]

What oddly po-faced reporting from Business Insider! This was a PR event not the launch of an actual product. Of course no-one has any idea how an online payment system will work on Jupiter with an eight-minute packet round trip delay and PayPal are no different. I really don't think this was the point. It was a stunt, and an excellent one. But it's not the first payments-in-space stunt. I remember a good one by Travelex six years ago.

The Quasi Universal Intergalactic Denomination – or Quid for short – is the world's first currency that can be used in space. Quids — plastic disks with pictures of the planets — are supposedly safe for use in zero-gravity.

[From Digital Money: Not a lot of people know that, no. 94]

So… digital wallets or hard-to-counterfeit plastic coins? Who knows how space payments will work. I don't have the imagination to see how when I'm shopping at the Weiland-Yutani company store on LV-426 they will be able to clear and settle a transaction against my Barclays account, when it will take 37 years for the authorisation request to reach the host and another 37 years for the authorisation to reach the POS. Hhmmmm.

Perhaps the future will be more like medieval times, with merchant networks and bills of exchange at the core. Bills of exchange didn't eradicate bullion transport, but they did make trade more efficient. In Peter Spufford's magnificent "The Merchant in Medieval Europe" he talks about "the specie point" where it became cheaper to transport bullion — which was expensive, as you needed guards and logistics — rather than bills of exchange. So perhaps one imaginable possibility is that I will arrive on LV-426 with a bill of exchange instructing the Barclays agent on LV-426 to pay 1,000 London Crowns into the company store account for me to draw against, but when it comes time to pay the contractors for the atmosphere processor (which has a substantial dollar value) then I will open up my lead-lined box and take out some unobtainium.

I can see how the digital bill of exchange might work — I once heard public key cryptography described as the only product of human endeavour that could be successfully exported to intelligent aliens on Jupiter! — so once the Barclays agent on LV-426 has used Barclays' public key to verify the digital signature on my bill of exchange and then topped up my account (with the appropriate discounting for risk factors, such as Earth might having been destroyed), I can see how I might spend from it using PayPal!

Incidentally, I have written before about how many science fiction views of the future of money seem implausible to me, but then that is true of many non-fictional works as well. I think I'll stick to my basic prediction: no single currency, no single means of exchange, no single store of value. And no single payment system. Think local, act global, as they say.

Cohen's cogent analysis of direction forced me to reassess some of my own fairly superficial thoughts on the topic, with the result that I firmed up on one axis of the projection. I think his view of geography is wrong: perhaps in the future, all money will be local, it just that local will mean something different in the connected world.

[From Digital Money: A single currency? Illogical, Captain!]

On the other hand, if you don't believe me and you think that science fiction movies really do tell us about the future of payments, then you'll probably find the splendid Science Fiction Currency Converter very useful before the next transit of Uranus.

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

[Dave Birch] Way back in the year 2000, Michael Klein, then the Chief Economist of the Royal Dutch Shell group of companies, looked ahead to a world in which technological change had changed money as much as it had changed everything else in the economy — “Banks lose control of money” in the Financial Times (15th January 2000) — and envisaged a system of competing private issuers. He said that the effects of the technological change on the monetary system could be that:

1. Monetary policy and central banks become irrelevant. Monetary policy already seems to me to be an utterly outmoded means of trying to manage economies. The idea of a monetary policy that can cover both Germany and Greece, both Surbiton and South Shields, is ludicrous.
2. National and private currencies may compete against each other rendering exchange rate policy and balance of payment concerns obsolete. They may also compete in function, as you may see different forms of money adopted across the economic functions of money.
3. More flexible forms of denominating wages may substitute for the loss of nominal exchange rate flexibility. This has not happened yet, but the emergence of complementary currencies in Greece may mean that it is about to happen.
4. The work of bank regulators may be made easier by heightened capital market disciplines. Yes, well…
5. Deflation and financial crises may be more likely (at least during the transition period). He was spot on with that one.

He also said that since the introduction of fiat money and the demise of the gold standard, global monetary regimes have changed around once per generation and asked “why should that stop?”. A good point. But currencies issued by private companies are not the only possibility for overturning the current monetary arrangements. Another, that seems to be obtaining a degree of interest that it would have been difficult to imagine before the “crash” is complementary currency and, specifically, community currency. The was one of the reasons why I thought I’d pop along to The Second International Conference on Complementary Currency Systems in The Hague.

