The future of consumer credit

If you have ever seen me present, you will probably have heard me use the word ‘friction’ a lot. Which naturally leads to words like ‘lubricant’ and all the jokes that naturally follow from there. But the lubricating effect of technology on so many aspects of life is not a joke. For me it is one way of understanding one of the greatest drivers of change today. And in my most recent talk for Equiniti Credit Services, I’m applying that understanding to the world of consumer credit and specifically, the future of consumer credit.

Lubricating your spending

The digitisation of money has been perhaps one of the greatest lubricating effects of technology. Not only has it made the flow of money easier, it has abstracted us away from the physical reality of cash in a way that makes it easier to spend, and to borrow. This is evident in the slang term for the credit card, “the never-never.” Don’t have the cash to pay for it? Put it on the never-never. That neatly encapsulates the frequent attitude we have to credit, until it gets too much. Electronic cash, and particularly electronic credit, just isn’t real. It’s fantasy money.

The evidence base

This isn’t just me extrapolating from slang and anecdote. It’s the stuff of multiple research papers going back to the late 1980s. Take these excerpts from a 2013 paper by Farah Diba Abrantes Braga, Giuliana Isabella, and José Afonso Mazzon:“Past studies have addressed the … how payment modes influence consumer spending behavior (Chartterjee & Rose, 2012; Faber & O´Guinn, 1988; Feinberg, 1986; Hirschman, 1979; Mendoza & Pracejus, 1997; Prelec & Loewenstein, 1998; Prelec & Simester, 2001; Soman, 2001; Soman & Cheema, 2002; Srivastava & Raghubir, 2008).”That’s a lot of papers that show how you pay changes how you spend.“These studies have shown that credit card usage increases the probability of spending (Prelec & Simester, 2001; Soman, 2001; Soman & Cheema, 2002) and that the spending amount increases as well (Prelec & Simester, 2001; Soman, 2001).”So, you are not just more likely to spend money, you are likely to spend more.Braga, Isabella and Mazzon’s paper takes this analysis beyond the credit card into the world of digital wallets and beyond. They say:“From credit cards onwards, electronic payments have [shown] increases in purchasing probability, in spending amounts and, most worrying, is that it might elicit compulsive behaviour.” So, this is not just about lowering the friction of commerce: abstracting you away from the actual cash you are spending can create compulsive behaviour.

OpEx Lifestyles

Now put this into the context of our modern lifestyles where much of our expenditure is moving, in business terms, from capital (CapEx) to operational (OpEx). We don’t own cars, we effectively rent them. Same for homes. And music, video. Clothes, beauty products and electronics are increasingly moving to an OpEx model, with payment services like Klarna, subscription models like Dollar Shave Club, and the subsidising of smartphones through connection contracts.I would argue that this shift serves to further abstract us away from the money in our bank accounts. It makes the achievement of a successful lifestyle about cashflow rather than wealth. And with our abstraction away from the realities of our financial situation that digital payment brings, it’s easy to place much of the burden of that subscription lifestyle onto credit.

Attitudes to debt

This is further compounded by the changing attitudes that we have to debt. In a 2018 paper, Johan Almenberg, Annamaria Lusardi, Jenny Säve-Söderbergh, and Roine Vestman argued that the rising levels of consumer debt in OECD countries could be explained in part by a softening attitude to it. Fewer of us now think of borrowing with guilt or shame. It is a normal part of adult life.Looking to the future, where does all this point us?

Reality buffer: the future of consumer credit

Take the current trends in digital payments, open banking, and AI and use them as the basis for a vision for a future world where we are even further abstracted from cash. We think less and less about how we pay and more about what we want and what we get.It’s easy to see that we live at least the first twenty years of our adult lives with the minimum of limits on our experiences - our extended adolescence. There will be highs and lows in terms of our relative expenditure to our earning capability: the first few years of work, credit will allow us to live the high life before perhaps our earning potential catches up. We might spend a few years paying that off before we re-enter a period of living on credit, whether driven by children or the acquisition of capital assets like a home.

Endless buffer

We might never hit that stage though, living our entire lives through highs and lows of income and expenditure. Our personal AIs will act as a ‘reality buffer’ in between, nudging our behaviour to keep us within the bounds of our borrowing limits and helping us to occasionally reign it back in.Plug in its knowledge about our health and it might even be able to minimise the impact of future shocks to our earning power, though limiting today’s experiences for tomorrow’s will never feel appealing.

Future of consumer credit: sustainable success

For the credit providers, this creates a more challenging world. There are great business opportunities as more of us borrow more, more flexibly. But there are also risks to those who want to build sustainable success based on ethical behaviour. How do they maintain a trusted relationship with customers who have low-friction access to diverse sources of credit? How do they help them maintain the lifestyle they want without over-reaching? These challenges are huge today and they are only going to get bigger tomorrow. 

#AskAFuturist: When will we see the end of cash?

"What year doth dosh disappear forever?" This was the precise question asked by Sandy Lindsay MBE on Twitter in response to my call for questions to #AskAFuturist. So, when will we see the end of cash? Or will we always keep a little wonga in our pockets?The decline of cash as a form of payment has been precipitous. At the end of the 2000s, cash still represented around 60% of all payments made. By the end of the 2010s it was down to around 40%. The Access to Cash Review run by former financial ombudsman Natalie Ceeney suggested that at the current rate of decline, cash use would end as soon as 2026.This is unlikely. As the report notes, the people making the shift from cash to card today are those who can. Those with the financial stability, confidence in technology, and access to banking to do so. This represents maybe 80% of the population, so cash use will continue its steep decline. But moving to cards is either impractical or impossible for the last 20% or so. For a variety of reasons - poverty, disability, financial insecurity - this group can't or won't access digital banking.Eventually most of these people will make the switch, supported through a combination of education, better infrastructure (e.g. the last remaining all cash shops taking cards or ending their excess charges and minimum payment limits), and new services designed specifically to support them. But the rate of decline of cash will naturally slow down as we reach the point where more work is required to help people to transition.

End of cash: Difficult transition

The transition away from cash won't be smooth or clean. As we use less and less cash, so there is less reason for shops and banks to support it. Bank branches and cash points are closing. More and more shops and cafes are card only, having recognised the real costs of handling cash. Those people who don't have access to alternatives are increasingly marginalised. Eventually the banks are likely to be allowed to co-operate to maintain some form of basic service while cash usage drops to just a few percent of transactions.But I don't believe it will go away altogether. Back in 2011 when trialling a watch with integrated contactless payment technology, I questioned whether I would still be carrying coins in my pocket in five years. I was right. It has been a few years since I have regularly carried cash, except for maybe a single note for emergencies.Cash will remain, albeit in limited usage and in very small volumes, for the foreseeable future. It has too much power as a token, or an icon, for it to be eliminated altogether. My prediction is that we get down to 20% of transactions by the middle of this decade, and down to maybe 5% by the middle of the next. But there or thereabouts cash remains for at least a couple of decades after that. 

