Digital Money Forum

Sterling service

[Dave Birch] Well this is rather exciting. The writer Bruce Sterling had a tremendous influence on me: his anthology Mirrorshades was one of those books that makes you think about things in a different way. It was one of the key texts in the history of cyberpunk fiction that has ended up shaping some of our collective thinking about the relationship between technology and society. This is why I was so excited to discover that I will be sharing a platform with Bruce Sterling at LIFT 08 in South Korea later this year. We will be speaking in a session on virtual money, where I imagine he will have far more interesting things to say about it than I will.

Nymity vs. anonymity

[Dave Birch] In The Future of Money by Benjamin Cohen, the author says that one of factors that may make it difficult for e-money to substitute for physical notes and coins ("p-money") is that e-money cannot reproduce the anonymity of p-money. I said that I would come back to this subject when I ad some time to think about. Having done so, it led me to reflect on my experiences in the early days of e-cash, the age of Mondex, VisaCash, DigiCash, CyberCoin and all the others. I had certainly had that opinion in the early days: When I first began working around these schemes, I assumed that anonymity was a key requirement for cash replacement. For one thing, that's what customers said in market research, which was music to Mondex's ears. (Note that consumers also said that they wanted the ability to "lock" Mondex cards with a PIN, a feature that I never once saw used in the live service.) But after some time, I began to realise that I was misunderstanding the customers' desire for anonymity. For the most part, it wasn't a real requirement at all, but a kind of comfort factor introduced into the portfolio of cash-like features. To use the post-modern visualisation of Umberto Eco, we shouldn't have been designing virtual cash, but hypercash: Not an electronic version of cash as it is, but an electronic version of cash as it should be. I'm not advocating the construction of fantasy money that disconnects from the real world (Eco warns of the dangers of feeling "homesick for Disneyland" in "Travels in Hyperreality", whioh was one of those books you enjoy reading, but at the end realise that you haven't understood it) but more of an inclusive approach. We should be able to at least categorise the requirements of the various stakeholders (I don't propose to do that here) to get a better idea of what digital money ought to be aiming for, rather than raise the bar no higher than than an electronic simulation of the plastic simulation of the paper simulation of money that we have now.

(This, incidentally, is going to be my rallying cry: No more e-money, it's time for h-money! More on this later.)

BarCampBank "near money"

[Dave Birch] James Gardner is absolutely correct that the lack of a set agenda is the power of the BarCamp format. I wasn't really intending to talk about alternative, complementary or community currencies when I went along last week -- I was really thinking more about mobile, to be honest -- but when I saw a sticker on the wall, I couldn't resist and I got to take part in an excellent round (well, oval) table discussion about "near money" (ie, things that aren't really money but can be used as money). The reason that I'm interested in this is because I'm working on some big picture stuff about the long-term impact of technological change on money, and it seems that one of the key trends that needs to be considered in the analysis is the tendency of the technological change to convert stores of value into means of exchange, thus "monetising" assets. The extent of the shifts are very significant in the history of the financial sector: Consider that before the introduction of the cash management account (CMA), something like two-thirds of Americans' savings were in demand deposit accounts, whereas afterwards something like two-thirds were not. Following Nick Szabo's thinking about commodity derivatives, I was musing whether technology push or business pull would dominate an evolutionary period. On the one hand, the technology means that we can trade new instruments, but on the other hand someone needs to invent the new instruments to trade.

But suppose the next evolutionary period is different, in that the technology has decentralised invention to the point where rapid experimentation can take place "at the edge" as the OpenTech crowd would say, not business pull as in the past but business experiment on a large scale. Well, it may be that the next near-money to shift from store of value to medium exchange might already be being traded in some small community somewhere, just waiting for the dynamics of networks to take their course. So what is it? Linden Dollars or Pieces of Telefonica Eight, Microsoft Moolah or Google Groats? To cross the chasm into the mainstream, the near-money would need to be something that it is easy for people to understand and easy for them to visualise holding and using: My candidate is access to telecommunications services (mobile minutes or broadband megabytes or similar). What's yours?

