Payments and the very nature of money is a profound Human Achievement

The need to “pay” for things or exchange value in a mutually beneficial way pre-dates written history. The anthropological importance of this abstract thinking is as significant and as ancient as the development of weapons, agriculture, tools and writing.  It isn’t hard to imagine payments helping the Phoenicians develop Zero, or the Chinese develop the abacus and play an important role in the use of symbolic notations instrumental in the development of numerology, mathematics, logic, commerce and modern communication.

money3.0 and the economy of small – Micropayments

The next big thing in big business may be incredibly, inconceivably small…

Why Smaller Amounts is the next Big Thing in the world of Payments.

In case you haven’t read chief editor of Wired’s Chris Andersen’s “The Long Tail”, do so.  Check out the Business Book Review, ask me for the podcasts, CDs or just take my word for it.

Either way, much of this is predicated on ideas in that book, Wikinomics, Freakonomics, Naked Conversations, The 10 Faces of Innovation, Innovate or Die!, The World is Flat, The Wisdom of Crowds, The Global Paradox, The Death of Money, China, Inc, Capitalist China, Asian Megatrends, The Extreme Future, The Search, Business at the Speed of Thought, Bad Money, Love is the Killer App and web2.0 concepts.

The gist of it for you that are already familiar with the tenets of Long Tail economics, is that 98% of markets are underserved by traditional mainstream products and services.  The Pareto Principle that ruled so much of the Industrial Revolution is being supplanted by a new set of “rules”.  The much revered 80/20 “rule” is in fact, not an economic law after all, but a scarcity-based guideline from a bygone era.  In an age of abundance, especially of the digital sort, there seems to be almost infinite demand for even the most obscure supply.

Perhaps most interestingly, the sum of these increasing niches is substantially larger than the sum of the hits. This creates tremendous opportunities for those poised to enable that economy -- The economy of small.

PayPal – An incredible Consumer-oriented Brand trying to grow up and out

PayPal is potentially one of the first modern “out of the Blue” experiences many bankers have had to face in recent years. For establishing a viable cash replacement with reasonable privacy and account abstraction through the use of an email address, PayPal successfully innovated around the global FIs while they were all busy “testing” and “piloting” cyber-money, digital cash and how they could maintain “top of wallet” status, mind and wallet-share with loyalty, CRM solutions and gimmicky attempts to put lipstick on a pig. After all, behind the scenes, it’s all the same old thing. Multi-day delays to access money, restrictions out the wazoo and the so-called “benevolent entanglement” of the once altruistic turned publicly traded Global Payments Networks and Brands.

I personally love having fellow David’s around to fight the incumbent Goliath Associations. We LOVE PayPal. They are a fantastic client and partner of ours and we welcome the renewed spirit of innovation and consumer oriented thinking they bring to the market. They’ve practically single-handedly revived and unified the SMB and SOHO markets in what was a highly fragmented, specialized, risky and therefore expensive specialized set of markets.

But have you tried their mobile solutions? I have, along with a myriad others.  And let me tell you, not to pick on any one of them, they all leave much to be desired.

Despite all its successful innovations, disruptions and disintermediation, PayPal can rightfully be proud of their 67 Million accounts on file. But why are they stagnating and declining in certain markets?

Why did they exit China and Japan after dismal launches with great fanfare and hope?

Money 3.0 – The Exformation of Tender

In my short time here at my new company I’ve become even more bullish on what I’m calling Money3.0.  Why Money 3.0?  Well, Money’s been around a long time, and I think Money 2.0 was really pioneered in the 50’s with the brith of payment cards.  I think we have amassed significant intellectual property and world-wide acceptance and availability of technologies that we helped bring to market that lay the groundwork for what I’m calling Money3.0.

I use 3.0 specifically in relation to the 2.0 so often used in the media, in the techdailies, bizrags, blogosphere and the like.  Web2.0 is a lot of things to a lot of people and I don’t want to go into detail about the topic that is covered so completely in so many other places.  Suffice it to say that there are many undercurrents and social memes and technology driving those phenomena, and I want to make one distinction clear.

I think it is important and it is truly at the root of this coming transformation, or what I call the exformation of our industry. Don’t worry, I’ll explain exformation in detail in this blog.  Meanwhile, you can google it to start to get up to speed on it.

Web1.0, early CERN, WWW and HTML.

We all know web1.0 was the static web. The world wide web of one-way information, pictures, cheesy music and flaming spinning logos.  In other words, a lot of hype that helped an entire new generation get acquainted and familiar with concepts like market bubbles, paper millionaires and implosives corrections.  Who would have guessed what good training that would be?

Web1.0 is where many of the currently “cool” tech titans cut their teeth on making what would eventually become marketplaces or economies in their own right.  The emergence of ecommerce sites and disruptive innovators like Amazon, eBay and Rhapsody began to prove out that business could be made on the web while companies like IBM, Microsoft and Oracle watched for the business model to emerge. Companies that took it upon themselves to making this burgeoning ecosystem more user-friendly and useful like Google and Yahoo! Carved out nice niches for themselves by providing entirely new services that the traditional companies didn’t understand. Many a picture of a furry mammal (the upstarts) running around tapping dinosaur eggs (the tech incumbents) was rampant on the net.

