January 21, 2010

news v. not-news, the great phone-payments debate rumbles on

Someone told me last night that payments would get better when done on phone! Yessssss.... how does one comment to that? and today I spotted this:

Everyone's getting real excited about Jack Dorsey, the co-founder of Twitter, and his new payments application for the iPhone called Square.

OK, except we've seen it all before. Remember Paypal? No, not the one you now know, but the original one, on a PDA. So the process is being repeated. First, do the stuff that looks sexy on the platform that gets you the buzz-appeal. And then, move to where the market is: merchants who pay fees. And, here's where the founder is being more than normally forthright:

... the biggest friction point around accepting credit cards is actually getting a merchant account. So being able to become someone who actually can accept a payment off a credit card, off a prepaid card, off a debit card, is actually quite difficult, and it takes a long time it's a very complicated process. So we wanted to get people in and accepting this new form of payments, and this very widely used form of payments in under 10 seconds.

Exactly the same. And the one before that -- First Virtual :) And I recall another after that which was popular in the media: peppercoin. And and and... So when Chris Skinner says

The thing is that Square is good for the American markets, but it is very last century because it focuses upon a card's magnetic stripe and signature for authentication. That's the way Americans pay for things but other markets have moved away from this as it is so insecure.

He's right in that it is very last century. But Skinner is concentrating on the technology, whereas Dorsey is looking at the market. Thus, maybe right conclusions, but the wrong reasons. What are the right reasons?

Last century was the century of Central Banking. One of the artifacts of this was that banks and payment systems were twinned, joined at the hip, latter granted as a favour to the former. However as we move forward, several things have loosened that tight grip. Chief amongst them, securitization, the financial crisis, financial cryptography, the cost of hardware and the rise of the net.

So, the observation of many is that the phone is now the real platform of choice, and not the Xiring, which is just an embarrassing hack in comparison. And, the institution that can couple the phone to the application in a secure and user-friendly way is the winner.

Question then is, how will this unfold? Well, it will unfold in the normal entrepreneurship fashion. Several waves of better and better payment systems will emerge from the private sector, to compete, live and die and be swallowed by banks. Hundreds of attempts every year, and one success, every year. Gradually, the experiments will pay off, literally and ideas-wise, and gradually people will read the real story about how to do it (you know where) and increase the success ratio from 1:100 to 1:10.

And, gradually, payments will stand separate from banks. It might take another 20 years, but that's short in the comparison to the time it took for the dinosaurs to fade away, so just be patient.

Posted by iang at January 21, 2010 04:02 PM | TrackBack

A "Cell" (hand held computer that can connect to the Net), desktop, laptop; I'm not seeing a big difference amongst them where money, currencies and tokens are concerned.

As long as governments don't allow competition with their tokens, I'm not seeing much change that makes a difference for Tom, Dick and Harry. There are a few exceptions like Vietnam. For some reason that I don't understand, gold (actual money with no liability attached, actual final settlement) is used right along side the Dong, although their government recently stopped the importation of gold. The smugglers are doing very well since. The Chinese government is encouraging the Chinese to buy (and trade) gold. The government's most recent push is to get people to buy silver, the poor man's gold. I think the government may actually want the people to have a defense against all the Yuan they know they have to create to keep its value low relative to other fiat stuff.

On the other hand, the current world's monetary system can't last because it depends on constantly increasing debt to survive and no system can take unlimited amounts of debt. If a system could, then none of us would have to work. We would have to take on unlimited amounts of debt, but no work.

When the system crashes, private money, currencies and tokens may be allowed.

New IMF stuff, new regional stuff, etc. Those won't fix anything. Those are all to just plays to delay the day of implosion.

Then it will be a whole different game.

20 years? It might all start sooner than that. Many/most "treasuries" around the world are already doing the Desperation Samba. Peru, Tanzania being of the few not in that group.

If there is a renaissance right after the revolution (2012?) in the US, it could start a whole lot sooner.

We'll see.

Posted by: bob at January 24, 2010 11:40 AM

> A "Cell" (hand held computer that can connect to the Net), desktop, laptop; I'm not seeing a big difference amongst them where money, currencies and tokens are concerned.