The future of the future of cash

[Dave Birch] I've just read a very good report on the future of cash by AGIS Consulting. The report, by Guillame Lepecq, looks at the dynamics of the European cash market in some detail. Starting by noting that there were nearly 700 billion euros in "circulation" at the beginning of this year (compared to 750 billion U.S. dollars) and that euro notes and coins still account for four in five retail transactions in the eurozone, the report looks at the evoluation of the "cash cycle" and develops an informed perspective on the future of cash by looking at different scenarios for cash replacement. Guillame concludes that the growth of cash (ie, the increase in M0) has been driven by three factors: These are hoarding, internationalisation and low-value transactions, each of which is discussed in more detail below.

Hoarding. Only a small amount of cash is actual in circulation (being used for transactions). As Ian Grigg has previously pointed out on this blog, most euros are actually being used as a store of value, with their economic imperative being more about competition than efficiency.

Internationalisation. The euro has become a global currency, in the sense that 500 euro notes are under mattresses in Eastern Europe, the Baltics, Russia, Africa and so on. You can fit much more in a suitcase in euros than in dollars, and they're acceptable around the world.

Low-value transactions. Cash remains the most effective mechanism for low-value payments, and will remain so until POS infrastructure is built out to orders of magnitude more points (in essence, until it reaches the individual, which will be achieved through the use of mobile phones). Of course, the reason why it remains most cost-effective at retail POS is because retailers do not pay the full cost. That's why they like it so much...

The BRC's Cost of Collection survey includes results from 17,000 shops, large and small, multiples and independents, with a sales turnover of £131bn a year, over half of total UK retail sales. It shows cash is the most cost effective way for retailers to accept payments and highlights the huge extra costs card companies impose on retailers for processing card transactions.

The BRC says customers do not realise how much retailers are charged for processing card payments. On average, a retailer is charged two pence for processing a cash transaction while the charge for a credit card is 34 pence and, for a debit card, eight pence. These costs are too high for retailers to absorb and are inevitably passed on to customers in the form of higher prices.

[From - British Retail Consortium - - News ]

When I have to find cash to pay the bus, it's me that has to drive to the ATM, get money out and then buy something I don't want in order to get the change I need. No wonder the bus company prefers it.

Keeping an eye on the competition

[Dave Birch] The Digital Money Forum is really all about retail electronic payments, but I'm always keen to see how the competition (ie, notes and coins, cheques) are getting along. Hence it's hard not to be fascinated by what is going on in Zimbabwe. Inflation there has passed the gazillion (it's a technical term) per cent level, which is almost impossible to imagine. There's no point even trying to calculate the figures, because they are meaningless. The Zimbabwean dollar has no value whatsoever.

Comparing Old Mutual's share price in London and Harare, Josh Giersch concludes that there are now 35 billion Zimbabwean dollars to one US dollar - up from a mere 17 billion on Friday. Which would put annualized inflation, he says (I haven't checked his math) at 430,000,000,000,000,000,000,000,000,000,000,000,000%.

[From Zimbabwe Datapoints of the Day - Finance Blog - Felix Salmon - Market Movers - Portfolio.com]

This must mean that there is yet another interesting case of negative added-value here: paper is being made into banknotes that are by the end of the week worth less than the paper that was used to make them. This makes the U.S. government's own 7.7 cents per dime look like quite a bargain in comparison. Why would anyone use expensive banknote paper to make scrap paper? Well, apparently, they won't any longer, as yesterday I read that:

The Management Board of Giesecke & Devrient GmbH, Munich, today decided to cease delivering banknote paper to the Reserve Bank of Zimbabwe with immediate effect.

[From Zimbabwe deliveries stopped]

Oh dear. No more banknotes: people will have to go back to something that worked in the past, such as cowrie shells or tobacco. (Money fact of the day: tobacco notes were a currency in the colonies and the U.S. was on a tobacco standard for twice as long as it was on a gold standard!)

the crop [served] as legal tender in Virginia and Maryland for almost two hundred years

[From Chapter Two of the Ecology of Money: People-Produced Money]

It'll never catch on

[Dave Birch] Well, we've all made some predictions that didn't really work out, but Clifford Stoll's 1995 Newsweek article stands out from the crowd for completely misunderstanding the nature and direction of change. In a general diatribe about how the Internet is useless and will never amount to much, he says that

Even if there were a trustworthy way to send money over the Internet--which there isn't--the network is missing a most essential ingredient of capitalism: salespeople.