Building the Bionic Banker

Today I’m in Barcelona, giving the opening keynote at the EFMA Channels and Customer Experience Forum, an event where the finance sector looks at best practice, today and tomorrow, in customer relations. My talk is about the impact of technology on the future of banking, particularly with regards to that critical interface between bank and customer. What does it look like in the future? How do you build a bionic banker? Here's what I will say.##You are all cyborgs. Every one of you.You might not know it. There may be no microchips under your skin. You might not be able to lift a car over your head like Steve Austin, the 6 million dollar man, and you might not be on mission to wipe out humanity like the Terminator. But you're a cyborg. We all are.We are all augmented by technology. Don't believe me? How did you get here this morning? Who used a mapping application on their phone? Who knew where to be and when because of their digital diary? Who has already taken a photo to share?These technologies are all augmentations of our minds and bodies. They improve our sense of direction, our memories, our communications skills.Now most of us don't realise that we are cyborgs. It has rather crept up on us. Because no-one has suggested surgery to implant something in our bodies, we don't realise. But the interface between us and our devices is now so slick, so easy, that we don't need microchips under the skin to augment our minds. We just need a high resolution display and a few taps of our fingers on the screen.In many ways this is nothing new. Human beings have always used technology to amplify their capabilities. Go back three and a half million years and you can find evidence of our ancestors using tools to augment their bodies. Sharpened stones for butchery. Maybe a million years ago we were controlling fire to help us prepare food. We created language to augment our communications. We are a race of toolmakers. It's our defining trait. So it should be no surprise that we continue to augment ourselves in every field of our endeavour, including banking.

The bionic banker

As human beings we use our understanding of the world to lower the friction in our lives. To make things easier. Technology is life's lubricant, smoothing our passage through the day. (Please don't google that phrase without turning on Safe Search by the way. What comes up is NSFW).The challenge this presents is that sometimes friction is good. In the past, overcoming friction often meant deploying people to talk to people. That solved problems but it also built relationships and trust. The more that we lower friction by replacing human beings with more efficient machines, the fewer opportunities we have for this sort of interaction. And the less control that we have over the relationship, both as banks and as consumers.Think about the buying cycle for a second, the classic five step model of a purchase that we all go through when we buy something new. We recognise a need: "these jeans are looking a bit worn." We do some research: "Does my bum look big in these?" We compare the options: "Who has the best price?" And we make a decision: "I look great in these!" Then we get home and evaluate our purchase: "Oh, my bum does look big in these."Right now machines assist us with some of these steps. Search engines and personalised shopping websites help us to find and compare options. Slick checkout procedures take the friction out of the purchase. In just a few years though, machines could be doing much more than helping us with these processes. They could be doing all five steps autonomously.Imagine a world where you have a personal AI assistant. One that collects data about you and your world through wearable technology and uses it to make decisions on your behalf. The camera in your smart glasses captures when you're running out of things. It could be cereal, or tins of tomatoes, or it could be that it notices those jeans are getting worn. It knows how you react to different items, sensing your heart rate, breathing, and galvanic skin response when you taste certain foods, or look at yourself in the mirror. It knows your social graph. It knows where you have shopped before. And with limited discretion it takes decisions and buys things for you. When they arrive, it captures your feelings about the purchase using the same sensing technology.This is coming. Now take this model and apply it to banking. Apply it to every financial product. Products that we are carefully stripping the friction from. Products that might evoke little emotion. Products that to the consumer are increasingly just data. Think about how easily and frequently an AI assistant could switch bank accounts, or credit cards, or mortgage provider, or insurance company, if it was operating in the best interests of its owner.This sounds bad. In fact it sounds like the churn apocalypse. But it ignores something about human beings. Sometimes we do care about who we do business with. Sometimes we do want a relationship with a company or brand. We want trust and quality more than we want the absolute lowest price. We want an arm around our shoulders at the important times. The bionic banker is about more than just technology.Take the music industry as an example. Music buying has shifted progressively over the last fifteen years to the lowest common denominator: a single subscription for unlimited streaming. What we used to call, when this idea was still a dream back in the early noughties, the 'celestial jukebox'. But alongside this, we have increased our engagement with the richest and most visceral forms of music consumption: live music and vinyl. 80% of the time we just want it to be there, automatic and ephemeral. But 20% of the time we want a rich, engaging, human experience.The same thing is true with banking and finance. 80% of the time we just want it to be invisible, automatic, and hassle free. 80% of the time I don't think we care where the money comes from and who it goes to, as long as we get what we want. But 20% of the time we want that richer, human experience. And this is what makes brands sticky in this market. This is the good friction.The challenge for you is identifying what is the good friction and what is the bad. What do we extend and what do we eliminate. Ensure that you oil the chain and not the brakes.In summary then, humans have always sought to lower friction in their lives and we always will. Technology is our lubricant. Automation & augmentation are coming, for banks and customers, potentially reducing many bank services to nothing but APIs and data. This creates a competitive opportunity for you to be the bank that has eliminated the bad friction.  But you need to ensure that you keep, and even extend the good friction, the interactions that build trust & demonstrate empathy. The bionic banker is an empathetic human, cloaked in the best technology, offering customers a low friction experience when they want it, and an arm around the shoulder when it counts.

Raging against the invisible machine

Today we use the word Luddite to describe someone who is nonplussed by technology. Someone who just doesn’t like it, understand it, or engage with it. This is not an accurate description of the real luddites though – as a historian friend once pointed out to me. They had no abstract objection to technology, they just didn’t like it taking their jobs.The Luddites could see and touch the machines that they opposed. They could take hammers and break the frames. Not so for any true modern luddite, raging against the cognitive automation that might strip them of work. Today the greatest threats to human work are remote algorithms, spun up on a distant server, perhaps on the other side of the world, to perform a single task. They may only exist for a fraction of a second before they disappear again, back into the giant pools of data and computing power.I raised this at Barclays recent Charities Day to highlight the challenge that automation presents to all of us, but particularly to the third sector. Charities have the challenge of employing automation to maximise their own performance, when they might consider their role as employers and venues for volunteering as a very important secondary goal to their primary mission. But they also have the threat to their fundraising activities. Payroll giving has been a growing component of their income in recent years. What happens when fewer and fewer of us are on a regular payroll?Ephemeral robots aren’t likely to be so generous.

