[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.
A business school case study often used in this context (and, in fact, many others contexts) is the introduction of electricity into factories. When it was first introduced, electricity was used replace steam to power the large central machine in a factory (which inefficiently distributed power through belts and so forth). It wasn’t until the second generation that the electricity was distributed around the factory to machines that had their own motors.
It strikes me that the first generation of digital cash schemes fell into this pattern. To recycle another familiar tale, you could use Mondex cards in Swindon in the places that acquired bank-issued payment cards (eg, supermarkets) but not in places where digital cash had a real competitive advantage: on the Internet, in vending machines and at the corner newsagents.
But back to the point. Technologists underestimate the long term impact of technology because they don’t understand the social, economic and other ramifications. I’m sure this will be true for digital cash. But having said that, can we have one or two guesses about what digital cash might mean in the longer term? I’ll have a go…
Once digital cash goes into circulation, then the marginal cost of trading (and, for that matter, creating) entirely new currencies (commodity currencies, community currencies, synthetic currencies and the like) will fall substantially. I see that as the second generation — not digitising existing cash but creating new kinds of cash — and the potentially disruptive innovation.