Ancient and modern

[Dave Birch] I was totally shocked to arrive home from work the other day to find my good lady wife celebrating with her tax rebate cheque. Apparently HMRC miscalculated millions of Her Majesty’s subject’s tax bills and we were one of the lucky overpayers. We are a couple of gallons of petrol better off than before. But a cheque! HMRC must have our ethnic background on file as “Amish”. Despite the fact that since time immemorial (for me) we have paid our tax bill online via internet banking, the creaking hand-cranked contraptions at the Revenue are apparently unable to use any form of payment invented after the Act of Union (in 1701).

To be honest, I’ve always been puzzled by the Amish, the strange religious sect in America made popular by the noted screen actor Harrison Ford in his 1985 film “Witness“. The Amish reject “modern” technology, but they seem to me to have a rather arbitrary definition of what constitutes “modern”. Why, for example, do they use wheels? Or nails? Or chemical fertilisers? What’s the cut-off point? 1750? Why not the invention of the transistor in 1948? Or the synthesis of urea in 1828?

The Amish, particular the Old Order Amish — the stereotypical Amish depicted on calendars – really are slow to adopt new things. In contemporary society our default is set to say “yes” to new things, and in Old Order Amish societies the default is set to “no.”

[From The Technium: Amish Hackers]

Speaking of reactionary sects that eschew the modern world to remain in the comforting cocoon of a romanticised rural past, I read in the Daily Mail that

Plans to scrap the use of cheques from 2018 were dropped today after the UK Payments Council admitted there was no better paper alternative.

[From Cheques will not be scrapped in 2018 but because there are no better alternatives | Mail Online]

Well, the wrinklies have triumphed again. Another minor skirmish in the intergenerational war for resources has been won by Joan Bakewell’s generation and our children are going to be made to subsidise a paper cheque system that should have been a distant memory for them. The Payments Council has been forced to cancel the end of cheque clearing (originally scheduled for 2018) and promise to keep cheques

for as long as customers need them

[From Payments Council – Payments Council to keep cheques and cancels 2018 target]

Note that I am specific in the wording, as were the Payments Council. No-one was banning cheques: they were ending cheque clearing. If someone else — the Post Office, Age Concern or the CBI — wanted to run a cheque system, they were free to do so. And, to be honest, that would be a good solution, because then their members could pay for it and those of us who couldn’t care less if they never saw another cheque could have ignored them.

I suspect that in the coming age riots of 2025, the cheque book will used as a rallying symbol of revolt by our impoverished offspring because the banks (ie, bank customers) are going to have to pay to support paper cheques into the foreseeable future. This is ridiculous. If some people (eg, my mum) want to carry on using cheques, it should be on the basis of full cost recovery: if you want a cheque book, you should pay for it, and if you want to cash cheques, you should pay £2 (or whatever) to do so.

The Government is aware that, although there are declining numbers, 54% of adults still write cheques, and on average every adult write 13 cheques and receives 4 cheques each year.

[From Frequently asked questions on the closure of the cheque system – HM Treasury]

Yes, but that misses the point. When I last wrote a cheque to my son’s school, I didn’t want to. I would much rather have used PayPal, internet banking, my debit card or M-PESA. I don’t want to receive cheques either, from HMRC or anyone else.

When someone sends you a cheque, it’s like being set homework.

[From Digital Money: I could imagine using this]

So what happened? In recent weeks I’ve had some conversations with people countries such as the Netherlands, Belgium and Denmark where no-one has seen a cheque for a generation asking me why the UK is different. It’s the British disease: faced with the end of cheque clearing in a generation, the British response is not embrace electronic alternatives, for charities to look at inventive and efficient online and telephone giving, for small businesses to exploit the Faster Payment Service (FPS) or for the Post Office to create its own paper-based alternative but to moan and complain and demand that everything be kept the same as it is. What happened was that reactionary press comment, entrenched interests, publicity-seeking MPs and a fragmented industry have combined to conspire against the forces of rationality and modernity. And they won.

But why stop there? Cheques are quite modern invention and I don’t understand why the Commons Treasury Committee and the Daily Telegraph want to turn the clock back only to the 17th century. They are not true conservatives, whereas I am. I have therefore decided that my only course of action is to appeal to the European Court of Human Rights to force the Payments Council to reinstate the tally stick system that was prematurely ended in 1834. My great-great-great-great-great grandfather was perfectly happy using tally sticks and was, I’m sure, most distressed by the end of the scheme and the burning of the sticks in the Houses of Parliament furnaces which, as you may recall, resulted in the fire that destroyed the medieval palace and a splendid painting by Turner. It is most unfortunate that Associated Newspapers and Saga did not exist at that time, since I feel they might have been able to spearhead a successful campaign against the introduction of foreign methods (such as double-entry bookkeeping).