TSB: When tech is everything, failure is only human

There’s a new technology event coming to the North next year, and I have the pleasure of chairing it (watch this space for more information). This week, we brought together two steering groups to help us to shape the event in terms of its format and content.In talking about the potential audience, one point came across clearly: technology is everything now. It permeates every aspect of business and life. It’s hard to discuss tech in isolation from its applications, and for a broad audience, it’s only the applications that are interesting.

Case studies

The success or failure of those applications — which everyone agreed is the most interesting part — is often little to do with the technology itself. It’s about how the technology is applied. It’s about how humans chose to develop, integrate and deploy it.This reality has been brought into sharp relief by the ongoing TSB saga. Without getting into too much detail, TSB has left many of its customers with incorrect information and no access to banking by bodging the transfer from its old platform — leased at great expense from its former parent, RBS — to its new one, provided by new parent Banco Sabadell.The old platform was famously poor, as evidenced by RBS’s own digital woes. The new platform looks better on the face of it, but transitioning nearly two million customers is no small feat. TSB appears to have tried to complete the process in far too tight a timescale, in a bid to end the fees it was paying to RBS more quickly.

The big questions

The questions I get asked on local and regional radio in the wake of these disasters are my bellwether for the mood of the nation. What are people really thinking, and who — or what — are they blaming? In the wake of the TSB disaster (though incredibly, it’s still not over as I write), their answer is in part the company, but also the technology. People’s existing scepticism about online banking and our general reliance on technology is amplified and validated.The point I always try to get across in these cases, is that the failures are human. Technology always has vulnerabilities to failure or corruption. The more we use, the more vulnerabilities we will have. But there’s a reason why we use these technologies: they allow us to do more and be more. The benefits outweigh the risks, as long as people do their jobs in mitigating them.Technology is not a weakness, it’s a strength. In fact it’s arguably the defining strength of the human race: the systematic application of our understanding of the world. We can do it well or we can do it badly, but that’s on us, not the inanimate (for now) objects.

Future Payments: Informed implicit consent

I spent a couple of hours in the studio this week talking to the BBC about the future of cash, on the 50th anniversary of decimalisation. It’s not a very bright future for our plastic notes and shiny coins. Usage is declining at an incredible rate, from almost two thirds of transactions 12 years ago to less than 40% now. The prediction is that by the early 2020s, it will be used for fewer than one in five transactions.This shouldn’t surprise anyone. Cash is an explicitly high-friction technology that becomes ever less convenient the less it is used. If there’s been one thing clear about shifts in consumer behaviour over the last few years, it is that we will do anything to minimise friction. Hence the popularity of contactless payments and pay-by-phone, and the even lower friction of automated payments for services like Uber.The result is that we have taken out less cash, which means more bank branches and ATMs close. This makes it even harder to take out cash, further increasing the friction and accelerating the cycle. Once we get down to the point that cash is used for just 20% of payments, I think the rate of decline will accelerate further. Cash won’t disappear altogether though, it will just be an occasional item rather than permanent pocket contents.

Business support

Apparently some cafes and shops have already stopped taking cash, having woken up to the fact that handling it is expensive — probably more so than taking cards. Which makes the refusal to take cards, or arbitrary card payment charges, look even more absurd. This cannot last for long.Rather, consumers and businesses alike will look for increasingly low-friction forms of payment, and business models that support that. Paypal’s experiments with ‘pay by face’ is one interesting example: buy a round of beers on your phone and collect them at the bar where the server recognises your face from a screen. Amazon’s Go store is another.The risk here is that it becomes too easy to spend money without awareness of how you’re spending it. But the Open Banking arrangements seem to have addressed that. Apps can now give you a richer than ever analysis of your spending, and trigger alerts when you’re spending too much. But only if you use your card of course. Cash in your pocket may give you a feeling of control, but in my experience, it generally just burns a hole.

Informed implicit consent

The default model for payments in the future will be characterised by this ‘informed, implicit consent’. We will choose to buy something and we will be billed for it, with the minimum possible interaction to achieve a secure transaction. And our technology will ensure we are well informed about both our ability to pay, and retrospectively, what we have spent. Whether this works to improve our financial literacy and reliance on credit remains to be seen.

Blockchain will change the world. Or not.

Twice this week, people have relayed to me incredible promises for the power of blockchain and how it will change the way we do everything. This is quite some feat for a technology that few people understand, even in principle, and even fewer can describe with clarity.I have a number of issues with this idea. It’s not that I don’t think blockchain has great potential. There’s a clear attraction in the robustness of its distributed nature and the potential for transparency that represents. I can see how it might be valuable for managing contracts and deeds — matters of public record that don’t necessarily have tight privacy concerns around them.But blockchain is an architectural choice, not a technological solution in its own right. It is one way we might choose to tackle particular problems, and one of many. It is suited to some situations and not to others — like the storage of personal data.However well encrypted it may be, you cannot store personal data in a blockchain-based system and comply with the General Data Protection Regulations (GDPR). The regulations may change, though I’m not totally convinced that they should. Even if they do, it will take a long time.

Why Blockchain is not like IoT or AI

It’s great that people are enthused by the idea of a technology and its potential applications. But blockchain is quite different to other technological buzzwords doing the rounds at the moment, like AI and IoT (internet of things).These are much broader classifications of groups of technologies (at least in the way that the terms are commonly used — academics might object to broader uses of the term ‘AI’). This leads to criticism that they are nothing more than marketing terms, and sometimes that is fair. These terms don’t define single architectural choices, but rather opportunities to tackle new problems, or address old ones differently. Within these definitions your solution can be endlessly tailored to the challenge at hand.But say you’re going to apply blockchain technology to a particular problem and you are dramatically narrowing your range of choices — perhaps beyond what is wise.

Blockchain will change some worlds

There will undoubtedly be some industries for which blockchain is a revolutionary technology. Some people will get incredibly rich off the back of it. Ultimately, perhaps it will prove to be a good basis for alternative currencies. But it isn’t some universal technological panacea that will solve everything. While it might changes some worlds, it won’t change every world.Like this? Get more at subscribe.bookofthefuture.co.uk

What makes bitcoin appealing?

The bitcoin world is in disarray. Again. Although total disaster seems to have been averted for now, the value of a bitcoin has swung to highs around $3000 and lows around $1800 in recent weeks.

This is the behaviour of a pure investment instrument, not a stable global currency alternative, which is what I hope at least one cryptocurrency will one day become. That said, the value of the pound hasn’t exactly been stable recently.