When I got there, I felt like a bit of sham to begin with, a bit like the undercover policeman who wrote the famous “McDonalds leaflet”. Most of the people at the conference were genuinely interested in building a vision of an alternative future and in using alternative and complementary currencies to establish a new and better form of society. When we were introduced to each other at the beginning of the conference, I got the impression that the delegates were pretty evenly divided between people working in local currencies, exchange currencies (the B2B-focused kind) and alternative (predominantly time-based) currencies. A fascinating set of interests.

I, on the other the hand, was looking for new ideas for products and services on behalf of the forces of reaction in our client base (ie, banks, schemes and mobile operators, mainly). I think that going with the grain and finding ways to make community currencies work with those businesses is a much better way to effect change. In other words, in places where the existing monetary infrastructure is no longer functioning, and where communities are turning to alternatives, can we find ways for our clients to help those communities and make money at the same time? I don’t see why not. And if you look around, as noted above, the post-crash landscape seems fertile ground for just such alternatives, as in the case of Greece, as alluded to above.

In this bustling port city at the foot of Mount Pelion, in the heart of Greece’s most fertile plain, locals have come up with a novel way of dealing with austerity – adopting their own alternative currency, known as the TEM.

[From Euros discarded as impoverished Greeks resort to bartering | World news | guardian.co.uk]

So why not have debit cards that can support TEM as well as Euros? Why not have TEM-based M-PESA for Greece? Why not use the technology that we already have to help these experiments flourish if they can help real people in difficult situations? If you look at Community Currencies in Action you see a lot of people working together in the space but you don’t see banks, international payment schemes and mobile operators. Why not? Isn’t there a win-win somewhere where I use a Visa card to spend TEM and a companion smartphone app to check my balance? Not only do I think it’s time to look at the world of complementary currency seriously, I think it’s time to look at it seriously in the light of the learning from the last five years of mobile, internet and other emerging payment systems.

I’m actually taking part in a CSFI round-table discussion on this topic next week. It will be at the London Capital Club, 15 Abchurch Lane, London, EC4N 7BW on Tuesday 2nd July from 12.30-1.15pm. Here’s the blurb:

For a brief, shining moment, we all got very excited about digital money, thanks to the Bitcoin bubble. Techies saw it as vindication of their conviction that, in the digital world, everything is possible – even private money. Neo-Hayekians saw it as vindication of their belief that there is no room for government monopoly – even in the realm of fiat currencies. And cynics (like me) saw it as confirmation that governments will make damn sure they kill any challenge to their monopoly on printing money before it poses any kind of serious threat – if necessary, by wheeling in the spectre of drug dealers and terrorists.

That said, the Bitcoin debacle has prompted more interest in virtual money – and, indeed, in mobile phone money. If we are promoting it in Africa, why not in the UK? Plus, there are advantages, even to governments. Why not have a currency with negative interest rates? Or one based on gold? Or an Islamic e-Dinar? The possibilities are endless – though (as a sceptic might say) so are the problems.

There is a terrific panel for the day:

• Shann Turnbull is a serial entrepreneur and corporate governance activist in Australia, who founded the Green Money Working Group in the UK in 2012 (since re-branded as the SMWG), to provide liquidity for SMEs in the event of another financial crisis.
• David Boyle is a fellow at the NEF and the founder of the London Time Bank. He has written extensively on the future of money, the potential of virtual currencies and the need for local banks.
• Josh Ryan-Collins, who is also a senior researcher at the NEF, is founder of the Brixton Pound – the UK’s first urban local currency (which went mobile in September 2011).

And, of course, me. It’s free, so see you there. Pop over to the CSFI to register by emailing anna@csfi.org or by calling them on 020 7621 1056.

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

[Dave Birch] A digital currency is a currency that only exists in the virtual world of computers. It has no mundane rump like the Pound. Most Pounds — around 96% in fact — only exist in the virtual world of computers, but 4% also exist in pockets and purses and sofas through the land. If I decided that I didn’t like Pounds, and wanted to create a new currency of my own, it would be a bit of a hassle to have to start minting coins, printing notes and persuading Sainsbury’s to add another draw to their cash register. In the world of Apple, Angry Birds and Amazon though, this isn’t a problem. I can just make up my digital currency and off I go. Although, as the economist Hyman Minsky famously observed, creating money is easy. Getting it accepted is the hard part.

