Digital money: alive and kicking
Few days ago I participated in the 2005 edition of the Digital Money Forum in London. It is a now regular event organized by a small UK consultancy Hyperion Consulting. It brings together a disparate crowd of big financial institutions, card networks, large IT suppliers and other well-established players, mixed with entrepreneurs, academics and maverick prophets of electronic money. It affords a unique opportunity to obtain an informed snapshot of where do we stand in new payment services and technologies. One also gets a broad sense of the industry mood. Thus, conferences in 2002 and 2003 were rather wistful affairs, as many previous high-flyers and promising projects crashed and cratered. For a while, electronic money looked as a collateral damage victim of the technology market crash of the early 2000s.
Yet, I am happy to report that news of untimely death of electronic money appears premature. To be sure, this is not a revolution, subverting the basis of the monetary order and banking system as we know it. To the contrary, the vitality of electronic money stems largely today from its adoption by mainstream players not only within the financial sector but also by telecom companies, public transport operators or huge retailers. Paypal, one of lucky survivors of the dot.com era, lost its sulfurous P2P aura and prospers as the payment system for e-bay transactions: it claims over 50 million customers. London public transport impressed the audience with the success story of the chip-based Oyster card for ticketing, which may be extended to other uses.
Yet, it would be a mistake to conclude that the electronic money is now well entrenched and stabilized. It is still a fringe, largely experimental phenomenon, handled mostly by small guerilla units rather by big battalions. Big institutions have placed some bets but their results are not yet fully conclusive and they are not ready to cash in. Moreover, the landscape of electronic money is in constant flux as underlying value-storage and transfer technologies continue to evolve. These days, the ascending buzz is about RFID. Its adoption by the heavyweights among heavyweights, Wal Mart and Pentagon, gave a big boost and RFID-based projects are mushrooming, as are other contactless technologies such as NFC or Bluetooth. Yet, at the same time, the “traditional” smart card is very much alive (at least in Europe): there was even a panel on the re-birth of e-purse (Personally I remain highly skeptical, but this is another story).
Technology proliferation makes standardisation efforts ever more arduous. Interoperability and seamless integration remains a distant dream. This year, EMV, the proposed standard for multi-application smart cards was not even on a formal agenda and when it was mentioned, it was greeted with an enthusiasm usually reserved for dental appointments: OK we have to do it but do we really need to talk about it?
Proliferation of new payment systems raises the level of risks and risk prevention was given a due place in the agenda, with learned lectures (and free booklet) on cryptography, including an intriguing speech on quantum cryptography.
The last expert panel dealt with the standard question in this type of gatherings: What’s the next big thing in Digital Money. I was a panel member and gave a very simple answer: the next big thing IS Digital Money. As the long wave of personal computers, interconnected networks and mobile telecommunications unfolds and transforms the entire economy, the advent of digital money that underpins the new economy is unavoidable, even if the exact timing and structure of new monetary system is still to be determined. However, in the same way that scriptural money (checks) did not supplant the fiduciary money (cash), digital money will not destroy either. I am looking forward to making a reality check at the next Digital Money Forum.