The disaster I spoke of is a split in the community over the need to make technical changes to speed transactions and cut their cost. Today, the network can process a maximum of seven transactions per second and at a cost per transaction of around $0.83. This is a long way short of the processing rate of a global currency alternative, and too expensive to fulfil its promise.

But, put this into context. If I use my debit card on the Visa or MasterCard networks while travelling, on top of the 1–3% fees paid by the seller for taking the card transaction, I pay 2.75% plus up to £1.50 in transaction fees.

This is a huge overhead on the movement of money for consumers and businesses in our current system. And it’s why I’m interested in a global currency alternative that replaces it. Imagine bypassing the banks, not because you are a criminal — the only bitcoin users often reported on by the media — but because the tax on transactions created by a sclerotic and over-centralised financial system is pretty criminal in its own right.

If bitcoin or one of the other cryptocurrencies can fulfil its promise, there will be no more minimum spend for card transactions. No more 50p charge for using a card at your corner shop. In theory a crypto transaction could cost around 1p and it would be the same for every size of transaction — no more percentage fees either.

There will still be exchange rates, at least for the time being, as we trade back and forth between our own national or regional currency and whatever crypto wins out. But how long will that even last, if the crypto currencies can fulfil their promise.

Future finance: the home of truth

For the past year or so, I've been working with the software firm Prophix on the future of finance. Not financial services, but the function: the department or team in every organisation above a certain size that deals with money and numbers. As with every market, sector or field that I touch, it has been enlightening. Partly for what is unique about this space, but mostly for what is common. Because working in the future of finance has reinforced so many of my beliefs about the way the world is changing and how all of us — individuals and organisations — need to respond.

High frequency change

The argument I make, if you’re not familiar with it, is that change happens faster now. Not the great sweeps of historical change perhaps, but high frequency changes of sufficient scale to be an existential threat to many organisations and roles. And to cause significant discomfort to those slow to adapt.

The correct response to this accelerated pace of change for individuals in the workplace is to learn to learn faster, and to enhance the core skills of discovery, creativity and communication. For organisations the challenge is to become more athletic: hyper-aware of the changing environment and equipped to act rapidly to address those changes.

Low friction, high competition

One of the first steps in building this athleticism is to understand what is driving the accelerated pace of change. This, I argue as others do, is technology. Technology has no agency, in and of itself. But its dual abilities to lower friction in commerce and innovation, and as a result to create a competitive imperative, combine to power change forward.

Technology touches every organisation in five distinct ways. It accelerates change, as above. But it also creates greater diversity at every tier of the value chain — a second effect of the reduced friction of commerce and innovation. It accelerates the flow of information, and raises the expectation that this information is analysed and acted upon quickly. It permeates every aspect of life, becoming cheaper and more applicable until even the smallest level of utility justifies investment. And it lowers the barriers between organisations, whether they are companies or countries.

Vectors of change

These five effects are visible in every market I've examined, from supermarkets to superyachts. And they are clearly visible in finance.

Finance is where technology — at least of the digital vintage — first landed in the workplace. Here were the comprehensible, programmable problems, like vast payroll calculations. But technology now presents a rather Oedipal threat to its workplace parent. Automation is set to eliminate much of the mechanical aspects of the finance function. The lower barriers that technology creates mean systems can now interact directly with no low-skilled roles for moving data from one to another. And the machines can do it more consistently and faster, creating the possibility for much more frequent, accurate and even near real-time analysis of performance.

This changes the nature of the finance function — and threatens to eliminate it almost altogether unless those working in it choose to reinvent themselves. If the machines can present data in forms that generalist managers can comprehend, are finance professionals really necessary?

Truth in a big-data era

One answer lies in stripping the currency symbols from the work of finance.

For a long time the only big data in most organisations was about the movement of money and hence the domain of finance. Now marketing, sales, manufacturing and customer services teams all have vast swathes of data of their own: CRM, analytics, marketing automation. These are the sexy data sources, providing an insight not just into past performance but the future. These disciplines remain largely embryonic though, while finance has centuries of heritage. Finance has always been the bastion of truth in business. In this newly data-rich age, perhaps it should make this its role.

This isn’t about a land-grab: the rule of lower barriers applies inside organisations, as well as between them. Finance professionals need to be business partners, working closely with the other functions across the business to enhance their decision-making based on hard data. This perhaps hasn’t always been the strongest skillset in finance teams.

Likewise there has been an underinvestment in the skills of planning and analysis — increasingly critical if the function is to extend its remit beyond statutory reporting and purely financial data.

Embracing change

None of this will be possible in the current operating environment however. One where manual effort is the solution to almost every problem. Rather than rejecting the threat of technology, finance needs to embrace it. Automation can increasingly handle huge swathes of the necessary work, freeing resource to focus on strategy and growth. Compliance should never be a process: with automation it can be a state. Planning shouldn’t be a rancorous battle between departments but a collaboration based on practical models of tomorrow — all possible with current technology.

So, finance can be the home of truth, data and analysis in organisations. The place for best practice in all these things. And a partner that works across the organisation. But this can only happen with investment. Investment in systems for the organisation and skills for the individuals. And investment in relationships.

In business, who owns the truth?

Last night a gave a talk at a dinner for finance professionals hosted by the software company Prophix, who I’ve been working with for the past year to imagine the future finance function. You can access the various papers and tools we’ve assembled over at future-of-finance.com, but I thought the topic of last night’s talk might have wider interest.

My subject was the question of who owns the truth inside organisations.

Information is truth

By truth, I mean the most critical information, financial and not, that defines and quantifies an organisation’s performance. The finance function always used to own information. That’s why IT grew out of finance in so many organisations: computers were brought in to speed the processing of that information.

Those were the days when finance held the purse strings and the reins. But, in recent years, marketing and sales have led the charge in advancing the collection and application of information inside organisations. CRM, analytics and marketing automation: these have become the new sources of truth.

Automatic for the people

With growing automation and the streamlining of the financial interactions between organisations, the day to day mechanics of the future finance function will be much reduced. More and more information will be captured, parsed and presented automatically, closer and closer to real time.

Not only is the primacy of finance under threat from increasingly data-savvy sales and marketing teams, it is threatened by the rise of the robots.

Impartial insight

What machines can’t do is interpret information and support strategy with that insight. What sales and marketing can’t be, is truly impartial: their interpretation of the truth will always be coloured by their own incentives.

Without wanting to underestimate the value of brand, honesty and personality, truth in an organisation comes largely back to the numbers. What flows in, and what flows out. One of the great lessons I learned in my last start-up was that the only way to really test someone’s intentions is to ask for their credit card details. Where money is involved, you get to the truth very quickly.