Tally sticks had numerous advantages over paper cheques. They were much harder to forge, for example, and were understandable by a largely illiterate population (a situation soon to be restored in this United Kingdom). The sticks were far more durable than cheques are, cheques being made out of flimsy paper instead of fine English wood. Why was this sound and practical system swept away for the convenience of bankers! It is my right to continue to use the tally sticks developed under William I for as long as I need them and quite reasonable of me to demand that the rest of society bears the costs. I hope The Telegraph will support my campaign with vigour. And while we’re at it, why haven’t farthings been legal tender since 31st December 1960? I tried to use some when out shopping the other day and they were refused: outrageous.

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

They’re not playing games

It was obvious a few years ago that not only were virtual worlds going to be big business, but that they would have an impact on the payments market. I used put things like World of Warcraft into product and service roadmap discussions for our clients in the financial services space, and I’m sure that they thought I was doing it just for fun, just to get some discussion going. But having played around in the space, I could see it would lead to some new thinking. When you’re sending World of Warcraft gold pieces to a friend in Asia via an elven intermediary (quicker and cheaper than banks, by the way) you can’t help but wonder at the “real world” instruments to hand. This from three years ago…

Well it wouldn’t surprise anyone then, that most of our partners report they have a completion rate of 0.5-1% when they present a credit card payment page to their users for virtual goods…Mobile on the other hand… takes 15 seconds, and off goes the user to his virtual good or points that will enhance his game or app experience immediately without ever leaving the environment of the app.

[From Virtual Goods / Currency and Mobile Payments: the business model for Social Apps]

Note that figure: one in a hundred transactions complete. People playing at being virtual farmers want to buy some virtual cows, so they click to buy, but when they see a credit card payment screen, they can’t be bothered. So there was a demand for a new kind of payment instrument that was not being met by the banks. Look how much things have changed since then, with the incredible boom in app store and in-game payments. There’s no doubt that the retail payments roadmap is indeed being affected by the world of games.

Now I’m not implying that it’s only payments will be impacted, because in the longer run it will be many kinds of financial service, including banking.

The publisher of the online science-fiction game “Entropia Universe,” set on the planet Calypso, received a banking license from the Swedish Financial Supervisory Authority last week and plans to open a real bank within a year, albeit one without physical, walk-in branches.

Players of “Entropia” already exchange real money for a virtual currency that is used for their expenses on Calypso. And virtual money they make in the game, through hunting, mining, trading or other activities, can be cashed out into real money. The virtual currency, Project Entropia Dollars, has a fixed 10-to-1 exchange rate to the U.S. dollar.

By setting up a real-world bank, Sweden-based publisher MindArk PE AB gains the protection of the Swedish government’s deposit insurance for these accounts, up to about $60,000 for each customer.

[From The Associated Press: Online game gets real-world banking license]

A healthy development! My younger son spends a lot of time online with his friends at the moment, hanging out not at the mall but at the WoW auction house (this is where he learns about economics, I’m happy to say). That’s where our clients’ next generation of customers are learning about money, payments and financial services. This from two years ago…

Today, Facebook application developers monetize their games and other applications by accepting payment directly using PayPal, Google, Amazon FPS, or SocialGold. Or developers may opt to receive direct payment via mobile phone via Zong, Boku, or another mobile payment provider… game developers in particular, often accept payment via a prepaid card sold in retail establishments, such as the Ultimate Game Card. The social and gaming web is exploding with virtual currency offerings, yet thus far no one model or payment brand dominates.

[From Purchasing Facebook Credits with Zong Mobile Payments — Payments Views from Glenbrook Partners]

Now, forward-looking organisations could see what was going on and began to target R&D appropriately.

Google is developing a micropayment platform that will be “available to both Google and non-Google properties within the next year,”… The system, an extension of Google Checkout, would be a new and unexpected option for the news industry as it considers how to charge for content online.

