Digital cash – nothing to see

Here’s a link to the PDF of my 2012 map. Regarding Europe, which features heavily towards the centre of the map, I had an interesting chat with Anthony Hilton from the Evening Standard the other night about the European situation. He made the very good point that the EU is targeting the wrong problem.

The issue isn’t European solvency, it’s European competitiveness (or the lack of it), especially in southern Europe. That’s why there’s a problem with debt.

Also a good piece in the Telegraph this morning about QE (i.e. printing money). This, too, was on the money in the sense of highlighting how the UK government is playing with fire by digitally printing money to buy it’s own debt. You heard that right. It’s buying its own debt – to the tune of £50 billion (on top of the £275 billion it has already bought). Had the government actually printed real money and we saw truckloads of it being shifting around the city there would, no doubt, be an outcry. But it’s digital so there’s nothing to see.

What happens if you buy your own debt? In the short term a transfer from savers to debtors – so thrifty pensioners will be hit hard while profligate borrowers (who partly caused this mess!) will have access to further funds. Doesn’t seem right really. We are allocating vast amounts of money to individuals and institutions that speculate, or transfer money from one place to another, rather than putting it in the hands of people that actually invest in wealth creation and jobs.

As to longer-term impacts, who knows? This is part of the largest money printing experiment in modern history.

Future of eMoney

Do you know anything about this? Do you fancy a trip to Moscow? I can’t do it so I’m looking for someone that can. If you are interested get in touch. Date is middle of November.

Other news. Interesting lunch with Atos Origin yesterday. I must say they do produce some rather good reports about the future of technology. Linked the guy running innovation into a fellow Brazilian IT guru and tech trend watcher.

Oh, and I finally have a link for you to the new extinction timeline.

The Future of Money (in a phone near you soon).

In Australia you can buy a shirt with a built-in sun protection factor of SPF 30+
In the US Burton is selling a snowboarding jacket with a built in MP3 player (removable for easy washing), whilst in Singapore researchers have developed a smart T-shirt that can monitor whether you’re fallen over or not (useful for people concerned about elderly relatives who live alone perhaps). There’s even a shirt called the smart-shirt in development that monitors your heartbeat and displays a reading on the outside.

What’s this all got to do with money and banking?  Simple. As money becomes increasingly digitised it will become easier and cheaper to embed value into all manner of physical objects leading to a growth in pre-pay and private currencies. So when you buy a new watch, a pair of shoes or a T-shirt, the sales assistant might ask whether you’d like any money built in (a bit like Tesco asking if you want cash-back, but digitised). In other words physical money is eventually going to vanish, which will create a number of associated problems and opportunities.

Why on earth would some people want this to happen? Several reasons. One reason is that people like intelligent products. People (men in particular) can’t seem to get enough of fancy gadgets and the latest whiz bang technology. Second, all this technology (iPads, mobile phones etc) is filling up our pockets. Hence the term ‘pocket pressure’. Even the older generations are not immune. A recent study claimed that business people are now carrying around 10 pounds more in weight on their person than they did 20 years ago. So getting rid of heavy coins, cheque books and perhaps credit cards could be a good idea.

Convergence is another reason. Put simply, mobile products will soon be able to do or be almost anything you want. Add to this a need for speed and convenience and perhaps a cashless society doesn’t sound too far-fetched?

If this sounds a bit too wacky perhaps you haven’t stretched your imagination far enough. A couple of years ago a scientist in the UK successfully implanted a chip in his arm, which carried a password and remotely opened doors. Dogs and cats are already carry ‘chips’ in case they get lost so why not the rest of us? What if we were all walking around with digital passports, wallets, driving licences and cash implanted in our forearms?

The opportunities this opens up are intriguing. First of all it creates a conversation about business definitions. What business will retail banks be in 15 years hence? Could they become primary technology providers or – more likely – will their importance decline to mere backroom operators servicing the needs of companies like Facebook or Apple Bank?

More practically, such ideas spark off a number of new product ideas. For example, could credit cards be fitted with RFID tracking devices to enable banks to ‘fast track’ high value customers? (Finnair has done something similar with frequent flyers). Or how about finger print or iris recognition software to provide access to ATM ‘lounges’for gold card customers?

Of course you could just ignore all this. In Australia you can already buy a can of Coke in a vending machine with a Coke mobile phone. Coke have also launched a range of clothing. Maybe one day a Coke or Pepsi Bank will sell T-shirts with $50 of embedded value to spend on anything you like from a bottle of sun tan oil to the latest ring tones (downloaded from one of their own vending machines of course).