The natural home for truth — information — in an organisation is the finance function. But not the finance function that many organisations have today. It needs to be a place of insight and foresight, discussion and collaboration, not interminable data re-keying and spreadsheet wrangling?

Who owns the truth? Today it’s unclear, but the prize is there for the taking.

Agility, volatility and transparency

Two facts from the Today programme shocked me this morning. Both facts were about companies and their share prices. Both were about those prices falling dramatically. Both involved a lack of transparency on the part of the companies concerned, BT and Pearson.My first thought was that the falls were particularly dramatic: 19% in the case of BT and 30% in the case of Pearson. I’m no stock market expert, but these seemed like extreme amounts to me. Digging around suggests these swings are large for such well-established, large organisations with a track record of stability. Large enough to make the news. But not unheard of.My next question: were these swings evidence of a wider trend across the stock market towards greater volatility? It doesn’t appear so, as this Motley Fool analysis shows. I confess I was disappointed: this would be a nice evidence point for the increased frequency of change. But it seems rapid change is in the very nature of the stock market.

Transparency

So what caused such dramatic swings? This is where it gets really interesting. Both companies appear to have been penalised by the market for a lack of transparency.In BT’s case, you could also argue it’s a lack of honesty. Years of apparent fraud in its Italian unit is going to cost the company £530m to address. This is bad enough, but the company initially estimated the cost at £145m. The markets were understandably spooked by the rise, as well as the slowdown in its core business.Pearson was already under fire, by all accounts. The CEO gave an upbeat message to investors in November, only to have to reverse his position soon after. The damage was done not just by poor results but by the CEO over-selling and under-delivering on the company’s performance.

Performance

When explaining technology-driven change to people, I use five ‘vectors of change’. One of these I call ‘performance’, meaning that information flows faster now. This puts the onus on organisations to be able to analyse and act on information more quickly. But it also creates a demand for people to share information more openly. People want current, accurate answers on demand.In BT’s case, the wrong answers were being given to people for a long time. And even when the issues were uncovered, the market was fed with intermittent, inaccurate information. You can’t know all the answers, all the time, but you have to wonder whether a running commentary on the state of the investigation would have been less damaging than a last minute warning. It would have demonstrated true transparency.With Pearson it appears the company was failing to gather good information and analyse it properly. Otherwise the poor December would have come as less of a surprise. Note that disruptions to good information flow often happen inside the organisation: it’s amazing how much information can be changed by people trying to cover their own arse.

Lessons for Tomorrow

The takeaway from this, is that even if there isn’t greater volatility now, there is absolutely an appetite for greater transparency. Companies and their leaders need to be better at gathering, analysing and acting on inbound information, ensuring that its meaning doesn’t get corrupted as it flows through the organisation. As I’ve suggested before, artificial intelligences, at board level or below, may be employed to spot patterns that people may not.Companies also need to accept that it’s time to be more open with the information they have. Some local councils have adopted the policy that everything should be shared unless there’s a really good reason to do otherwise. It might be wise for companies to consider something equally radical as they try to build trust with their customers and investors.

More than money

Today I’m hosting an event for the ICAEW on the UN Sustainable Development Goals. In preparation, we surveyed the thoughts of attendees as well as their more senior counterparts. What emerged will not surprise anyone who has tracked headlines about millennials, unless you thought — not unreasonably perhaps — that those headlines were just so much nonsense.

To summarise the findings, the respondents want something different out of employment. They are focused on social good as well as financial gain — not just for themselves but for their organisations. They want their work to mean something.

There’s an argument that every generation has these views at this point in their development. Try replacing ‘millennials’ in any headline with ‘young people’ and you’ll see that most of these headlines could have been produced at any time since the invention of the printing press. But though small, the sample of people we surveyed is not made up of youthful idealists. These are people who are few years into work. Old enough to clarify their ideals through the lens of experience.

It does appear that amongst some audiences at least, there is a strong desire for employment that does more than pay the rent. Work that engages as well as rewards.

They may get their wish. Though they may find the pay positively disappointing.

Paying for what’s valuable

One of the big challenges of the near future is not so much a lack of work but a lack of work that offers big financial rewards. The ideal solution is that we start to pay the vital but undervalued jobs appropriately. Unfortunately, that isn’t going to happen overnight.

It will be interesting to see how this generation tackles that challenge. Will it be thro

ugh campaigning to revalue underpaid jobs in the existing system, or will it be to reinvent the system?

In a separate session I was hosting yesterday with Enfield Council on the increasingly digital relationship between city and citizen, there was general acknowledgement that the very nature of public services is likely to change, with an increasing focus on independent, community-led services. There’s a clear opportunity for social entrepreneurship to start to pick up the slack left by austerity. I’m not suggesting this is necessarily desirable, but it will be necessary.

Perhaps through this social entrepreneurship the next generation can reinvent the contract that has left valuable jobs underpaid. And in doing so create careers that are both reasonably paid, and properly rewarding.

When convenience trumps trust

Reading a market report on the fintech space today I started to pull a few different threads together from different pieces of work I’ve been doing. What came out of it was an idea: that convenience increasingly trumps trust.

Let me qualify that. If you raise the issues of trust in institutions or corporations, people tend to thing of large organisations that are long-established. If we describe something as ‘trustworthy’ we mean that it’s not going anywhere fast. But that clearly has both positive and negative connotations.

Like describing a person as a ‘safe pair of hands’.

Post-crash people talk a lot about the loss of trust in banks and financial institutions. But I don’t think the general dislike of finance companies comes from their bad behaviour in the early noughties. It doesn’t help but I think peoples’ disdain is fuelled more by the time and financial costs they present in our daily lives.

Because finance companies and their products and services are intensely inconvenient.

For example:

• Re-mortgaging will probably going to cost me upwards of eight hours of my time since my finances are a little complex
• I was recently forced to change my home insurance provider and go through the rigmarole of a comparison service, not because the product bad but because my current provider wanted to charge me three times the market rate
• Setting up a new venture a couple of years ago, my partner and I waited six months for two different banks to fail to create us a new account, even after two meetings

These are not unfamiliar stories for many. And it’s all friction — something we hate.

Doing some market research with a client recently on the future of retail, we found that convenience is one of the biggest factors in building loyalty with customers — much more so than any formal loyalty scheme.

People want the right product or service, when they want it, and on the channel of their choosing. This is far from what the banks, lenders and insurers provide.

It is improving, in places. But I don’t think most companies are keeping pace with an expectation that is defined by digital media services, social networks and goods on demand.

They are not moving fast, unlike their new, hungry competitors.