[From Google developing a micropayment platform and pitching newspapers: “‘Open’ need not mean free” » Nieman Journalism Lab]

The idea was then that micropayments would be a payment vehicle available to both Google and non-Google properties within the year. The idea was to allow viable payments of a penny to several dollars by aggregating purchases across merchants and over time. Google planned to mitigate the risk of non-payment by assigning credit limits based on past purchasing behavior and having credit card instruments on file for those with higher credit limits and using proprietary risk engines to track abuse or fraud. Merchant integration through Checkout would be extremely simple. Google, in fact, subsequently decided to purchase an in-game payments company rather than build it themselves.

Facebook and Google are poised to challenge the banking industry in online payments.

[From Facebook and Google Encroach on Banks Turf – US Banker Article]

Is this really true? I think the answer is yes and no, in the sense that I can’t see any reason why Facebook or Google would want to be a bank, unless it’s to get some sort of government handout, but I can see why they might want to get involved in payments in order to make money (not from the payments, where margins are thin, but from new products and services that have payments integral to them). This is why the news that Facebook had also begun experimenting with a payment system was hardly unexpected, but was notable nonetheless. There was an expectation that the existence of a secure and convenient micropayment scheme for Facebook users (of which there now more than 600 million) would stimulate the development of a new marketplace within Facebook’s “barbed wire”. This seemed plausible to me — if it had been up to me, I would have added a spurious green element to the proposition somehow (getting merchants and other organisations to give out Facebook credits to reward environmentally desirable behaviour) — and I was sure it would do well. I wondered in a number of forums as to who else might enter this more competitive currency market?

In the coming months, facebook users will be able to obtain facebook Credits using MOL points purchased through MOL’s network of more than 500,000 outlets, which are mainly in Malaysia, Singapore, Indonesia, Philippines, Thailand, India, Australia and New Zealand. In addition to outlets such as 7-Eleven stores and cybercafes, customers will be able to purchase Credits through MOL’s network of online banks in these countries.

[From Finextra: Facebook moves virtual currency offline]

I gave a talk last year when I mentioned that I thought that Facebook credits would become the biggest virtual currency in the world fairly quickly. Unusually for my glib and sweeping predictions from the conference platform, this one appears to have come true, and even more quickly than I had imagined.

By the end of the year, Facebook expects that Credits will be used to buy the vast majority of virtual goods sold on Facebook. The fast-growing market is expected to reach $835 million on Facebook this year, according to the Inside Network… Through Credits, Facebook will take a 30 percent cut… To bolster that market, Facebook began selling Credits gift cards at Target stores across the country this month.

[From Facebook Promotes Its Credits as Path to Dollars – NYTimes.com]

Now this will one day become a standard business school case study. Talking of which, a few years ago, as part of a course I was teaching at Visa’s Bank Card Business School, a colleague and I mocked up a future Visa card that drew on a World of Warcraft account rather than a fiat currency account. This was photoshopped up to make a point, and at the time it was supposed to be a totally out-of-the-box crazy picture of the future. About two weeks after we made it up, I read that a US bank was issuing a Visa card with cashback in World of Warcraft gold. Oh well. It did help to make one of the points that I was trying to get across, which is that the future of payments will extend beyond the “traditional” bank, consumer, merchant and acquirer for 4-party model.

Vegetable company Green Giant is offering an unlikely reward for purchasing their products: virtual currency in Zynga’s hit social game FarmVille.

[From Wacky: Zynga Gives Away Free FarmVille Cash With Purchases Of Real Life Vegetables]

That was bad timing, coming just as Zynga (the people behind Farmville) caved in to Facebook and agreed to replace Farmville cash with Facebook credits, but it was an interesting development nonetheless, showing that virtual money is just as valuable as “real” money. Facebook’s tactics show they undoubtedly have a strategy in this field.

First Facebook turned off notifications for applications, taking away the primary mechanism for social games to go viral. Now if a company wants a massive audience for a new game, they almost certainly have to buy it through Facebook advertising.

Now Facebook is rolling out Credits as the preferred method of payment for games on their Platform, and taking a 30 per cent cut of the transactions. That’s a much larger percentage than the social games companies were handing over to the small payment companies that had sprung up to fill this niche, and higher than the fees charged by PayPal and credit card companies.

[From Zynga says it’s not leaving Facebook | Tech Blog | FT.com]

Now there’s something to be said for the creation of a single currency area as a way to encourage trade and therefore prosperity.

Besides leading the creation of a more people-centric web, it could also end up having the dominant virtual currency, according to an early adopter of Facebook Credits. PopCap Games has been using the service, which is still in the beta testing phase, as the sole payment method for Bejeweled Blitz on Facebook.