Why would someone take new currency, my Wessex e-Groats instead of Euros? Convenience, for one thing. Look at the private currencies, such as Marks & Spencer’s vouchers or Amazon Coins, as a pointer. A friend of mine paid at a farmer’s market in Surrey using a Marks & Spencer’s voucher and got change. They are money, at least in Surrey. And I spend a fortune on Amazon, so I’d have no problem in taking a tenner’s worth of Amazon coins instead of the tenner you owe me down the pub. Two decades ago, the lateral thinker Edward de Bono published a pamphlet called “The IBM Dollar”, building on the Hayekian platform of competition in currency as the way to obtain sound money and he has a point. But even he could not have imagined how the revolutionary capabilities of the internet and, in particular, the mobile phone make this not only possible, but inevitable.

It’s hard to imagine popping to the shops with half-a-dozen different kinds of banknotes in my back pocket, but not hard to imagine an app on my smartphone managing these for me and choosing the best currency for the purpose at hand. It isn’t all about convenience and efficiency though. Some currencies, and Bitcoin is a current example, a really more idealogical in nature. The people who champion Bitcoin are only partly concerned with transactions. They are more concerned with removing the governments hands from the monetary reins. You don’t trust the government to run supermarkets, they might say, so why let it run money? The same goes for many who advocate electronic gold or some kind of world currency based on commodity prices and the like.

Others think, and I’m one of them, that the future of digital currencies is more closely connected with the future of communities, both physical and online. In places where the current monetary arrangements have all but collapsed, such as Greece, we already see local groups developing their own currencies to replacing the misfiring euro and we see the first experiments here too, with the Brixton Pound and so on. The economy of London is already distinct from the rest of the United Kingdom, so that would be a good place to start. If London started its own digital currency and if Scotland started its own digital currency, then their utterly distinct economies could be freed from the mutual shackles of national monetary policy.

In so far as the government, rather than international bond markets, controls that monetary policy you can see the possibility for some form of oversight or governance. But in a world of hundreds, thousands of digital currencies it will be the market that sets the values. Right now, we use one currency, Sterling, for everything. But I suspect our children might regard this as outdated as the Edwardian gold standard we so fondly remember in the slang “half a dollar” moniker for the half-crown coin. They might use Bristol Pounds or World of Warcraft Gold when they go shopping, but put Kilowatt Cash and Motorway Moolah in their pension funds. It seems to me that as the currency iceberg slips under the waves of the cyber-sea, we’re going to see a new world of choice between currencies that embody different values, and that’s a good thing.

(You can listen to the interview based on this essay via the BBC iPlayer here, starting at 45 minutes in.)

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

[Dave Birch] I woke up this morning to a story on the Today programme about Scottish independence, this time talking about monetary policy and currency. It was based on a Treasury report on why an independent Scotland could not use the Pound Sterling.

The British government closed the door to a formal agreement with Scotland for its continued use of the pound if it votes to become independent next year, citing the tumult in the 17-nation euro region during the debt crisis.

[From U.K. Scorns Pound for Independent Scotland Citing Euro Lessons – Bloomberg]

It happened that I was working at home this morning, so I heard the Chancellor giving his speech about this live on the wireless. He referred to the difficulties of currency union and spoke about the problems in Ireland, Greece, Portugal and Cyprus. He spoke about the problems of maintaining monetary policy across currency unions between economies with different fundamentals. All true. But he didn’t explain why this is different for the UK. How is the insanity of trying to maintain a currency union between Germany, Luxembourg and Greece any different to the insanity of trying to maintain a currency union between England, Wales and Scotland? The fact that they are in a political union does not alter the facts on the ground: they have fundamentally different economies. The Chancellor was arguing that after independence, it would be impossible to maintain a currency union between England and Scotland. But surely that is true now! The best monetary policy for England is not necessarily the best monetary policy for Scotland, and technology means that what was optimal for commerce at the time of the Napoleonic Wars may no longer best for commerce today. This makes, to my mind, the final column in the Treasury table not the outlier but they way forward.

If the argument for currency union is about transaction costs, then dear old John Major showed us the way forward many years ago with his perfectly sensible alternative to the euro, which was at the time was labelled the “hard ECU”. The idea of the hard ECU was to have an electronic currency that would never exist in physical form but still be legal tender (put to one side what that actually means) in all EU member states. Thus, businesses could keep accounts in hard ECUs and trade them cross-border with minimal transaction costs, tourists could have hard ECU payment cards that they could use through the Union and so on. But each state would continue with its own national currency — you would still be able to use Sterling notes and coins and Sterling-denominated cheques and cards — and the cost of replacing them would have been saved.