For large and growing parts of the population, banks have little brand equity. Are they trusted? Perhaps. But I just don’t believe they are trusted enough to defend them from aggressive market entrants who may be able to offer an experience that is an order of magnitude better.

Faster, easier, cheaper.

Convenience trumps trust.

Friction starts fires, but ambition changes worlds

A year ago this week I was delivering the keynote speech at the Future Money conference in London. Next week I will be delivering a talk at Fintech North as part of Leeds Digital Festival.

In between the two events my attitude to the coming transformations has become significantly more cautious. Not pessimistic, as suggested by F6S/tech.eu’s Jon Bradford, but concerned that the opportunity is so great that it cannot possibly be fulfilled.

The risk, and the fear, come from the fact that the opportunity is not purely commercial, it is social.

A year ago I spoke about the various frictions in the financial system that were the ignition points for new innovation: the speed and cost of moving money and taking payments; a lack of trust in the big banks. Today more friction points are being exposed and exploited all the time, driving the fintech boom.

But each new innovation seems to be an incremental improvement. A profitable sliver shaved off the giant banks, while the core remains unchanged. As Chris Gledhill, one of the other speakers at Future Money, put it when he left Lloyds to found Secco: “Even outside [the banks], the FinTech communities are innovating around existing financial protocols — making them cheaper, faster, better. They’re not trying to actually reinvent these things.”

What we have with the advent of technologies like the blockchain and its derivatives is an opportunity to reinvent the very structure of our financial system. The balance of power. The centralised nature. Not just to eliminate friction but to embed greater fairness.

This might sound like socialist moralising but really it should appeal to anyone of an entrepreneurial nature. By lowering friction but also redistributing power we can create a much more open marketplace. New platforms for innovation but also lower barriers to raising money, and collecting it from customers. Simpler access to new markets, nationally and internationally.

I am hugely hopeful that our financial system two decades from now looks radically different to how it does today. More open. More distributed. Lower cost and lower friction.

Will that come from individual innovations? Or does it require someone with a larger vision?

I’m not sure.

So I remain hopeful, but cautious.

Inoculate yourself against fraud

Last week I was the target of the infamous ‘Windows tech support’ scam. It wasn’t the first time.

If you’re not familiar with this hustle, it typically starts with a call on your landline from an Indian call centre. The person at the other end tells you they are from Microsoft and that they have been monitoring your PC, and that it is infected with a virus of some description. In order to convince you they then walk you through opening up the Event Viewer, an administration tool, in order to show you a series of errors and warnings.

In reality these errors and warnings are completely harmless, but many people are convinced and subsequently talked into installing a remote access tool which then provides the scammers with access to their PC for real, ostensibly so that they can ‘fix’ the problem.

From there it’s all down hill: charges, extortion, malware etc.

Now I knew it was a scam from the start. Even if I’d never read about the scam before I got the first call, I would have known it for what it was.

Why?

You could say it’s just down to experience. That technology has been a major part of my career and even before that I was mucking around with machines from a very early age. I understood what I was being shown and what it meant.

But actually the understanding that this was a scam came much earlier in the call than the point at which the caller directed me to the event log. I knew the moment they said they were from Microsoft and that they had been monitoring my machine.

A few things gave it away. The terrible quality of the phone line for one. But even more than that, I knew Microsoft would not be monitoring my machine in this way. I knew they couldn’t staff a call centre with people to remotely monitor and manage users problems without some explicit contract. Both to address the cost of doing so, and the privacy issues it would raise.

None of this was particularly conscious. It was just that my sceptical spider-sense started buzzing.

I don’t think this instinctive scepticism is solely the domain of the geeky. I believe it can probably be taught. And doing so is one of the key parts of solving some of technology’s major security challenges.

Most of the security threats that we face, at home or at work, still require some form of human co-operation, willing or unwilling. Clicking on a dodgy email or link. Installing an insufficiently-checked app.

A healthier level of trained scepticism would prevent much of this behaviour.

How do we teach scepticism like this? I’ll cover that in my next post.

Currency, Currents & Erosion: Future Money 2015

Yesterday I gave the opening keynote at Finextra’s Future Money conference. Below I’ve included my script and a link to the slide deck.

As usual when I post scripts I give the caveat that this was written for me to say, not for you to read, but I hope it remains interesting if you missed the talk or wanted to check on some of my points.

You can view the presentation here — use your arrow keys to navigate on a desktop or simply scroll on a mobile: https://content.tomcheesewright.com/decks/finextra/index.html

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I’m no historian — quite the opposite in fact. But I believe there is some debate about why currencies were created. Did they emerge naturally out of our need to exchange? A desire to formalise previously softer notions of credit and debt?

Were they standardised by states as a way to raise armies and reward soldiers? Or was it simply the state’s need to collect taxes in a more manageable form than livestock and sacks of wheat. I’d love to see HMRC try to handle that.

Whatever the driving force was, there’s little doubting the benefits. Currency, an abstract concept minted into coins, reduced the friction around all sorts of transactions. It enabled simple local trade and increasingly complex global commerce.

For me, it is this ability to minimise the friction in our commercial interactions that is one of the most important characteristics of money. And it is the characteristic that will define the future of both the currencies that we choose to use, and the institutions we choose to help us in doing so.

My name is Tom Cheesewright and I am the founder of the Applied Futurism practice, Book of the Future. We work with organisations to help them to see, share and respond to a vision of the future.

We work with a wide variety of clients across four sectors: future humans, future cities, future communications and most relevant today, future business. As part of that segment, we have developed a strong interest in the future of money.

Our view on the future is based on a particular belief. That over the next twenty years, in developed markets like the UK, technology will be the greatest driver of change.

This comes from a simple bit of analysis. Has everyone in here done a PESTLE or STEEP analysis at some point on a management away day? Looking at Political, Economic, Social, Technological and Legal factors?

Consider the rate of change in each of these factors. In all but one, technology, the rate of change is marginal.

Take politics. We’re approaching an election. Does anyone expect radical change after May 7th? Here’s where all the main parties sit on the political compass. Even if UKIP swept the board, there would not be a revolution tomorrow.

How about the economy? We’ve been through some tough times. But during the depths of the recession in 2008, the UK economy shrank by 4%. Painful but marginal.

Environment? Climate change is going to dramatically increase the flood risk in the UK, but the number of homes affected and the total costs are not expected to double for 70 years.

Meanwhile Moore’s law remains true.

Are you all familiar with Moore’s Law? It’s often misquoted. Fifty years ago the co-founder of Intel, Gordon Moore noted that the number of transistors that could economically be placed on a silicon chip was doubling every two years.

