As we look forward to Money 20/20, I’ve been thinking about the recent history of payments and financial technology and where we might be going over the course of the next 30 years. And while I was thinking, a story came to mind – here goes.
PHYSICAL MONEY AND SOCIAL TRUST
Once upon a time, payments were an entirely socially mediated experience. If you wanted to make a payment, you either paid with cold, hard cash, in which case you trusted in the physical representation of money, i.e. the notes and the coins. Or you relied on social trust – trust in humans – and you “put it on the slate”.
Let’s say it’s a Friday afternoon in 1950s Leeds in Yorkshire, here in England. My granny is cooking dinner for her daughter, my mum, and decides she needs a piece of fish. It’s Friday, and it’s fish on Fridays. So, she sends my mum along to the fishmonger’s.
Off my mum goes – she’d be eight or nine years old at this stage – down the high street, into the fishmonger’s and says, “Good evening, Mr Sutcliffe”. The fishmonger is called Sid Sutcliffe, by the way.
And Sid says, “Oh, hello, Sandie, how’s your mum?”, because he knows that she’s Mary Chant’s daughter. Do you see how the human trust element is building?
My mum replies, “She’s well, thanks, Mr Sutcliffe”, and she asks to buy a nice piece of fish, probably a lovely bit of North Sea haddock. But she hasn’t got any cash – she’s only eight.
So, Sid writes down the cost in a little book, and the next time my granny goes into the shop, she settles up. Job done. A payment mediated by social identity, only possible because Sid knew who my mum was.
Human beings are exceptionally good at recognising other human beings. We have these huge frontal lobes in our brains, which are designed to recognise faces, voices and all the other characteristics that make us us.
And that’s how retail payments worked for the longest time. You either paid with cash, or you relied on your social reputation.
VIRTUAL MONEY AND TRUST IN TECHNOLOGY
Meanwhile over in the US, an extraordinary financial innovation was about to occur. Businessmen who were travelling all over the US wanted to be able to eat in restaurants without having to carry huge amounts of cash, but they couldn’t rely on their social reputation because the US is just too big. They couldn’t be known in every restaurant in all 50 states. So, they started a club, and the club had a membership card, and if you presented that membership card, it was accepted that you were good for payment. The club was called Diners Club, and that was the beginning of credit cards.
But here’s the problem. It’s very hard to impersonate my mum – if you’d met my mum, you’d know how hard that is. However, it’s very easy to impersonate a 16-digit number, which is all a card number really is.
So, by introducing this amazing financial technology, we created a new problem: we had stripped away the social and human aspects of financial identity. What we had left was a purely technologically mediated solution.
You can probably guess what came next. An arms race between fraudsters and card companies to try and get around this problem that technology had introduced.
Over the next 40 years, we got cards that were harder to counterfeit. We got embossed cards, we got cards with holograms on them, we got signature strips on the cards, and we got card verification value on the back of the card to prove that you were actually in possession of the card.
The late 1990s brought with them EMV chips on the card and PIN codes and contactless transactions. Also, we saw the advent of e-commerce, and with it we got 3-D Secure and passwords and one-time codes, which brings us right up to date. Today, we have super sophisticated cryptography tokens embedded and released via fingerprint scans from secure enclaves on £1000 phones.
But all of this technology is trying to solve a problem that we created. In the olden days, your financial identity was your social identity. Technology stripped that away, and now we’re developing increasingly sophisticated, complicated and expensive technology to allow payments to still exist, and dare we say, emulate the human trust we once had.
HUMAN TRUST BACKED BY TECHNOLOGY
So, where to next? Well, of course, the retailers’ aspiration is to have completely frictionless experiences, like once upon a time. To be able to walk into a shop and say, “Oh, we know who you are, of course you can have that, and we’ll just settle it with you later”. The experience my mum had in Sid’s fish shop in Leeds in the 1950s is exactly the experience people are trying to build with Amazon Go, only with a million dollars’ worth of technology in every store.
This is the balance that we’re now trying to strike: how do we get these frictionless experiences that feel very human but are totally mediated by technology?
As technology continues to advance, we can already see sophisticated machine learning and AI being deployed on the side of merchants, card processors and card issuers to try and best understand who’s making a transaction and what the transaction risk is. That is what we call authentication and anti-fraud. But it all happens on the seller’s side.
Who’s protecting the buyer? Innovations in financial technology shouldn’t just be about proving you are who you say you are, but also about helping you make the right decisions about the transaction and the best payment method. Is it affordable? Do you as the user need to be involved in the decision? Can the transaction just happen invisibly, or do you need to explicitly make a decision? And I think, that’s what the future holds…
THE FUTURE, BACK TO THE BEGINNING?
My expectation for the next 10 to 15 years is that there will be increasingly sophisticated agent programmes, which might be apps on devices but will ultimately live in the cloud. Such agents will represent the consumer in these transactions, not just as you interact in physical retail settings, but increasingly as you move through a connected world. We will see a pay-as-you-go style economy for everything, from travel to renting a room or consuming media.
These payment agents will represent your interests as you move through this world of smart things that you want to pay for. So, finally, after maybe 70 or 80 years of financial technology, we’ll get back to where we started: you being able to buy something simply because you’re you.
Anyway, that’s one historical perspective on the future of payments. I’m curious about what we’re going to see at Money 20/20 and your thoughts, of course – hope to see you there.