What about resurrecting that idea the other way round? Why couldn’t Scotland have a hard e-thistle? Everyone in Scotland could carry on using Sterling notes and coins, which would remain legal tender, but they could open e-thistle bank accounts and have e-thistle credit cards and so forth. The Scottish government would naturally pay its domestic bills (e.g., public sector salaries and pensions) in e-thistles that it would “print” itself, the value of the e-thistle would slide against Sterling and soon enough the situation would sort itself out. English people would start spending money in Scotland, investing in new business there and go on holiday there.

The thistle would never exist as a physical thing, purely as an electronic currency. There is no need for physical currency. It’s a badge of national vanity, just like an airline used to be. It would be no big deal to, over time, to see the prices in shops in thistles but hand over Sterling to pay for them. The Scottish government might want to produce some thistles for ceremonial purposes or for souvenirs, but not to create the circulating means of exchange. After all, one of the Scottish government’s goals would be to increase the efficiency of the economy (and reduce tax evasion, crime etc) by reducing the cash in circulation and increasing the use of electronic payments. Scotland actually has a proud history of innovation in this field and their fantastic inventions in free banking, overdrafts, cheque books and so on ground to a halt, crushed under the English yoke in the 19th century. As Niall Ferguson points out — in “The Money Printers” in “The Cash Nexus”, p.137–162 (Basic, New York: 2001) — Scotland was once more advanced that England.

In 1850, more than 90% of transactions in France were settled in gold and silver coins compared to just over a third in England and only a tenth in Scotland.

My point is that not only could Scotland adopt its own currency if it had to — without having to mess about with notes and coins thanks to the key technologies of the internet and mobile phones — it would be better off doing so. So why wait for independence? Why not do it now? Floating exchanges rates are far more efficient than government transfer payments in bringing economic rejuvenation. Sir Richard Body (rather famously one of the “bastards” who John Major railed against in 1993) gave a memorable talk on this topic at the second annual Consult Hyperion Digital Money Forum back in 1999, arguing not only for national currencies rather than the supranational euro but for regional currencies within the UK.

Why would regions bother to do this? Well, as Sir Richard Body MP has pointed out, this represents a democratisation of currencies. What’s more, allowing the regional exchange rates to float would be a much more efficient and effective tool for economic stimulation than regional aid.

[From We should create an electronic euro | Technology | The Guardian]

It’s time for some truly radical thinking on this front. Technology means that the dynamics around currencies are changing and the connections between the unit of account, means of exchange, store of value and mechanism for deferred payments are being broken apart. They make take our circulating medium of exchange but they will never take our freedom!

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

[Dave Birch] As part of the debate around NFC at BAFTA, Forum friend Tony Moretta from Weve went up into his attic and dug out some amazing props to bring along. I won’t bore you with all of them, but check this out: it’s a vintage Mondex phone (Tony said that when he showed this to his son, his son asked “was that the first-ever telephone?”) of the type I last saw in my parents’ house circa 1997.

Why did my parents have one of these when Mondex was piloted in Swindon-City-of-the-Future a couple of decades ago? Well, I pulled a few strings so that they could one to play with. I have to say that they loved it. The main reason why they loved it was nothing to do with Mondex: it was because, in those pre-smartphone days, it was a way of seeing your account balance without having to go to the bank or phone the branch. Thus, they could see when salaries had been paid in and when bills had been paid out. This was a genuine time- and labour-saving invention to them, and they were very sorry to see it go. The only thing they actually used Mondex for — and my Dad certainly did value it for that — was for car parking, where putting in the card (there was no PIN as, like everyone else who said that they wanted card lock/unlock devices all over the place, he never bothered locking) instead of searching for change was a really significant convenience play.

Tony had a Mondex wallet with him too, and took great delight in opening up the back to show… a Secure Element (as we now call them). Hhhmmm… a keyboard, a screen and a secure element… reminds me of something…

So why didn’t it work? Well, one explanation is that it was The Mark of the Beast. Another is that while it turned out to be easy to give people Mondex cards, it turned out to be difficult to get a large enough base of installed terminals to make acceptance wide enough. This is a problem that no longer exists. Today, instead of special-purpose Mondex terminals, we would use a mobile phone and an app. Come to that, instead of Mondex cards we would use a mobile phone and an app. And instead of a Mondex wallet we would use a mobile phone and an app. And instead of a Mondex lock/unlock device we would use a mobile phone and an app.