The important word here is ‘economically’. Though Moore’s observation was specifically technical, what it really told us is that the bang for buck we were getting from technology doubled every two years.

Amazingly this remains true and not just for processors: storage, connectivity and other key factors have mapped the same path of progress.

These advances underpin many of the major change trends happening today and that we believe will continue to drive change over the next twenty years.We break these trends down into five key macro themes.

Diversity: We are approaching a future characterised not by one paradigm or even binary choices but by fractured markets, cultures and power systems. In almost every ecosystem we examine, the range of models, channels, suppliers, partners, audiences, and choices is destined to be much greater than before. This presents a new set of challenges — and opportunities — in every market we see it.

Retail is a great example of this: this chart from IGD shows how diverse the UK grocery retail market has become. Just a few years ago it appeared large format stores from the big supermarket chains would dominate. Now, hidden in those numbers, is a £250m organic veg box market.

Agility: Established organisations have always been focused on doing things better, where ‘better’ usually means ‘more efficiently’. Increasingly we find that this approach is failing. A focus on optimisation locks an organisation into legacy decisions rather than allowing it to move with the times. Put simply, it’s better to be functional in the right market than it is to be optimal in the wrong one.

The new challenge is to achieve a ‘good enough’ level of optimisation in any given operation, and to do so rapidly, because the next market shift is never far away.

Just ask Dell: hyper-optimised and unable to transform when the post-PC revolution came.

Performance: We’ve found that great organisations, and particularly those that are most agile, have something in common: good quality data flows quickly through the organisation, from customer, to CEO and back again. In an age of computerisation and ‘big data’ it’s tempting to capture and measure every piece of data, but this is valueless without a schema that defines what is valuable, who needs to know it, and how it should be acted on.

Future-ready organisations are those in which the right data flows quickly to the right people, who act on the data they receive.

Take Google. By capturing data and optimising its induction process, Google squeezed an extra 15% productivity out of staff in the first nine weeks.

Ubiquity: The march of technology continues apace. Everywhere it can add value, eventually it is applied, whatever the initial objections might be.

Digital technologies are now extremely widely distributed, raising issues of personal data and privacy. The next wave of biological technologies approaches, raising new issues of ethics and simple emotion. And materials science is on the verge of bringing us a new revolution that will see us capable of building structures that were once the stuff of science fiction.

Moore’s law was just the beginning.

Are you all familiar with Hon Hai Precision industries, also known as Foxconn? It makes iPhones. FoxConn has an infamous CEO, notorious for referring to his production line workers as ‘animals’. He is in the process of replacing those animals with robots.

Now what was the overwhelming reason behind the shift of manufacturing to China? Low cost labour. What happens when the workers are replaced with robots and Foxconn has solved all the problems of automating iPhone manufacture? There’s nothing to stop that manufacturing moving anywhere in the world. Yet the market forces Foxconn to follow this route, because if they don’t, someone else will.

Scale: As the world shrinks, markets grow and the barriers between them fall. The things that isolated us — languages, currencies, cultures — are being eroded and amalgamated, overlaid and bypassed. Difficult geographies are trivially navigated.

Through both the deliberate efforts of a business and governmental globalisation agenda, and the arguably more powerful effects of a global Internet culture, we now operate in a world where every organisation — and every individual — plays on a world stage, whether they choose to or not.

If we did a survey in the room of the two most popular online shopping apps, I guarantee they would be Amazon and eBay.

The Intersections methodology we use with clients to help them look at the future then maps these trends against pressure points in their own market.

So let’s look at some of the pressure points around money. And you’ll forgive me for my perspective: some of these are pressures from the point of view of the consumer and the small businessman.

Instability: It’s hard not to start with the knife-edge the World and particularly the European economy seems to be walking. Will Greece default? I’ve no idea. But the uncertainty is clearly creating pressure.

Just last week, the IMF published its latest review of the top threats and announce that risks were rising. It highlighted eight key areas: volatility in exchange rates and bond markets, deflation, falling oil prices, and market bubbles amongst them.

Trust: In this post-crash world there’s a distinct lack of trust, in national and international institutions and particularly in banks. It’s cliché now to bash the bankers, but that doesn’t mean it’s stopping.

In a 2013 YouGov study, 83% of over 4500 British adults said that Bankers are greedy and get paid too much. Andrew Tyrie said late last year that we are years away from restoring trust.

Regulation: Partly as a result of this reduced trust there is an increase in regulation. Regulators are not only getting more teeth, they’re starting to bite, motivated no doubt in part by the beneficial impact to the economy of a few million pounds in PPI repayments and similar, sprinkled around.

As KPMG put it in its 2015 report on the subject: “The headwinds of the costs of past misconduct do not make it any easier for banks to secure a viable and sustainable future.”

Banks are being held to account across their retail and investment arms, and being forced to insulate themselves against future shocks under regulations like Basel 3.

Risk: This increase in regulation has a direct impact on the relationship with the customer. Lenders are now extraordinarily risk averse. Just to open a bank account is an exercise in administrative torture. Borrowing, whether it is for a mortgage or a business, is incredibly difficult. All local control has been stripped from the system.

Cost: Finally there is the issue of cost. Moving currency around remains very expensive.

If you’re a small business owner card fees can be 10% of a typical transaction. If you’re selling groceries a 3% charge on a 4% margin is pretty painful. Likewise moving money around — particularly internationally.

These are some of the pressure points that I see. Sources of friction.

Friction between customer and retailer. Friction between business and bank. Friction between user and currency.

This friction is eroding the traditional money infrastructure. Where these pressure points intersect with the macro trends I discussed, we are seeing wave after wave of technology-driven innovation. Slowly eating away at the currency frameworks we all know.

In business lending, new forms are appearing that move us away from the old, centralised models. Models that relied on large, trusted institutions at their core.

Just look at peer to peer platforms like Funding Circle, crowd funding platforms like Kickstarter and alternatives to factoring like Urica.

The same is happening with consumers — albeit not in a universally positive manner, as the recent backlash against payday lenders has made all too apparent.

In my eyes this erosion started with the advent of ecommerce. When companies wanted to start selling online the banks just weren’t ready to support it. The early online retailers had to code their own payment processing engines from scratch.

Unsurprisingly, once they’d done this they found that others wanted to buy this technology from them. Companies like Cybersource, now part of Visa, started as online retailers trying to solve a problem to which the banks didn’t have a solution.

A few years later and many of the same people are now tackling the in-store challenge. Banks had enjoyed a long-standing hold on the ability for companies to take card payments.

Along come the likes of Square and iZettle and that hold is rapidly broken. Up front costs disappear and fees start to fall.