[From Clifford Stoll: Why Web Won't Be Nirvana | Newsweek Technology | Newsweek.com]

Well, we still don't have a completely trustworthy way of sending money over the Internet, although PayPal is doing a pretty good job, but there's no shortage of salespeople. True, most of them seem to be selling Viagra, but there's an awful lot of commerce going on nonetheless.

Converging world views

[Dave Birch] It looks as if the wider world is finally catching up with the Digital Money Forum's view of the future. Take a look at these "Top 10 Trends" that I came across while searching for something else. They were put together by market research heavyweights A. C. Neilson, presumably a couple of years ago. Some of these trends may be rather familiar to digital money denizens, but they are still worth surveying...

1. Digital money
According to AC Nielsen, 90% of transactions in the US will be cashless by the year 2020. PayPal already has 63 million accounts, 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.

2. Contactless payment
McDonald’s is testing ‘contactless’ payment technologies in the US (and elsewhere). Just drive-in, grab your goods and drive off. Payment is made automatically by a wireless device on your windscreen linked to your bank account. Mobile phones can and will do much the same thing.

3. 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.

4. Private currencies
Pre-pay is a type of private currency in that you can restrict where people spend their money, in some cases to a single brand, outlet or service. This is good news for loyalty and also good (or bad) news for privacy depending on your point of view. For example, parents can give their children pre-paid cards with certain categories or locations locked off. However, the big news in private currencies is what’s happening in the air and in cyberspace. According to the Economist magazine, airmiles are now technically more valuable than the US dollar while over in cyberspace gamers are exchanging cyber dollars for the real thing.

5. Debt
The level of credit card debt in Britain has increased by 73% since 1997. The UK now holds 60% of all credit cards issued in Europe and has 75% of all European credit card debt. Spending on credit cards now represents 11% of GDP and 40% of people say they expect to use their cards more with the advent of new technology. Meanwhile, the amount owed to credit card companies in the UK now stands at GBP £53 billion. Figures for other countries such as the US and Australia are following a broadly similar trend. So what happens if (when) interest rates really go up? Trouble, that’s what.

6. Everyone is a bank
If everyone from supermarkets and search engines to phone companies and airlines offer banking services where does this leave the banks? The answer could be as back office low margin sub-contractors or maybe banks will re-frame themselves as ‘wealthcare’ businesses.

7. Micropayments
Once upon a time people used credit cards for big purchases like holidays. Not any more. Now you can buy a 99cent song on i-Tunes with your credit card or charge your hamburger at McDonald’s to your plastic. In 2004 the average credit card transaction in the US was $67.81. Back in 1999 it was $72.83. Add to this the possibilities created by contactless payment, stored value cards and pre-pay and you have a recipe for radical change in the financial services sector.

8. Proof of identity
With cases of identity theft going through the roof in most countries, there will be a boom for companies and technologies offering electronic and other forms of identity verification. There will also be an increase in products and services aimed at helping people get their identify back after its been stolen.

9. Mobile phones becoming wallets
Have you noticed how fewer people are wearing watches these days? Under the age of 21 a watch is almost a novelty as people use their mobile phones to tell the time instead. And so, the theory goes, phones will replace wallets too as people find it more convenient to carry their cash digitally inside their phones.

10. The death of cheques
Seriously, who under the age of thirty uses cheques these days?

[From What's Next - Top Trends in Money, banking & insurance]

Yes!

A single currency? Illogical, Captain!