It’s important to remember what worked and what didn’t work. Too many people just white-out things that didn’t work and forget all about them rather than learning the real lessons. Mondex is where I learned a very valuable lesson. I’d done some work comparing the cost of payments, and I’d worked out that the marginal cost of Mondex payments was a tiny fraction of the cost of (say) credit or debit cards. Since Mondex transactions cost essentially nothing, I assumed that they would quickly become the dominant fraction. I mistakenly assumed that cost was everything.

“It will become ubiquitous – it’s the cheapest way of moving money around,” says Dave Birch,

[From 2.12: E-Money (That’s What I Want)]

You see the same things being said about Bitcoin today. This turned out to be absolutely and utterly wrong. And it still is. I paid my taxi fare over to BAFTA using Hailo. I don’t know what it cost the driver (I think 10%). When I paid at the car park this week I think I was charged an extra 40p to pay using my mobile phone. I didn’t care. Was my bus journey cheaper or more expensive because I paid using my Arriva app. I have no idea. Cost? No, convenience trumped everything else. Mondex was inconvenient.

In the case of Mondex, for example, you had to have a bank account (ie, you already had a debit card) in order to get one: you couldn’t just walk into a bank with twenty quid and walk out with twenty quid on a Mondex card. Looking back, there were some technical limitations as well: balance reading, for example, was a pain because you need to use a keyfob or electronic wallet to find out how much you had left on the card. And the ATM implementation was plain crazy: you had to put your ATM card in, then put your Mondex card in (most people never did: they just drew out cash).

[From Digital Money: Money museum]

In retrospect, that last point about ATMs seems particularly bizarre. There must be someone out there who can remember the NatWest thought processes around this, so I’d love to hear from them. The real point that I want to make, though, is that all of the factors that made Mondex inconvenient have vanished in a world with mobile phones, perhaps there is a kid in basement somewhere right now cooking up a bastard son of Mondex and Bitcoin and the e-cash revolution is, after all, just around the corner.

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

[Dave Birch] We had a Tomorrow’s Transactions thought leadership day at the International Payments Summit in London thanks to Katie Gywn-Williams and the rest of the terrific team at ICBI. The idea was to look at a lot of different aspects of the fast-evolving world of retail electronic transactions to try and help those in banks responsible for strategy and planning in the field. We ended the day with, I have to say, a super panel session. I asked my good friends the paleofuturist Bernado Batiz-Lazo, the voice of reason Michael Salmony and next-generation banker Brett King to look at where electronic money might take banking, commerce and society over the the medium term.

It’s very difficult to predict even a few years ahead and Michael highlighted the dynamic around technology: we tend to overestimate the timescales for adoption but underestimate the long-term impact. In others, it will take longer than people like me think for electronic money to displace cash, but when it does the impact on society will be far greater than mass redundancies in the ATM business. Once you being to look more than a few years ahead, in fact, the social changes wrought by new technology become hard to imagine. A generation ago, on 3rd April 1988, the Los Angeles Times Magazine pub­lished a 25-year look ahead to 2013. It contained all sorts of bizarre views of life in Los Angeles today, including such unimaginable fantasies as supersonic jet travel and people smoking cigarettes. But it’s a fun read, and in Bernado’s spirit of paleofuturism, I encourage you to read it not to laugh at what they got wrong but to understand why they got it wrong. For example: what’s wrong with this picture?

After parking the van, Alma stops for some cash at the bank-teller machine in the lobby of her building. She punches in her I.D. number and then puts her thumb on the screen. After several tries, the machine finally recognizes her fingerprint and gives her two $20 bills with bar codes that verify the money has been issued to her.

Interesting that they thought biometrics and cash would co-exist in common use. Rather fascinatingly, and so very William Gibson, one of the key elements that is missing from the vision of 2013 is the mobile phone, despite the fact that it had already existed for a decade. The first AMPS (1G) cellular network was launched in the America in 1978. Yet in the vision for 2013…

Bill is trying to locate his wife to tell her about the dinner guests. Unable to reach her either at home or the office

My italics, of course. It’s been at least a decade since my wife called me either at home or at the office or, indeed, anywhere else. If she wants me, she calls me, she doesn’t call a place. The mobile phone didn’t just change the payphone business, it changed the very way that we think about communications. We understand now, of course, that the future of money over the next 25 years, in common with the future of a great many other everyday tools, is about the device formerly known as the mobile phone and what Sam Lessin of Facebook calls the “superpower” of being able to communicate with anyone else anywhere in the world at any time.