The game is free to play and attracts 11m monthly players, 3m of them playing it daily. PopCap sells extra power-ups, which boost players’ capabilities, and is moving onto sales of virtual items. It has decided to ignore offering other virtual currency options and only accepts Facebook Credits. Users can buy them with credit cards, Paypal or through their mobile phones in $5, $10 and $20 increments for 50, 100 or 200 Credits.

[From Facebook’s Credits Bank of the Web | Tech Blog | FT.com]

These are all useful case studies, showing how a new currency can develop and evolve.

Facebook has certainly tried to guide the development of its online economy, almost in the way that governments seek to influence economic activity in the real world, through fiscal and monetary policy. Earlier this year the firm said it wanted applications running on its platform to accept its virtual currency, known as Facebook Credits. It argued that this was in the interests of Facebook users, who would no longer have to use different online currencies for different applications.

[From Social networks and statehood | The future is another country | Economist.com]

I think I’ve seen the playbook before.

That means all Facebook game developers will be able to start using Credits as their payment system for virtual goods — in fact, Facebook is requiring them to make the switch by July

[From All Facebook Games Will Have To Use Facebook Credits Starting In July]

This comes from the Great Khan’s playbook for monetary and fiscal policy. Not Genghis Khan. His fiscal policy was confused: when he took control of China in 1215, his pacification plan was to kill everyone in China, no small undertaking since China was then, as now, the world’s most populous country. Fortunately, one of his advisors, a man who ought to be the patron saint of Finance Ministers everywhere, Yeliu Ch’uts’ai, pointed out (presumably via a primitive Treasury model of some sort) that dead peasants paid considerably less tax than live ones, and the plan was halted. In 1260, Genghis’ grandson Kublai Khan became Emporer of China. He decided, much as Mark Zuckerberg has, that it was a burden to commerce and taxation to have all sorts of currencies in use, ranging from copper “cash” to iron bars, to pearls to salt to specie, so he decided to implement a paper currency.

Here’s what Marco Polo had to say about it…

[From Digital Money: Lucky, for me anyway]

His monetary policy was refreshingly straightforward and more robust, even, than Mr. Zukerberg’s: if you didn’t accept his money, he would kill you. Naturally, in a short time, the new single currency was established and paper money began to circulate instead of gold, jewels, copper coins and metal bars. If you think talking about a new currency is crazy, take a look at Facebook Deals. According to Facebook, at launch, you will not be able to buy physical goods with Facebook Credits. Rather you will be able to get things like vouchers that you can redeem at events: now this is, frankly, a paper-thin distinction. I can’t use Facebook Credits to pay for, say, a Coke at a pop concert but I can use them to pay for a voucher for a Coke at a pop concert. I am not an economist, but…

When beloved national retailers start offering goods and lower prices to customers who pay with a new, virtual currency – that’s when said virtual currency becomes a force to reckon with. Somebody call Congress and the Federal Reserve – it’s time to start having some serious conversations.

[From Facebook Deals Launches Tonight & Groupon Doesn’t Stand a Chance (Updated)]

There’s a warning from history here! Unfortunately, the Khan’s paper money ended in disaster because the money supply was not managed: it collapsed in hyperinflation, because in the days after Yeliu Ch’uts’ai, the temptation to print money was just too great for the monetary authorities too resist. Let’s hope that the Emperor of Facebook finds an advisor of the calibre of Yeliu Ch’uts’ai.

One possible future might be that, just as China turned in on itself and stagnated, leaving technological and commercial progress to other people, Facebook will become an inward-looking economy while others take up the torch! Perhaps competition in currency, not only in payment methods, is need to keep an economic space vital.

The new program, announced today at SXSW, is called RewardVille, which will give players zPoints and zCoins in CityVille, FrontierVille, FarmVille, Mafia Wars, Zynga Poker, Café World, Treasure Isle, YoVille, PetVille and Vampire Wars.

[From Zynga Rolls Out New Virtual Currency in Addition to Facebook Credits | Tricia Duryee | eMoney | AllThingsD]

Competition. This is the American way, not going complaining to Senator Durbin.

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

Waiting for ages

A few years ago, I was thinking about how to relate the changing technology of money to changes in money, and I thought it would be useful to have some rough categorisation to organise thoughts. At the time, I wrote this:

The era of Money 3.0 is just beginning. Its central dynamic is no longer connectivity (since everything is connected to everything else) but community.