[Dave Birch] In science fiction, the subject of money is rarely handled well. I've just looked up, something about this but couldn't find what I was looking for. I have a vague memory, which may well be wrong, that the author Brian Aldiss is his Billion Year Spree, a history of science fiction that I can't find online to search, said that it's because science fiction and heroic fantasy are written for teenage boys and the one commodity that certainly do not have is money. This may well be part of the explanation, but it seems to me just a likely that it's because many people don't really understand what money is or how it works, so speculating on where it might go is just too far outside their envelope. I'm the other way round: I find it hard to imagine time travel (if it does get invented in the future, where are they?) but easy to imagine Google issuing its own currency.

I've been jotting down some notes on this for a couple of reasons: first of all because of my talk at the London Futures Symposium (and I've been invited to talk OpenTech in London in July on a similar topic) and second of all because when I was pottering around the World Bank bookshop in Washington I came across The Future of Money by Benjamin Cohen of University of California, Santa Barbara. I've been reading through it over the last few days and reflecting on some of the key issues around currency areas that he sets out very clearly. One of the key questions that the book addresses is whether the dynamic of monetary evolution is a tendency to one currency (the galactic credit beloved of science fiction authors) because the minimisation of global transaction costs is driving factor or an explosion of currencies because new technology minimises transaction costs in other ways? He concludes that "the power of scale economies notwithstanding, monetary geography is set to become more, not less, complex" and he compares the future to the "heterogenous, multiform mosaic that existed prior to the era of territorial money". Setting to one side the fact that he knows fantastically more about the topic than I do, I disagree slightly with his conclusion here. As a technologist, I suspect that there will be more different kinds of money, not just more currencies, than ever before. At the end of the transition to e-money, the marginal cost of introducing another currency will be approximately zero. So we will be in the "let a thousand flowers bloom" mode and might reasonably expect a rash of experimentation. At the end of this period, who knows whether dollar bills or Bill's dollars (an old joke, beloved of us e-cash types) will be more successful?

There are a couple of other things I disagree with him about. One is the issue of anonymity: Cohen says that one of factors that may make it difficult for e-money to substitute for physical notes and coins ("p-money") is that e-money cannot reproduce the anonymity of p-money. I think I'll set that aside for a future post, but suffice to say that I think that technology can offer more than he thinks in that area. The other is geography, which I'll go into below.

The Fuggers

[Dave Birch] I read in The Telegraph that John Paulson, who runs some kind of gambling syndicate called a "hedge fund", earned an entirely justified $3.7 billion last year, primarily by betting against sub-prime mortgages. Now we know where some of UBS' missing $37 billion went: not into a black hole after all, but into the pockets of people cleverer than them. Not that it's the subject of this post, but I don't begrudge them their money: they put it on the right horse. But because I'm fascinated by the history of money, I did begin to wonder just how a salary of nearly TWO BILLION POUNDS sits in the sweep of things. After all, Bill Gates and Warren Buffet have more money than that. But what's the measuring stick to assess across time and space? The gold standard must be the proportion of the wealth of the richest nation in the world that is under the control of an individual. If we exclude monarchs of old, where the wealth of the state and the wealth of the individual were inseperable, I think I'm right in saying that the title still belongs to Nathan Rothschild. As is often pointed out, he died in 1836 of blood poisoning -- or was poisoned by the Illuminati (our motto: someone you trust is one of us) depending on who you listen to -- that would be trivial to cure today. If it happened to him now, he would have been cured by a few pence worth of antibiotics (except in a U.K. hospital, where he would likely have died from MRSA).

Freebanking and free banking

[Dave Birch] Foreign readers may be unaware that banks in Scotland and Northern Ireland issue their own banknotes. In the England and Wales (and everywhere else in the entire world), banknotes are issued by the central bank. As The Economist points out, feelings run deep. Sir Walter Scott is commemorated on banknotes in Scotland precisely because he fought off the Bank of England's 1826 attempt to stop Scottish banks from issuing their own notes.
There are nearly £3 billion-worth of Scottish banknotes in circulation (and half as much in Northern Irish banknotes). For odd historical reasons, the issuing banks have to back their note issue with a deposit of 95% the value of notes outstanding, but only at the weekends! Seriously. So during the week they can lend the money out and earn seigniorage. The Scottish banks currently earn good money this way so the change

would lose Scottish banks some of the £65m they now earn in interest and “seigniorage” (income from selling their notes to other banks).

