The future of payments
I was invited earlier this month to speak on the future of payments at the Digital Money Forum in London, now in its thirteenth year and as provocative as ever. Of course, it’s a future that’s increasingly bound up with technology. My version is based on the work that’s been done by the historian of economics and technology, Carlota Perez (which I’ve blogged about elsewhere, at length) on long technology cycles.
We’ve seen five long technology surges, each of around 50-60 years, starting with steam, cotton and canals in 1771. The first half of the cycle, the installation phase, is driven by investment and finance capital. The second half, the deployment phase, is driven by production capital. And in between the two is a financial crash, when investment expectations get ahead of themselves.
In the current information and communications technology surge, we’re a few years into the deployment phase, when people start to do “new things in new ways” with technology. The smart phone and the tablet computer are archetypal deployment products, and digital payments will inevitably get caught up in the rush, as new applications emerge.
One of the likely effects is the fragmentation of devices, rather than convergence (we may use a digitally enabled key to get into our house, or a card or fob as a store of value, but we’re unlikely to leave them lying on a table during a meeting). We should expect fragmentation of currencies as well; local currencies such as the Lewes pound work much better when they don’t have to be printed. There are already viable currencies within every online multi-player game (and one of the things I learnt at the Forum was that Chinese workers employed to dig virtual gold in online games earn more than Chinese gold miners who dig the physical commodity, and in much better conditions). One of the other speakers talked about the emergence of currencies backed by units of energy consumption. This isn’t hypothetical.
This potentially represents that same sort of democratisation of production that we’ve seen in other sectors, ending the monopoly of the banks (mostly the commercial banks) on credit creation. This thought seemed to cause some nervousness in the audience at the Digital Money Forum, and the questions turned quite quickly to fraud and regulation, although potential fraudsters in an energy-backed currency would be doing very well to steal a fraction of the money that Bernie Madoff took from his investors.
What’s standing in the way? The banks, who aren’t trusted, and the mobile operators, who aren’t particularly interested in payments, at least not in the rich world. It seems likely that the market will need its own ‘iTunes’ moment, when an outsider steps in to create a decisive disruptive change.
The image above is courtesy of Flickr user Bohman, and is used under a Creative Commons licence with thanks.