The Future of Money

Like predictions about the paperless office, forecasts about a cashless society have been around for a while. For example, six years ago AC Nielsen said that only 10% of transactions in the US would be cash by the year 2020. Logically this makes perfect sense because electronic commerce is at it’s most powerful in data processing industries like financial services.

The idea is obviously that notes and coins (let’s not forget bills and cheques) are hugely inefficient and will be replaced by digital money, which is easier to process. Governments love the idea of eliminating cash because up to 25% of cash in circulation globally is used for illegal purposes (in the US, a staggering 20-25% of people still don’t use bank accounts).

Companies also love the idea of digital money because electronic payments are faster and much cheaper, although this doesn’t necessarily mean that they, or the retail banks, will pass on any time or cost savings to their customers. And as far as multinationals are concerned, the sooner there’s a single global e-currency the better, because volatility in currency markets is yet another uncertainty to contend with.

From a technological point of view, the cashless society is already here. PayPal has 150 million accounts, which makes it bigger than most national banks. In South Korea, four million banking transactions were carried out via cell phone way back in June of 2004, and hundreds of thousands of people have now bought cell phones into which you can plug a memory card securely encrypted with financial data.

In Finland and Japan, you can pay for train journeys and restaurant meals by simply waving your phone in front of a payment terminal and in other countries you can pay for a parking space using your phone. In fact you can find a car parking space with your phone or even the location of rental cars that can be unlocked and paid for with a phone. No paperwork required.

Hello mobile retail, micro-payments, peer-to-peer lending, stored value cards, micro-philanthropy and private currencies. Bye-bye coins, notes, paper statements, paper bills and perhaps even the banks themselves.

Back in South Korea, more people own cell phones than computers and globally smart phones will outsell PCs by mid-2012. So it’s pretty easy to see why phone companies could be the banks of the future. Or, as Bill Joy has pointed out, your phone will become your wallet, and a bank or credit card company will give it to you for nothing.

There are already 4 billion phones worldwide, 80% of them in developing economies and companies are starting to wake up to the thought that they can pay their employees wages straight into mobile phone accounts, from which money can be instantly transferred elsewhere. But it won’t necessarily stop there. If a job can be advertised, applied for and then completed using nothing more than a mobile phone, why bother with offices or fixed employment contracts at all? This is already happening in parts of Africa.

Another implication is that many phones are GPS equipped, so this opens up a whole host of other profitable opportunities.

For example, products like motor or holiday insurance could soon be sold by the minute on a pay-as-you-go basis. How? Because the insurance company – or holiday company – will know where you are in real time and will calculate risk and payments accordingly.

As for retail, the scene with Tom Cruise in Minority Report suddenly becomes very real with the prospect of retailers (including retail banks) knowing who you are and what you’re worth (or at least what you spent last time) the second you step into their store.

Add analysis of social networks embedded in your phone, records of digital payments and analysis of voice or text conversations and the future is very open and transparent, with organizations able to predict the wants of individual customers. DM or CRM heaven. Or hell, depending on your point of view.

So could a totally cashless society really happen? Yes, if the fact that 14% of Britons regularly throw away coins because they can’t be bothered to carry them around is anything to go by. In the U.S., electronic payments (including debit and credit cards) surpassed check payments seven years ago, while back in the UK many people aged under-twenty-five have never even seen a cheque let alone written one.

Recently there were rumblings in the UK about some retailers refusing to accept cheques. How long, I wonder, before some retailers start to refuse cash?

However, 1/3 of payments in the UK are still made in cash and it is the older generations that have all the money. Therefore, things may stay the same for quite a while yet.

Moreover, all but the most geeky of Generation Y and i would, I suspect, have to admit that there is something inherently substantial and emotionally reassuring about paper money that’s difficult to replicate in cyberspace. Logically, paper money, paper books and paper newspapers should all be extinct year by now but they’re not. And they won’t disappear any time soon either. Not entirely.

Years of tradition, human nature, and practicality mean that when it comes to the impact of things like social media on financial services the hand brake will be left slightly on. And this is the inconvenient truth that many futurists and technologists forget. Yes, technology is a powerful force for change, but so too are history and psychology.

Then there’s the issue of trust.