[From Scottish banknotes | Under threat | Economist.com]

The Treasury, presumably still wondering what to do about Northern Rock, wants to spoil the party and force Scottish and Northern Irish note-issuing banks to keep the deposit backing the note issue at the Bank of England all the time, just in case (eg) RBS goes bankrupt but not on Saturday or Sunday. In the England and Wales there is a different system: the Bank of England, the most profitable nationalised industry in British history, backs its notes not with deposits of euros or gold bars but with fixed-interest instruments bought from the British government and remits the interest earned to the Treasury.

I don't imagine that I might agree with Alex Salmond, leader of the Scottish National Party, on much beyond the issue of independence for Scotland, but I do agree with him on his defence of the Scottish note issue: he said that there's no need for the Treasury to take this action because Scottish banks are among the most stable in the world. The SNP's defence is robust...

The changes suggested will cost Scotland's financial sector £80 million a year. This is daylight robbery by the UK Treasury and will provide Scotland's financial sector no advantage whatsoever.

[From MP Warns Treasury - 'Hands Off Scottish Bank Notes' — SNP - Scottish National Party]

As it happens, I have a particular interest in the history of Scottish banks because of the lessons of that period of "free banking". This does not, as you might think, mean that Scottish banks were once operated as charities but that they were free to compete in note issue. And the result, as most historians would confirm, was a period of incredible innovation when the more tightly regulated London and country banks failed more often than the less tightly regulated Scottish banks did (I know this is an appalling precis of a complicated and interesting period, but I'm trying to make a bigger point).

Lucky, for me anyway

The celebrations for Chinese New Year (it's going to be the Year of the Rat) are about to begin so I went out last night to join in the fun here in Singapore -- and an excellent night out was had by all, I have to add. Wandering through some of the market stalls in the evening, I came across a stall selling "lucky coins". Naturally, I bought some. It turned out to be lucky for the stall owner (who got $2 for three old coins worth, essentially, nothing) and lucky for me too, because they gave me something to write about on the blog when I couldn't think of anything else. The coins were cash, in the truest sense of the word.

Money museum

[Dave Birch] Wallowing in nostalgia over coffee today -- and spurred by Ian Grigg's comment about innovation and Steve Klebe's mention of Cybercoin -- I was reminded that our good friends at Payments News pointed me to the VisaCash and Mondex testimonial web site, every page of which is laden with memories for many of the Digital Money denizens.

Future imperfect

[Dave Birch] I went to Dublin for a client of ours to give a talk about the future of payments. One of my favourite sites for helping me to think about such things is Paleo Future. It's a super blog all about past views of the future, if you see what I mean. Not only is it fun, but it contains some tremendously relevant information that ought to help us (by which I mean people trying to understand the relationship between technology and business) improve and refine our own views of the future A great example was the recent posting about a New York Times Magazine advertisement from 24th May 1964 about the "credit card ring". It's actually an advertisement for Sheaffer Pens, but it features a ring that projects and American Express card. The gist of the advertisement is that your credit card of the future may not actually be a physical card any more, but you will still need to sign for it. It's fascinating to reflect on how wrong this is: my credit card still looks like a credit card, but I haven't signed for it in a couple of years (except in, if I remember correctly, Tunisia and the USA: no, wait, the hotel in Tunisia had an EMV terminal).