Web2.0, O’Reilly’s Participatory Contribution Revolution

Web2.0 is the read-write web, or the participatory web.  O’Reilly (and no, not the Factor, but Tim, the Geek) is most lauded as the coiner of the term, though he was more like its biggest promoter.  Web2.0 is wikis, blogs, RSS, XML and podcasts.  Everybody wants to be in on 2.0, right? Put 2.0 on the end of something and there is an implied inflection point in whatever product, good, service or experience you’re providing. 2.0 inspires many a vision of grandeur about the democratization of the tools of content production and participatory nirvana the likes of which wikinomics or freakonomics or whatever your favorite economic buzzword du jour could sell you.  And these were not necessarily bad things.  2.0 innovations brought us sites like flickr, youtube, delicious, digg, upcoming, evite, and of course, social networking favorites, myspace, LinkedIn and facebook, oh my!

Many electronic payment upstarts that are now long gone tried to do for the web what the payment card industry had done for banking, but it was hard, especially as the banking and financial sites began to dip their toes in the web2.0 waters after PayPal’s meteoric rise and acceptance.

Money3.0 = web2.0 + money + mobile + context + wallets + reputations + trust

Mobile Payments

The Future is Mobile, and it is already here. We just need to look east… Far East.

Imagine a world in which you had a magic device, say a magic wand of sorts, lightweight and svelte, easy on the eye and reflective of your personal style and superior prosumer choice-making. Imagine a device that one could carry that knows where one is, knows what time it is and actually helps one keep track of time. Imagine this wand also carried with it the power to inform, translate, locate, compare, contrast, capture and review your fondest memories, stories, places, events, things and places and loved ones. It even has your favorite music, your favorite books, movies, games, pictures, and maps of every place you have ever been, and everywhere you want to be. Naturally, you can chat with friends, actually talk to people, video conference with a group of your colleagues, tweet, wiki or blog about what’s new, read the news, get the latest scores, check the market, find out what’s playing next and where you should go for that next bite to eat. Hey, I’m low on cash (as in have none) so where’s the nearest ATM?

Who carries that anyways these days, you ask? Well, apparently a lot of people still, since not everyone’s gone digitally native, yet… Anyway, I digress. You quickly find the nearest ATM and impress me with your amazing grasp of geospatiotemporal localizability.  After all, that’s what your magic wand gives you -- Incredible fidelity and awareness of one’s surroundings.

Your mobile phone is finally powerful and secure enough to free you from the tyranny of multiple swatches of plastic, fiber or card-like magnetically encoded strips and embedded radio-frequency emitters and other techno-wizardry and performs its job as any sufficiently advanced technology should…

“poof”

…like magic.

Look East! Far East for what the western future of mobile commerce looks like.

Geospatiotemporal What?

• Geospatio refers to “where” in space.
• Temporal refers to “when” in time.
• Localizability refers to the translation of that when and where into a meaningful context like:

In my cube, at the office on the 3^rd floor of our main campus, at 3:57pm in the afternoon (Eastern Daylight Savings Time) of October 14, 2008.

In fact, so much INformation, it borders on what the Nordic scientist Joergen called EXformation.  That is, all of that other data that is usually discarded or not INcluded in the record of what’s happening because it has been historically too expensive, too cumbersome or otherwise impractical to capture.  As Chris Anderson explained in The Long Tail, encoding information as bits effectively moves their storage and transmission costs so low as to almost be incalcualably “free” (or as Products become “digitized” the storage and transmission costs trend towards Zero).

The Death of Cash? Time for a viable cash replacement.

How many times have we heard about the paperless society, the cashless society and the death of paper cash?

“Cash died today in Winsted and may eventually die everywhere because it simply didn’t keep up with the modern world.”

--Editorial (following Diners Club experiment in Winsted, Connecticut), Winsted Evening Citizen (March 13, 1963)

“Everybody has talked about the checkless, cashless society. They said it would be here 10 years from now. We think it’s here today.”

--John G. McCoy, chair of City National Bank and Trust, Columbus, Ohio (1973)

Frictionless and easy Account-to-Account (A2A), or Peer-to-Peer or Person-to-Person (P2P) transactions are the goal of many in our industry.  I believe we have at disposal, through the work and ideas of my colleagues, practical “baby-step” foundations for a viable cash-replacement mechanism.

I myself have naively dreamed about eliminating cash since I was in school and working on a research project with Ken Callaway.  This was when I first manically scribbled (ok, typed – I’m not THAT old!) about what I’ve come to know as extropia in an idealistic manifesto on the virtues of technology and its ability to change the world.  (I have to laugh at myself because I was writing about the virtues of touch-tone banking and IVR and what came to be known as MovieFone in 1988.

That was before I owned my any of my own businesses and learned the TRUE value of cash… liquidity, ease of acceptance, assurance (or so I thought), speed, privacy, and ultimately cost and control.  It wouldn’t bee too much later that I learned how much the government liked to take, and how difficult is was to be in business and NOT worry about cash flow.  In high school, I paid more in taxes than most of my friends made.  I quickly became a capitalist republican from a business perspective! :-)

What’s the big idea behind Exformation Theory?

An exploration of the universe of data and the advances made possible when we change the ratio of INformation to EXformation.

Think of the universe of data as an infinite set.

The data that is captured, manipulated and stored is the INformation.

Everything else outside that set is the infinite set of EXformation.

Thus, Exformation Theory is theoretically a superset of Information Theory.  :-)