But back to Alma. The last time I went to the US — to Austin, Texas, for South-by-Southwest — I didn’t take any US currency with me and I didn’t get any $20 bills out of an ATM while I was there either. I paid for everything using cards and my mobile phone (LevelUp). Yet I read only recently, in a discussion about the near future, that…

There’s some debate about whether plastic credit and debit cards will be totally replaced by mobile payment systems in the next few years. However, there’s no doubt that, in 2030, my son will carry a wallet with cash in it, because we’ll still be using paper and metal money well into the future.

[From 15 Current Technologies We’ll Still Be Using in 2030]

Maybe it will be a class thing? The middle classes will have abandoned cash and it will exist only to serve the poor and excluded. That’s one scenario, but I don’t think so. As I have droned on about interminably, the device formerly known as the mobile phone is a way to accept payments as well as make them, and this is what does for cash. Brett quite rightly made fun of the UK government’s reaction to the suggestion that cheque clearing might be abandoned in a decade or so. “How will I pay my cleaning lady?” was the typical insurmountable hurdle to change erected in the pages of the The Daily Telegraph. This is exactly analgus to those mid-1980s comments about mobile phones, along the lines of “Well if I want to make a phone call when I out, I can always use a payphone”. Just for the record, I pay our cleaner using the Barclays mobile app and FPS, as I imagine do most normal people…

So what will be still using in 2030? When I was listening to the futurologist and Forum friend Richard Watson talking about the problem of forecasting across a generation, he said that one of the central problems is that our brains work in a lazy way. Our brains look for patterns so that they think they understand things (this is why people consistently see patterns in random noise) and made the point that the kind of digital bubbles people are living in lead to a kind of Balkanization of the future. As I’ve said once or twice at the Tomorrow’s Transactions Forum, we have to look out of the corner of our eyes to see how technology is being used in ways that might disrupt existing business models, and that is difficult. So this leads me to ask, just as our friends in 1988 didn’t see that the decade-old technology of mobile phones would be everywhere in 2013, which decade-old technology is going to be everywhere a generation from now, leading not just to disruption in old businesses and the creation of new ones but a fundamental shift in mental models? If I had to guess, I’d say it was 3D Printing, but I’m desperately keen to hear what you think. In fact, I will send a copy of “The Future of Money” (with a foreword by Vince Cable) to the person who posts the most plausible suggestion before the end of the month. 

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

[Dave Birch] I’m very curious about media interest in Bitcoin, which seems to have accelerated in the last couple of weeks. Last week, for example, I found myself being interviewed for the BBC’s current affairs flagship “Newsnight“. A couple of days later, this package appeared on the BBC News site. Here it is, in fact.

I forced my family to watch this. Afterward, my good lady wife (a lay person of great intelligence) told me that while she had enjoyed my performance on national television, “I know no more about Bitcoin than I already did – ie, nothing – and I really wanted it explained”. All of the graphics about cryptography hadn’t helped at all. That set me thinking about alternative ways to explain the technology. When I’ve tried to explain Bitcoin to lay persons before, I’ve not started off by talking about cryptography, I’ve started off with narrative.

The closest analogy to this is the stone currency of the island of Yap, in the South Pacific.

[From What should the “mainstream” think about Bitcoin?]

So what was the stone currency of Yap and why is it a useful way to explain Bitcoin? This was explained by the economist Milton Friedman in a famous 1991 paper called “The Island of Stone Money” and there was a terrific NPR programme about this a couple of years ago. Here’s my summary of the story and why it would have given the BBC better graphics for Newsnight!

The nation of Yap is a group of four islands in the South Pacific. The islands have no gold or silver or any form of precious metal that could serve the function of money that we are used to. Consequently where we developed the habit of using metal ingots as stores of value, the inhabitants of Yap used stones. A few centuries ago, they discovered a particular kind of limestone on another group of islands about 250 miles away. Since this limestone was not available on Yap, the supply was limited. From time to time, the tribal chiefs would organise expeditions to these distant islands to quarry and bring back new stones carved into disks. The disks were of various sizes, some only a few inches across and weighing a pound or two, while others could be 12 feet across and weigh thousands of pounds. At the end of a successful expedition the chief who organised it would keep the large stones and 40% of the smaller stones, the remainder being divided between the expedition members. A long-lived and successful chief might therefore have many very large stones outside his house.