Technorati Tags: credit cards, future

Nine is a magic number

[Dave Birch] I'm going to have to stop using the time-worn vernacular "as bent as a nine-bob note". Up until decimalisation in 1973, the British shilling of twelve pennies was known as the "bob". Hence the ten shilling note was the ten bob note. For some odd reason, and I really can't remember why, I never saw the replacement 5p piece as a bob, nor have I ever referred to a 10p piece as two bob, but for a long time I called a 50p piece a "ten bob piece" (in fact I can distinctly remember once asking my younger brother for ten bob and being genuinely surprised when he had no idea what I was talking about). So ten bob was a sizable amount of coin of the realm whereas nine bob meant something that was clearly fraudulent (as in "the Enron P&L statement was as bent as nine bob note"). But it now transpires that there was in fact at least one nine bob note: the Irish "Newports Bank" issued a nine shilling note in 1799, and a specimen has just been sold at auction in the U.K. for three thousand euros. So what is to be our post-cash alternative: as bent as a... what? As bent as a card with a magnetic stripe on it... no, wait... as bent as an IBAN with an invalid check digit... as bent as an SDA clone with an invalid digital signature... they don't seem to have the ring to them, do they?

Technorati Tags: cashless

Money 3.0

[Dave Birch] Well I suppose I should get with on with some work, but I've been distracted by thinking about something else and could use some feedback. I'm preparing a presentation on the history of the technology of money, and I've come up with a caegorisation which seems to work, but because I made it up I'm not sure if it has any resonance. Essentially, I need to divide the history of the technology of money in three (because things always get divided into three for this sort of thing) and make some points about the dynamics with each "segment". So here goes.

Technorati Tags: money, payments

Coin concerns

[Dave Birch] I couldn't care less if I never saw a coin again (outside of a museum) but in other economic circumstances, they might be missed. The Bank of Mozambique is concerned at how the alleged absence of coins is being used as an excuse for raising prices. The chairperson of the Maputo Baker's Association, Victor Miguel, has said that it was availability of loose change that determined the prices that are charged. He claimed it was impossible for an item to cost one metical and 70 centavos, because 10 and 20 centavo coins are supposedly unavailable (a metical is about a nickel). Mozambique's currency was reformed last year, with small denomination coins, but retailers say they never see them (despite the Bank saying that large numbers were minted). The Bank says that retailers are refusing to get the coins because they prefer to keep the prices up. Strike another one against cash. But what if there's another explanation? I wonder if the coins have been melted down for the metal?

Technorati Tags: coins

Export and controls

[Dave Birch] Well, it's summer (I can tell that because of the traditional concurrent English flood warning and hosepipe ban) and time to think about my forthcoming holiday. Better get my spending money ready. As it happens, under European Union regulations, if you attempt to leave the EU with more than 10,000 euros in cash (but not pre-paid cards, phone top-up balances, wampun belts or any other instrument) then you must report yourself to the tax authorities, in my case Her Majesties Revenue and Customs. Now, as a matter of policy this blog is not for political comments, but I am moved to say that I don't believe this will make the slightest difference to terrorists or drug dealers, but will probably result in some holidaying pensioners going straight to chokey. Accountants likened the law to a stealthy re-introduction of exchange controls which Margaret Thatcher's administration abolished in 1979. We've explained before, for younger readers, what exchange controls were.

Technorati Tags: fraud, regulation, remittances

Export and controls

[Dave Birch] Well, it's summer (I can tell that because of the traditional concurrent English flood warning and hosepipe ban) and time to think about my forthcoming holiday. Better get my spending money ready. As it happens, under European Union regulations, if you attempt to leave the EU with more than 10,000 euros in cash (but not pre-paid cards, phone top-up balances, wampun belts or any other instrument) then you must report yourself to the tax authorities, in my case Her Majesties Revenue and Customs. Now, as a matter of policy this blog is not for political comments, but I am moved to say that I don't believe this will make the slightest difference to terrorists or drug dealers, but will probably result in some holidaying pensioners going straight to chokey. Accountants likened the law to a stealthy re-introduction of exchange controls which Margaret Thatcher's administration abolished in 1979. We've explained before, for younger readers, what exchange controls were.

Technorati Tags: fraud, regulation, remittances

When Monopoly money was real

[Dave Birch] We think about money as a law of nature, as a kind of constant, but the way that money works today is not only just one of many ways in which it could work, it's a relatively recent invention in the great scheme of things. It wasn't that long ago that the developed world was on a commodity standard (ie, gold) and there was no national fiat currency. Seventy five years ago, in America, there wasn't even a circulating medium of exchange. At the height of the Great Depression, 1932 and 1933, when the interest rate on U.S. Treasury bills was negative, unemployment was 25 percent and bank runs and closings were common, Americans reverted to barter.