There are lots of trends that can be used to support a scenario where retail banks become extinct – product convergence, convenience, new channels to name just a few.  And remember: Most people don’t just dislike banks. They hate them. They hate waiting in line, they hate paying fees, and they hate the lack of any meaningful choice.

If Toyota branched out into financial services (as they’ve done in Japan), the UK retail banks could be in for a pretty rough ride. And that’s before Apple, Google, Facebook or Vodafone offer banking services based on emerging technologies like digital signatures. But would you trust a phone company or a supermarket with your pension?

In the U.S., there were more physical bank branches in 2008 than there had been a decade earlier. Meanwhile, in the UK, pure online banking plays are struggling because all of the major physical banks now offer online channels. The big banks are consolidating too. They are getting bigger and they are getting richer, so they have the ability to crush small, technologically driven, competitors.

Meanwhile, local community banks (and, conversely, private banks) have been booming. Seems that when it comes to money, especially decisions relating to large amounts of money, many people still prefer the physical to the virtual.

So what does the future of financial services look like in the UK? The Market itself will almost certainly polarize between low-cost providers and premium suppliers offering personalized solutions.

Cheap Internet banking via a phone will happily co-exist next to physical branches that feature people who offer advice on big-ticket items like home loans.  If you’re rich, you can have the best of both worlds: phone banking with instant access to a personal assistant and swipe card entry to flagship branches offering great customer service. And somewhere in the middle you’ll probably find 7-Eleven or McDonald’s with 24-hour bill pay kiosks.

But let’s go back to trust.

Tesco has successfully offered basic transactional services like cash back, car loans and pet insurance, but its credibility is somewhat strained when it comes to more complex matters like wealth management. This may change, but it may not.

The ATM has been around in the UK since 1967 and people now think nothing of using them. However, whilst we happily take money out of ATMs, only 5-10% of us are happy to deposit any money back in.

There’s also the issue of identity theft, a multi-billion dollar problem in the U.S. and a growing problem in the UK too. ID theft is a problem so big that could bring the cashless society to its knees, but even ID theft is also spawning a number of innovations like (Citibank) and ID theft insurance (progeny/AIG).

None of us can be really sure what will happen to financial services in the future. Indeed, the only thing we can say about the future with any degree of certainty is that it will be different. However, it’s a fair bet that some significant change will happen, so here are a few ideas you can bank on:

1. The technological explosion will benefit new entrants.
2. Mobile micro-payments will revolutionize retail.
3. Physical banks are not going away any time soon.
4. If cash did disappear, barter would flourish.
5. Money will eventually be embedded in everything.

Boring is the new exciting

Takeaway from lunch with my mate Steve who works in funds management. According to Steve greed and stupidity are back. “So what’s changed?” I said. “Trust has evaporated” said Steve. Consequences? Possibly that the demand for simplicity with increase, as will the desire for authenticity and transparency.

BTW, I know that this post totally contradicts my last post, which was about sound bites, but get over it.

The Death of Cash

Some time ago I wrote about a Nielsen prediction that 90% of financial transactions would be cashless (digital) by the year 2020. Judging by the chart above it looks like they were on the money.

So what’s next? I’d expect coins to slowly vanish. Next will come notes. Both forms of cash will still exist in the future but they will be somewhat unusual outside of the black economy. Logically one would then expect paper bills (phone bills, bank statements and so on) to similarly verge on extinction. I’d also expect some regional digital currencies to emerge cumulating in a handful of Euro equivalents, or perhaps a single global digital currency.

Thanks to Andrew Crosthwaite for the killer chart by the way.

Quote of the month

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.”

Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin, 1802

Digital money

85.jpgAccording to AC Nielsen, 90% of transactions in the US will be cashless by the year 2020. PayPal had 63 million accounts last time I looked, which makes it larger than most national banks,while in Korea during the month of June 2004, 300,000 people purchased cellphones into which you can insert a memory card containing all your financial data. So will physical money soon be a thing of the past? Most observers say yes, but don’t underestimate the power of human nature and tradition.

Pre-pay and stored value cards

10 million households in the US don’t have bank accounts and many of these use their pay cheques to buy pre-paid credit cards. Around 8.5% of households without bank accounts own pre-paid credit cards but this figure is expected to rise to 25% by the end of 2006. This is one reason why companies like Visa and MasterCard are getting into the act by signing up Rap moguls and singers like Russell Simmons and Usher to put their names on prepaid cards.