Now, suppose that chief engages in some form of trade or has to pay a large dowry or give a gift to a neighbouring chief some reason. These large stones are too big to move without considerable effort, so the Yap islanders came up with a practical solution to the problem of minimising transactions costs. Since the stones were too big to move, they didn’t bother. The tribes just agreed that the particular stone no longer belonged to Chief A and now belonged to Chief B instead. Everyone was happy. Over time the stones might be traded again and again, each time staying exactly where they were but with all the tribes agreeing on their new owner.

The system worked even when the stones were invisible. Here’s what I mean. Suppose the expedition quarried some stones but on the return journey, as would happen from time to time, their raft (which I picture as being a bit like the Koni Tiki, below) got caught in a storm and to survive they had to chuck one of the stones off of the raft. When they got back to the chief they told him about the stone which is now five miles down at the bottom of the Pacific. Everyone agreed that the stone still belonged to the chief and when he used that stone in a trade all of the tribes agreed that the stone belonged to the payee. Not only does the stone not go anywhere, none of the participants in the trade have ever even seen it. In a way, and this was Friedman’s point, it doesn’t really matter whether the stone actually existed or not. Everyone agreed it did, and therefore it was money.

The tribal chiefs were the central bankers of this system because they organised the quarrying of the stone that brought the new money into existence and the distribution of the stones that formed a rudimentary system of taxation. It all worked reasonably well. It is very interesting to me that the stone money survived the arrival of fiat currency and reports from a few years ago seem to indicate that the value of the large stones had remained fairly stable over time. Interestingly, the 12 foot stone disk weighing thousands of pounds had one very significant advantage over a bar of gold, which is that you can steal a bar of gold but even the most skilled burglar isn’t going anywhere with a 12 foot limestone “coin”.

So this is the analogy with Bitcoin. In Bitcoin, instead of expending manual labour to find a kind of stone that is rare, we expend computing power to find sets of numbers that are rare. These sets of numbers have a particular mathematical property that makes them difficult to find but once you have found them it is easy to check that they have that property, just as the Islanders could easily check that your disk was made from the rare limestone from Palau. Once you (or rather, your computer) has found one of these numbers then it is yours and you can keep it or trade it.

Bitcoin releases a twenty-five-coin reward to the first node in the network that succeeds in solving a difficult mathematical problem requiring a certain amount of brute-force computation (known as a proof-of-work calculation.) The solution is then broadcast throughout the network, and competition for a new block and its twenty-five-coin reward begins.

[From The Future of Bitcoin : The New Yorker]

As in the case of the stones, if I send you my Bitcoin, the coin isn’t really going anywhere (after all, all I’m doing is sending you a copy of the numbers that I found) and what we are really doing is just telling everybody else that the coin now belongs to you and not to me. On Yap, the record of ownership of the stones was part of the collective cultural memory, but in Bitcoin it is the distributed transaction ledger known as the “block chain” (if you click on that link, you can see all of the Bitcoin transactions as they happen). In essence, when I give you a Bitcoin the record of that transaction is copied out to all of the other users so that everyone now knows that the coin belongs to you. Because of the particular mathematical properties of the numbers used in the Bitcoin system there is a finite suppy (21 million) of these numbers and once they are all discovered no more can ever be “minted”. It would be as if Palau had been eroded away by the Pacific storms so that no more limestone disks could enter the Yap economy.

There is one conceptual difference between Bitcoins and stone disks that is much remarked on in media reports. When it came to the stones, everyone knew who the stones belonged to. They knew that Stone X belonged to Tribesman A and everyone knew who Tribesman A was. But in Bitcoin, the coins are associated with cryptographic keys rather than individuals. You might know which internet address one of those cryptographic keys is associated with during a transaction, but that doesn’t tell you who the person is. So there is a kind of anonymity associated with Bitcoin that would have been impossible to imagine for the Yap islanders. This anonymity seems to be a focus for the media, with all the talk of the “Silk Road” market for drugs etc.

But back to my question at the beginning. Why the media interest? I think it points to something more interesting than Bitcoin itself, which is recognition that there is a latent demand for change. The media interest isn’t specifically about Bitcoin, to my mind, but about the appearance of an alternative to the state-issued, interest-bearing fiat currency money system that has been in place for the last forty years. The post-industrial economy needs a new kind of money and, I might suggest, it needs to cast the net for alternatives, not have the same representatives of the status quo framing the solution as they did the problem. We have been here before, you know.

