[Dave Birch] We had a very pleasant evening at Olswang’s digtial money event this week, part of their “Plus Technology” series, and they asked me to write a short piece on the next three to five years in payments for their event handout. I thought that if we want to look across that period and make some reasonable predictions that are of value in developing practical strategies for organisations, then we might decide to look at three axes of development: technology, business and social (this is how I organise our annual Digital Money Reader!).
First comes the social axis. Here there seems to me to be a genuine flux. In addition to the growing mood of anti-capitalism and anti-globalisation, taxpayers in many countries are beginning to feel anti-bank as well. One can detect a growing mood in favour of a return to community-based banking and other financial services, a return to a kind of social enterprise. This may spill over into payments as well, and the experiments that we see all around us in local, alternative and community currencies (such as the Brixton pound in London) might transmute through the use of easily accessed technology into a genuinely new phenomenon that will take us into uncharted waters.
On the business axis, banking will of course continue to be dominated by the aftershocks of the crisis. The debate has begun, but has hardly moved forward, on the separation of what the economist John Kay has called the “utility” and the “casino”. When this combines with the steady cost pressures on the value chain it reinforces the re-evaluation of the role of banks and nonbanks in that value chain. Just as one might see growing regulatory pressure for some form of narrow banking, I expect to see some pressure for narrower banking that does not include payments. The business of banking will focus more on its core of lending and borrowing and payments will become more of a genuine utility infrastructure. There is no reason to expect that banks will be the best placed providers of that utility infrastructure, although they will benefit greatly from using it.
Finally there is the technology axis and, unusually, I think this is probably the axis that has the clearest short to medium term path and that’s because the mobile phone (in an exploding panoply of forms) is going to be the dominant device over this period. This may have seemed a radical prediction a couple of years ago, but now it’s mainstream thinking. In a relatively short time, consumers will find it natural to reach for their mobile to pay the plumber, businesses will find it natural to instruct a bank transfer from a mobile and governments will be delivering welfare benefits to the un-banked and excluded directly into mobile accounts.
In McKinsey’s report on the European payments landscape last year, they pointed to one or two changes that they thought would have the potentially to be really disruptive. One was the “war on cash” and the other was “cheaper, faster technology”. So what are the possibilities for these in the medium term (let’s say 3-5 years)?
Well, obviously, cheaper and faster technology goes without saying, since that is the inexorable march of progress. But will it be disruptive? I think that’s harder to call over that period, because it takes time for improvements in the price/performance ratio of chips, networks and so on to translate into products in the payments market. Certainly faster networks and ubiquitous smart mobile devices will be disruptive, but I think they will be disruptive even in the price/performance curve were to be shallower than expected.
The reality is that contactless cards have not been the endgame for quite some time; the endgame is payments initiated from a mobile device to a contactless reader
Personally, I think the endgame is payments initiated from a mobile device, to a mobile device, but in either case it will only be disruptive if there’a new business model. More interesting, at this time, is the “war on cash”. At the moment, there is no real sign of this happening. Over the last couple of years, UK M0 (notes and coins in circulation) has risen from UKP42 billion to UKP56 billion (that’s an increase of one-third) and the Bank of England has put another UKP2 billion in circulation in the form of UKP50 notes in the same period. These high-value notes are used for tax evasion, corruption and a variety of illegal purposes. While I agree with McKinsey that it is more unlikely than likely in the short term, it is possible to imagine a new mood in Europe, where governments decide to crack down on the black economy because of a desperate need to raise tax revenues and therefore take joint action to start an active programme of reducing cash. Stranger things have happened.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]