[From Digital Money: Money 3.0]

After a while, I realised that my initial categorisation was insufficiently granular to organise all of the thoughts I had on the topic and all of the information I had gathered on the topic. (I’m thinking of writing a book about it, which is why I have been gathering a lot of material on the specific topic of the technology of money.) A little while ago I posted a more sophisticated idea for a categorisation of the ages of money, or money eras. This extended the framework from three to five “eras”.

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.

[From Digital Money: Another go at categorising money technologies]

This led me to describe the future as a new age of money, Money 5.0 I suppose, where the abstraction becomes complete and there are wholly new kinds of money that are not based on debt (or, indeed, anything else ultimately tangible) or secured in some conventional way but on relationships. Having had a bit of feedback on this, I think it serves its purpose. Obviously, some aspects are a little arbitrary — starting the information revolution in 1871 — but I think I can support the dating of the communications revolution to 1971, since this is roughly when company size peaked in the UK (actually it was in 1973), and anyway it fits nicely with the narrative of the 100 year interlude that I contend still constrains our mental models of what money is and how it works.

Money Eras

This categorisation leads me to think that we should be looking for Money 5.0 where we see private bits, not bits about anything, becoming a means of exchange. Why private bits? Well, at this year’s Digital Money Forum, we had a wonderful session on private currency, chaired by the economist Diane Coyle.

This morning I had the privilege of chairing a fascinating session at the Digital Money Forum run each year by Dave Birch of Consult Hyperion. The speakers were Professor George Selgin of the University of Georgia, and James Turk of the Gold Money Foundation. Both were arguing, from different perspectives, for private money as a competitor to government money.

[From The Enlightened Economist :: Good money, digital or analogue]

George gave a superb talk on the way in which the industrial revolution in England was hampered by a lack of circulating means of exchange, so private companies stepped in to develop new forms of industrial means of exchange (copper tokens) that help commerce and trade to grow to the great benefit of the nation. It strikes me that we are now in a similar position: we have had the post-industrial revolution but we are still using industrial money and it is holding us back. This is why the virtual empires, such as Facebook, have gone on to produce wholly private currencies — everything from the Everquest Platinum Pieces of old to the Facebook Credits of today — just as the giants of the industrial revolution (eg, Boulton’s Factory) did 200 years ago. If you think that sounds fanciful, remember that the wholly virtual economy — that has no industrial analogue — is already of significant size and growing strongly.

more than 100,000 people in countries such as China and India earn a living by performing ‘micro-tasks’ in the virtual economy. Jobs include categorising products in online shops, moderating content posted to social media sites, or even playing online games on behalf of wealthier players who are too busy to tend to their characters themselves.

[From Finextra: Three billion dollar virtual economy to fuel developed world – World Bank]

As the World Bank report notes, this economy is already worth several billion dollars. With better money, it could be worth several billion more.

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

Another go at categorising money technologies

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]

Resolution no.1: stop making predictions

Osama Bedier, VP of Platform, Mobile and New Ventures at PayPal, joins the tradition of making predictions for the coming year. I’m always loath to do this, for two reasons:

  1. because it’s a dangerous game as a consultant. Consult Hyperion are working on plenty of client projects that are confidential and relate to new products and services that will be announced during the year and I don’t want to mess up and accidentally “leak” any of these;

  2. because it’s really difficult and wrong predictions come back to haunt you.

In Osama’s case, however, I think at least four of his five key trends are spot on and the fifth is probably right. Let’s join in the New Year fun and have a look at what he said.

Mobile, mobile, mobile. Wallet in the cloud. The digital wallet. Call it what you want, but mobile devices are poised to become a primary form of payment for millions of people around the world… Consider that PayPal saw a 310 percent increase in mobile payment volume on Black Friday 2010 compared to the previous year, and a 292 percent increase in mobile payment volume on Cyber Monday 2010 compared to Cyber Monday 2009. Without a doubt, mobile payments are here to stay and will see significant innovation in the coming year.

[From Five payment trends to watch in 2011 | VentureBeat]

This is impossible to contradict and anyone who doesn’t think that mobile is central to the evolution of the entire payments market this coming year is absolutely 100% wrong. I’ve consistently said — for a decade — that mobile payments will be more important than web payments and I absolutely stand by this. I think I might go further and say that the biggest mobile payments story of the year will be the arrival of Android phones with NFC interfaces, and these will transform the payments landscape.

T-commerce. TV will go from a passive (viewing-only) experience to a highly interactive activity as more and more apps are developed specifically for the platform.