Technorati Tags: coins, community, currencies, money, regulation

When Monopoly money was real

[Dave Birch] We think about money as a law of nature, as a kind of constant, but the way that money works today is not only just one of many ways in which it could work, it's a relatively recent invention in the great scheme of things. It wasn't that long ago that the developed world was on a commodity standard (ie, gold) and there was no national fiat currency. Seventy five years ago, in America, there wasn't even a circulating medium of exchange. At the height of the Great Depression, 1932 and 1933, when the interest rate on U.S. Treasury bills was negative, unemployment was 25 percent and bank runs and closings were common, Americans reverted to barter.

Technorati Tags: coins, community, currencies, money, regulation

When Monopoly money was real

[Dave Birch] We think about money as a law of nature, as a kind of constant, but the way that money works today is not only just one of many ways in which it could work, it's a relatively recent invention in the great scheme of things. It wasn't that long ago that the developed world was on a commodity standard (ie, gold) and there was no national fiat currency. Seventy five years ago, in America, there wasn't even a circulating medium of exchange. At the height of the Great Depression, 1932 and 1933, when the interest rate on U.S. Treasury bills was negative, unemployment was 25 percent and bank runs and closings were common, Americans reverted to barter.

Technorati Tags: coins, community, currencies, money, regulation

Me and Britney

[Dave Birch] I loved my Britney Spears card.  Younger readers may not remember the time when Ms. Spears was the biggest pop star in the world and, astonishing as it may seem, her fan club launched a smart card kit.  Fearing that I would end up on some police database, I bullied my sister-in-law into joining the fan club on my behalf and ordering one for me.  That's how dull my life was: I wasn't interested in Ms. Spears big hits, I wanted the card reader.  The kits, which had been developed by Internet PLC, a U.K.-based company.  The company developed the SmartFlash content sold the kits via the web and at her concerts.  The Britney smart card provided access to a secure web site with video clips, e-cards to mail to friends and a preview of her upcoming video game. They sold more than 25,000 kits at $29.95 before they were discontinued.  But they worked.

Technorati Tags: e-purse, EMV, internet, interoperability, security

A historical keynote for Digital Money

[Dave Birch] I'm very pleased to announce that the keynote talk at the 2007 Digital Money Forum (register now for earlybird tickets) will be given by Professor David Edgerton. David is one of Britain’s leading historians, and has challenged conventional analyses of technology for 20 years. Currently the Hans Rausing Professor at Imperial College London, he writes for the broadsheet press and is a regular on television and radio. All delegates to this year's Digital Money Forum will be receiving a copy of David's latest book, "The Shock of the Old: Technology in Global History Since 1900".

Technorati Tags: forum, history

The queen would not have it called, as in other countries, the Bourse

[Dave Birch] When I was pottering about in Barclays Bank's splendid skyscraper in Canary Wharf recently I came across an interesting artifact. In a glass display case is a ring given by Sir Thomas Gresham, one the most important people in the history of money. In his wonderful and indispensable "A History of Money: From Ancient Times to the Present Day" , Glyn Davies (sadly no longer with us, but who very kindly spoke at the first ever Digital Money Forum) tells how Thomas learned about borrowing, lending and foreign exchange while living in Antwerp. In 1587, he "cornered" bills of exchange drawn on Genoan banks so effectively that he was able to disrupt the build-up of resources for Phillip II's Great Armada , demonstrating how sophisticated economic warfare had become by the 1580s. (For Christmas reading, why not try Neil Hanson's "The Confident Hope of A Miracle: The True History of the Spanish Armada", which I thoroughly recommend.)

Technorati Tags: history, payments

All you need is love

[Dave Birch] Younger readers of the this blog may be unaware that the noted celebrity Sir Paul McCartney, who is famous for being divorced by a woman with one leg, was once a member of a popular beat combo, "The Beatles", who were very well-known indeed in the 1960s. Other members of The Beatles included the now no longer with us George Harrison and John Lennon.