Towards the end of the 17th century money the government gave up passing pointless laws (such as the 1660 act forbidding the export of bullion) and instead of asking investment bankers or celebrities for advice in the modern fashion, they decided to ask someone clever instead. Thus was the smartest man that ever lived, Sir Isaac Newton, then the Lucasian Professor or Mathematics at the University of Cambridge, appointed the Master of the Mint.

[From Digital Money: The only thing you learn from the study of history]

I’m not suggesting that the creator of Bitcoin is another Newton, but what I am suggesting is that the technology used to create Bitcoin could be used to create the new kinds of money and a new kind of economy needs.

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

[Jane Adams] Delegates often say that one of the most valuable things about the Tomorrow’s Transactions (or as previously known Digital Money) Forums is how they spark the imagination. A key part of this over the past few years has been the Future of Money Design Award competitions, organised by Austin Holdworth in association with Consult Hyperion. Austin is a visiting tutor and researcher within the Design Interactions Department at the Royal College of Art. He is the curator of the ‘Future of Money Design Awards’ sponsored by ACI Worldwide & Consult Hyperion.

“When bankers get together they talk about art. When artists get together, they talk about money.”

[Oscar Wilde]

The theme for the competition at Tomorrow’s Transactions Forum 2013 was Future Financial Crime. Entrants were asked to imagine a financial crime, based on future technology.

Three entries were shortlisted, based on written submissions and we asked the shortlistees, with only a week’s notice, to produce a video presentation about their imagined crime, to present at Tomorrow’s Transactions.

The three shortlisted entries were:

Tommy-Knockers by  science writer Frank Swain

This entry imagined a not too distant future in which the 19^th century ‘tommy’ or ‘truck’ system had been reintroduced. Inspired perhaps by Iain Duncan Smith’s suggestion that benefit recipients should be limited, by their benefit cards, as to what they could spend their benefits on, the entry extended this to workers too. Paid on stored value cards, workers were able to only spend their wages in company stores on a limited range of products at vastly inflated prices. In the 19^th century, this sometimes led to workers effectively paying to have a job. Similar systems were only recently in use in certain Russian industrial single employer cities. The crime lay in people working out how to hack the systems to allow themselves to spend their wages as they chose, but there was a clear ambiguity in the presentation as to whether the crime lay with the hackers or with the system itself.

Synedoche, Hills by Ilona Gaynor

This entry imagined a world in which Second Life was used to launder money, through the purchase of virtual art, property and other high value virtual objects in a virtual city run by fraudsters. In common with all the short listed entries, this appeared clearly feasible, given the convertibility of the Linden Dollar, used as the currency in Second Life (currently convertible at between 310 – 320 to the £).  

Bigshot by Joe Carpita and Craig Stover

The third shortlisted entry took the premise of the Kickstarter crowdfunding platform and using anonymising technologies such as Tor, extended it to a platform for funding organised crime called Bigshot. It appeared to be strongly influenced by Timothy C. May’s seminal 1988 work “The Crypto-Anarchists’ Manifesto”.

Delegates watched each video presentation, with the creatives providing a piquant contrast to the besuited delegates – Frank with his Mohawk hairdo, Ilona with her astonishingly funky glasses and Craig and Joe by their refusal to show up, an ostensibly nihilist position made excusable by the fact they were in Chicago (they linked in by Skype) and we were in London.

Then a panel of judges from the event sponsors ACI, Visa and WorldPay and from Consult Hyperion decided on the winner – Bigshot. The choice was extremely difficult – all the entries were feasible, imaginative and beautifully done. However the technical elegance and very high quality of the video from Craig and Joe stood out and they were declared the winners. Judge Gill Greenwood from ACI Worldwide explained, “The reason we chose Joe and Craig’s submission were:

1. It was felt to be more genuinely futuristic than the other two, which to some extent exist today
2. Crowd sourcing/funding and discussions around anonymity and privacy were felt to be important unresolved issues today and so the threats posed by a site such as Big Shot were felt to be potentially real and huge! 
3. The presentation was really good – communication was effective, and the execution was both creative and professional.”

Austin said, “Although this year’s competition ‘Designing A Future Financial Crime’ isn’t the usual theme for an art challenge – that ought to promote a nice corporate image, it did generate some intriguing concepts.  The artist’s shameless representation of our ugly nature hopefully provoked, challenged and entertained the audience at TT.  It perhaps showed the only difference between a great creative mind and criminal one is… errrmm… money.  Although the downside of the high quality of this year’s work means that next year’s competition will be a greater challenge… any ideas people?”

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