[From Five payment trends to watch in 2011 | VentureBeat]

One of the very first reports that I ever wrote about payments and the new media said the companies should focus on t-commerce as well as m-commerce because in the medium term these would become the key channels. I was wrong about the TV side of things: it has take much longer to develop than I thought, probably because the sector remains focused on “traditional” business models around subscription and advertising. Surely it’s going to change this year.

Appification’. IDC issued a new report that says, among other things, over the past three years the mobile apps space has seen an “appification” of “broad categories of interactions and functions in both the physical and the digital worlds.” And this only stands to continue — in fact, the same IDC report projects mobile app revenue to grow from $4.9 billion in 2010 to $35 billion by 2014.

[From Five payment trends to watch in 2011 | VentureBeat]

In the smartphone world, payment apps are going to be big, but I think we all recognise that they are one part of a new value-adding ecosystem that involves vouchers, coupons, loyalty and so on as well as the basic payment itself. This is why I suspect that simply porting exiting payment mechanisms (eg, credit cards) to the mobile platform will not be sufficient to obtain competitive advantage.

A Cashless Society. Now let’s not go crazy here, I’m not suggesting that by this time next year we’ll be living in a cashless society. Far from it. That said, 2011 will undoubtedly see several significant steps that will take us closer to such a world.

[From Five payment trends to watch in 2011 | VentureBeat]

I think he’s right about this, even though plenty of other people are sceptical. In many places, these first steps have already been taken and I think the pressure to reduce the amount of cash in circulation over the coming year will come not from the electronic payments industry but from governments, law enforcement agencies, trade unions and others who want to make a start on reducing crime and tax evasion. The trigger, however, is mobile. It is the arrival of mobile payments that makes cashlessness a realistic possibility and means that the industry can respond to these pressures.

Social shopping is clearly poised for significant growth… Among the key drivers of this trend are micropayments and digital goods. Along the same lines of merging physical world experiences with digital activity, the ability to make quick, small purchases for online content represents a huge opportunity for both content producers and providers.

[From Five payment trends to watch in 2011 | VentureBeat]

This is the one I’m not sure about, and that’s because while we tend to focus on what’s happening at Facebook and the like, I think we’re still in the very early stages of social media and I don’t think we really understand how the sector is going to develop. The role of mobile, NFC and other connectivity technologies in the evolution of social media is still changing and the disconnection technologies are still awaiting standardisation and mass deployment. So while I agree that social shopping will continue to grow, I’m not sure whether it will change the payments space or simply use the products coming from the payments space (or, to put it another way, will Facebook credits break out into new markets?). Perhaps there’s another possibility for this fifth spot. Over at the Financial Services Club, someone whose opinions I always takes seriously highlights something else:

Major investments in creating agile infrastructures and platforms to respond to regulatory requirements.

[From The Financial Services Club’s Blog: Six key technology developments for banks in 2011]

I’m sure Chris is right. The changing regulatory environment is bound to be a big influence on the technology spend for the coming year. New platforms that help to make compliance, in particular, easier to manage will be very attractive to financial institutions. You only have to look at what’s been happening in the cards world to see this.

He noted that PCI compliance has been a significant burden, costing an average of $20,000 for merchants that average only $32,000 in pretax profits; they will gravitate to solutions that reduce PCI scope (tokenization, point-to-point encryption, etc.).

[From Tidbits and Sound Bites from the 2010 Chicago Fed Payments Conference — Payments Views from Glenbrook Partners]

Scatchamagowza! Compared to the cost of renting the terminal, merchant fees and other costs associated with accepting cards payments, this is huge. Shaving a tiny amount off of fees won’t tip a business model anything like as much as making a significant cut to compliance costs, so this must be a priority area for investment and new services that can help will find a ready market.

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

Form and function

[Dave Birch] Money has several different functions in society.

All of these functions are bundled together into a single (for lack of a better word) asset: currency. Sometimes, these functions are complementary [and sometimes the] functions of money conflict with one another.

[From Umair Haque / Bubblegeneration]

Umair is spot on, and to back him up I thought I’d blog an extract from some pieces I wrote a few years ago to try to explain to a business audience why the digitisation of money might lead to these functions being implemented very differently in the future. The beginning of the extract comes from a paper call “E-Cash, So What?” that I presented at “Digital Cash and Micropayments, Unicom (London: February 1997)”, the second part is from a paper that Neil McEvoy and I wrote called “Electronic Cash – Technology will denationalise money” that I presented at “Financial Cryptography (Anguilla: February 1997)” and the more detailed final section comes from an unpublished chapter of a book I’m working on.


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