Technorati Tags: history, payments, remittances

Tim Jones

This week, the first part of a two-part podcast with Tim Jones, drawing out key lessons from Mondex and Simpay.

Technorati Tags: banking, cash, debit cards, payments

Singular issues

[Dave Birch] I'm doing some work on a technology roadmap in financial services: it doesn't matter why. But I started to think about the destination: where does the roadmap end? I've decided it ends at "the singularity". The term was coined, as far as I know, by the writer Vernor Vinge back in 1993 (I recently picked up his collected stories but I'm afraid I haven't started reading them yet). Anyway, he observed that the singularity at the heart of a black hole is the point at which our knowledge of the laws of physics ends: we cannot say anything about what happens beyond the singularity. To paraphrase one of the greatest physicists, Wolfgang Pauli, we can’t even be wrong.

Technorati Tags: predictions

Andrew Hilton, CSFI

The latest podcast, with Andrew Hilton of the CSFI, is now up.

Technorati Tags: podcast, predictions

Ruby Thursday

[Dave Birch] It is the 40th anniversary (is that Ruby?) of the launch of the credit card in the UK. On 29th June 1966, the first one million Barclaycards were issued by Barclays Bank to selected customers. Barclaycard had the market to themselves for six years, as it wasn't until 1972 that Access (remember "your flexible friend") was launched by Lloyds, NatWest and Midland. Oddly, I still have my diary for 1972 and it makes no mention of the fact (although it does mention just how many times I played "All the Young Dudes" by "Mott the Hoople" on my cassette player (which I do remember extremely well: I loved it, but it ate batteries).

It was far from obvious, in those days, that credit cards were going to be so successful (there is £56 billion outstanding on consumer credit cards in the UK today). As late as 1970, the Nilson Report said in its third issue "The heyday of bank card profits may be over as officials begin to wonder if there will ever be such a thing as profits". By coincidence, I was reading Taleb's "Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets" over the weekend and this reminded of Yogi Berra's famous paraphrase of the wisdom of Solon (a Greek visitor to the court of the fabulously wealthy Croesus, King of Lydia and one of the fathers of money -- he was responsible for the minting of the first pure metal coins): it ain't over till it's over.

Technorati Tags: ATM, credit cards

Royal honour for inventor of PIN

[Dave Birch] There's a great story in the news today. It had never occurred to me that Personal Identification Numbers (PINs) had an inventor. But they did. And in a great tradition of financial innovation -- including current accounts and overdrafts -- he was Scottish. And in the Queen's birthday honour's list, James Goodfellow (69) who lives in Paisley in Renfrewshire has been awarded an OBE. He devised the mechanism of keying in a number code to cash machines in the 1966.

Technorati Tags: ATM, banking, cash

My generation

[Dave Birch] Technologists (and I include myself in this category) generally tend to overestimate the short term impact of technology but underestimate the long term impact. This is as true in payments as in any other sector: we tend to assume that because technology B is “better” than technology A it will automatically supplant it. Yet there are many entirely non-technological reasons for things being the way they are.

One of the key reasons seems to be that new technology is deployed in support of existing business processes. It's long time since transistors, laser beams and computers arrived in London yet it still takes three days to clear a cheque. Technology has been used to “digitise” existing processes and mechanisms (banks, clearing houses, settlement cycles and so on), not to support more efficient or more effective processes.

This is why the next generation of digital money will be different, because it will bring the bastard son of BPR (business process re-engineering) and non-bank competition to bear on the payments industry.

Technorati Tags: e-purse, predictions

David Boyle, New Economics Foundation

[Live from London] A captivating talk by David Boyle on an early experiment in cross-border multi-currency funds transfer in the eurozone: the ransom of King Richard the Lionheart as discussed in his excellent book “Blondel's Song: The Capture, Imprisonment and Ransom of Richard the Lionheart”. David's observation on the unpredictable consequences on the transition from a feudal to a money economy provided a thoughtful perspective for some of the days later discussions. Without the use of coins, no such ransom would have been possible.