Right, that's the point I'm trying to make. Any secure platform will do it, the rest is marketing, or layer 7 of the Financial Cryptography stack, if you follow that doctrine.

Posted by: Iang (financial cryptography's 7th layer is where the question is...) at January 24, 2010 11:51 AM

@ Iang,

I'm not overly fussed what the token is be it paper coin plastic or electronic, it realy does not matter (except for finite resources such as scarce base metals like gold silver, platinum etc).

Within reason all of these abstractions to token are the same.

What differs is the settlement systems behind them and what they cost to run in %terms.

IFF (if&only if) the cost of running the settelment system is less than the interest on the value of the tokens in use then it is effectivly self financing as far as the money industry is concerned.

However the reality is different there is "financial wealth" which is little more than worthless information with agreed rules on how the information is treated (which "quantative easing" blows out of the water).

And then there is real wealth backed by real finite (mineral etc) resources.

You can spot the difference quite easily,

With financial wealth the person who spends the money first gets it at "best value" and all down the chain the finanial valued devalues and buys less and less with time (with a rough half life of a decade). Call it seniorage or inflation it does not matter financial wealth devalues it is a fundemental rule of the game.

Real wealth however stays the same in that a tonne of iron today will still do tomorow what it did today. However it's financial value (with minor fluctuation) increases all the time.

Thus with financial wealth as long as it's devaluing effect is more pronounced than the cost of settlement, the system works. However what happens when the cost of running the system is more than the devaluation by inflation?

Nobody in charge want's to find out so they force the devaluation by printing more money (quantative easing).

Which is every bit as much cheating as running a Ponzi system, only "quantative easing" is "officialy good" unlike a Ponzi system which is "officialy bad" (which is why the public sector are getting pay increases and so are the bankers but just about nobody else is...)

Hidden away behind both financial and real wealth, is work/energy and debt. Energy in it's various forms (nearly all from the sun) is as far as humans are currently concerned non finite which puts it on par with financial wealth.

However there is a twist, it might be non finite but it is supply rate limited. That is there are only so many usable ergs hitting the planet at any one time.

Thus as long as you collect as much or more energy than you use you are in credit, use more of it than you collect and you are in debt (Mr MaCawber would approve ;)

However you can save energy up (ie convert sunlight to chemical energy) and thus get around the supply rate limit for short periods of time but it does catch up with you. Unfortunatly bulk energy storage is generaly very energy consuming and currently not as high as 50% storage and 50% recovery (thus significantly less than 25% overall) and is not practiced very much.

Real wealth however is a little more perverse it increases with utility that is the application of financial wealth (energy) transforms raw materials into another form with higher utility. However it does this by the non destructive consumption of raw materials (steel being the classic where demand normaly always exceeds production from ore).

The joker in the pack is nuclear energy. This destructively destroys finite resources to beat the energy supply rate limitation. Unfortunatly in the process it will cost a hundred or so (best current guess) times it's short term energy supply in longterm waste storage etc. So nuke is a Faustian Pact at best...

Thus manufacturing creates real wealth by adding utility whilst banking and information services consume energy and produce inflation and thus debt as it's "value added" product.

Let us consider what is actually required for a settlement system. First off there is actually no need for the tokens to be backed by real wealth (Opps that's where it all goes badly wrong). As long as the illusion is there and people abide by the rules... (Bernnie Madoff and the UK's A. Darling / G.Brown all breaking the rules, guess who the good guys - none of them).

You basicaly just need a system of accounts where the "game is honest". Guess what the telephone companies actually have very very good accounts systems that are very very low cost in comparison to most others.

So can the "phone companies" be the new banks?

The answer is they already are in some parts of the world like Iraq where "pre-payment" phone cards are the new money.

Oh and then there are other tokens and settlement systems to consider how about "carbon trading", for instance.

But my money such as it is will be on the coms companies not the banks.

Any way it's getting late in the UK so I'll leave it at that for now.

Posted by: Clive Robinson at January 26, 2010 06:02 PM
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