More payments innovation is coming that will further displace the traditional providers. The device that is used to make the payment, the device that receives and the networks that connect them are all changing.

In all of these things: commerce, lending, money transfer, we are seeing a new class of intermediaries emerge. Like PayPal. If the first dotcom boom was a story of dis-intermediation, then more recently we have seen a new series of intermediaries who act like a lubricant, removing friction between layers.

These intermediaries abstract us away from the banks who have traditionally held and moved our money around. And in doing so they abstract us away from the currency itself.

A great example is shopping on eBay.

I regularly buy items from the US and China. The people I am dealing with work in dollars or yuan, but I see their prices in pounds and pence.

What is moving between us is of an agreed, shared value but it isn’t really in one currency or the other. The currencies are just the way we translate that value into our native languages.

It is this abstraction away from the fundamentals of currency that open the door to new means of exchanging value. Like bitcoin and other alternative currencies.

If I and the person I am buying from are both working through an intermediary that translates the value we are exchanging into a language that we both understand, do we care how that value is exchanged?

I would argue that we do not. We care much more about the friction in that exchange: how complicated and how costly it is to make.

Think back to the pressure points that I raised. The instability in the existing systems. The lack of trust. The growing friction brought about by regulation. The cost.

Think about those and consider the risk people might experience in trying alternative approaches. If someone proposes a simpler, cheaper, lower-friction alternative, then I am going to take it.

Which takes us right back to where we started. Currency as a low friction form of exchanging value.

Money is simply a common language of value. I believe that the future of money sees much of the complexity and infrastructure we have built around money start to fall away, eroded by the friction inherent in the system. Washed away by waves of innovation that leave us with something simpler, and ultimately more stable.

A global common language of value that we can exchange.

Death by a thousand cuts: How innovation can bring the banks into line

“A necessary evil”. The term could have been coined about the banks rather than government (and before that, marriage). Post downturn, the ire formerly reserved for traffic wardens and lawyers has been largely directed at bankers. Yet despite their behaviour in the capital markets, we all rely on the banks’ retail arms to enable us to make and accept payments, securely store our money and move it around.Will this always be the case?There are often calls for competition in the banking sector to break up the dominance of Barclays, HSBC, RBS and LloydsTSB. But increasingly I see competition coming from outside the sector, rather than from other, smaller banks and building societies.

Left-Field Threats

It started in the first wave of the internet. Companies sprang up to process card payments from e-commerce websites. Some of them, like CyberSource (now part of my client, VISA), were started by an e-commerce company in frustration at the lack of options available from the traditional finance industry. These companies grew with the e-commerce sector, providing services that the banks did not: initially payment processing but also fraud management and integration support. But ultimately they still relied on the banks’ infrastructure to move money around.A few years later the next wave of start-ups arrived, offering an alternative to card payments. PayPal (another client) is the great survivor of this wave, acquired by eBay in 2002. People assume — not unfairly — that most PayPal transactions are about eBay purchases, but that’s not the case. Less than half the company’s transactions (by volume) take place outside the auction site. PayPal credit became a way to transfer money between people and make purchases without routing through the banking system. But at one end or the other people generally still need to add credit or transfer it back to their accounts.

Face value

The most recent wave of start-ups have been focused on taking card payments face to face. This is a lucrative industry for the banks with merchant services and card terminal products commanding high fees and percentages on every transaction. Now companies like iZettle, Judo, Square and PayPal are coming into this space and dramatically cutting the barriers to entry to card acceptance for small businesses using low cost devices paired with smartphones. Their models offer rapid sign-up, near-zero up front costs, and often low monthly fees in return for marginally higher percentages on each transaction. This is something that small businesses seem willing to swallow to make sales that for the lack of a card machine may otherwise not have happened.Now, iZettle has announced that it is cutting transaction fees as low as 1.5% for businesses taking more than £13,000 per month through its platform. This makes the new, smartphone and internet-based payment platform potentially significantly cheaper than the traditional bank alternatives. And certainly quicker and easier to get started with.

New World Currency

This may start to shave lucrative slices off the big banks. And I think there will be other, similar niches where third parties can innovate aggressively to steal markets away from the banks. But ultimately our cash still needs to flow into and through them in order to be useful. For now.Because one other big innovation has happened in the last few years: bitcoin.In case your only experience of bitcoin has been rabid headlines about drug dealers shifting their illicit cash, here’s a quick explanation: bitcoin is an entirely virtual currency that sits outside the banking system, albeit it can be exchanged for other currencies. It operates entirely via the internet. That means no bank charges, no routing through global payment gateways. Money flows from you to whoever you want to send it to and vice versa. Lots of businesses already accept bitcoins as payment.It has its issues: breadth of support, stability of valuation, high volume of illicit traffic. But despite those problems it — or perhaps its next-generation descendants — represent the potential for the biggest revolution in banking for a hundred years.

Crypto potential

Imagine hooking up all of the peripheral services above — the ability to take and process payments, store value, and transfer it — to a new virtual currency that bypasses the traditional retail banks. That level of disintermediation could have a dramatic impact on the freedom to move capital, on the cost of doing business, and the control of wealth as a whole.It’s a way off. Building trust in a stateless currency will take time. But in the intervening period I think we will continue to see innovative businesses slicing profitable niches off the big banks. Some might end up back in the hands of the establishment — as CyberSource did following its acquisition by Visa. But others, like PayPal/eBay will achieve a level of scale and independence that allows them to remain competitive.This is where the competition will come from that forces the banks to change and innovate at a greater pace.

Contactless Payments - The End of Cash?

I’ve been trialling a watch that could replace your wallet. The device contains a small slot for what looks like a SIM card from a mobile phone. This is in fact a payment card that communicates with the till when then watch is held to a reader, now being installed in shops around the UK. There’s no PIN number, but there’s a limit on transaction size and the account has to be topped in advance, so that you can’t be cleaned out if the watch is stolen.

This is, in short, a replacement for cash. It is designed for the many small purchases that we make throughout the day: newspaper, chocolate bar, sandwich, train ticket, coffee etc. And for me it is a lot easier.

The fact that it is in a watch is something of a distraction, albeit that it is a very sensible place to put a wireless payment card. The point is that both Visa and MasterCard are piling money into these ‘contactless’ technologies, with merchants rapidly beginning to fit out their stores with NFC readers that will enable people to pay with a wave of the hand, whatever medium the payment chip may be held in.

Darryl Morris on Radio Manchester joked about my prediction that we will see the end of cash within our lifetimes: I think that is a very safe bet. It will hang around for certain uses but in five years time I would be amazed if I am still carrying coins in my pocket on a regular basis.