Money is changing and this means the business goals for which we strive could be evolving as well, says Jame DiBiasio
Money is an intangible facilitator of exchange – that is, it’s what makes business possible. Money makes the world go round, right?
Since we’ve had civilisation, we’ve had money. It’s a universal way to agree on how to price goods, services and capital. It smooths the way for payments, so we can achieve what we want. And it’s a stand-in for the wealth we all seek to possess.
Money is changing, though. We still need it to do all the things money does, but the tools mean we reach our goals differently, and that the goals themselves evolve.
Imagine building the foundation of a building with your hands, shovels, and a cement mixer. And now imagine setting that same foundation with electric tools, telematics-embedded machinery, and drones for topography. You can erect multiple buildings more quickly, safely, and affordably, and therefore your business can leap from bespoke projects to constructing large-scale complexes.
If that sounds like technology in general, it should: money is cultural technology. Today this technology is on the cusp of a huge leap. Throughout history, money has always become more abstract.
Now it’s going to be programmable.
‘Proto-money’
What does it mean, money has become more abstract? Our earliest civilisations used ‘proto-money’, consumable goods that could either serve the functions of money to grease trade and payments, or be devoured or put to some other purpose.
The most common type of proto-money was the cowrie shell, which was used by people all over Africa and Asia. The cowrie was so useful that very ancient Chinese rulers began to ‘counterfeit’ shells with bronze or gold and these morphed into coins.
Coinage became ‘money’, either shaped as kingly gifts in China or stamped with rulers’ images in the Mediterranean. The ancient Greeks combined coinage with a thriving retail marketplace, the agora, which helped to separate trade from family networks.
Coins were minted with precious metals, so they had some intrinsic value. Paper money – again, tip of the hat to the Chinese, who invented this in the eighth and ninth centuries – separated the physical form of money from actual value.
This was so incredible that it would take European governments seven hundred years or so to try issuing paper banknotes. But paper money allowed various Chinese dynasties to finance their lavish expenditures, while businessmen could safely move large amounts of cash – a critical underpinning of what made China into the world’s largest, richest economy.
Credit cards – creating consumer economies
The US in the 1950s ushered in the next abstraction by moving money to credit cards, so now a piece of plastic represented all a person’s coins and banknotes – and let someone spend with borrowed money. This sped up the rise of America as the world’s first great consumer economy.
The past decade or so has seen an acceleration in financial innovation. Among the most important:
- In 1999, PayPal, a Silicon Valley startup, launched online payments via the use of an electronic wallet.
- In 2004, Alibaba launched AliPay, allowing users of Alibaba’s e-commerce businesses to pay via mobile phones.
- In 2007, Safari.com, a telecom company in Kenya, in 2007 invented mobile wallets that enabled people to use their phone to deposit money, move it around, and pay for things with it, turning the mobile device into a portable bank.
- In 2008, Satoshi Nakamoto (a pseudonym) published a white paper describing how to mint, validate, transfer, and spend digital money independent of any bank or government institution: Bitcoin. Behind this was a technical breakthrough, enabling bitcoins to work like cash, so that the same token can’t be spent twice.
In a short space of time, these advances have transformed business. The ability to pay for things electronically has made the internet economy possible. It has extended the reach of services, from telecoms to loans, to people previously lacking access to any formal bank. The examples of AliPay and WeChat Pay have turbocharged the wealth and lifestyles of China’s vast middle class.
These examples are about the way we store, move, and spend money. Businesses that cater to these new ‘rails’ (as industry people call the infrastructure for money) will be competitive; those that do not will fade into irrelevance.
Reshaping competition
Today digitisation is reshaping what this competition looks like. Traditionally, the temple-guardians of money – the banks – have remained aloof from corporations, small businesses, and individuals, doling out money in the form of distinct products. Need a loan? You have to approach a bank.
Banks have legions of salespeople selling all kinds of products: investments, brokerage, insurance, loans, credit cards, you name it. But the business of money was all about a product (usually a very generic one) that requires a specific, transactional interaction with a bank.
This is rarely an enjoyable experience. People began to notice this in the wake of the 2008 global financial crisis. In the Western world, many people were angry at banks. Banks were struggling with a lot of new red tape imposed by the governments that had bailed them out. And Silicon Valley-style software solutions had become really sharp. Why couldn’t banking be as easy as purchasing something from Amazon? Why couldn’t sending money be as simple as sending a message via Facebook or WeChat?
Fuelling this fintech story is the explosion of data, from social media posts to sensors (the ‘internet of things’) to anything that can be boiled down to ones and zeroes and fed to a machine to digest and analyse.
As finance has moved to smartphones, the amount of money-related data has mushroomed, creating new raw material for creating business insights. With the help of artificial intelligence, companies and financial institutions are converting data into personalised offers.
Open banking
Open banking is the requirement for banks to give customers access to information from any entity also serving that person, even other banks (usually via digital connections such as APIs).
The business of money is moving away from closed, proprietary relationships with banks to collaborative networks of banks, corporations and technology partners. Governments around the world are wrestling with the right model to keep consumers empowered, and their data protected and secure.
Open banking represents a huge change in how businesses interact with customers. Right now it is at the retail consumer level but the same norms are creeping into wholesale business too. It is made possible by the recent advances in making money electronic and mobile.
Digital currencies
The next step will be governments issuing digital versions of their currency. China, once again, is at the forefront. A digital renminbi will be a more efficient way of using cash – and it will give the government a real-time window into the data around money movements, savings, and spending.
Digital currency is legal tender as software, so it can be programmed to achieve a specific goal. For example, a central bank could allow cash to earn interest, in order to encourage more people to use it. Private companies can do the same: from air miles to gift vouchers, digitised forms of private money can be written to be spent by particular users for specific purposes.
Combine programmable money with open banking, the ubiquity of smartphones, and the ability to mass customise payments, financing and credit – the grease turning the wheels of commerce. What do you get? A very new business world in which opportunity is linked to this evolving infrastructure of digital finance.
Cowries to Crypto: The History of Money, Currency and Wealth by Jame DiBiasio and illustrated by Harry Harrison is published by OANDA, a leader in online multi-asset trading services. It is available from amazon.co.uk, priced at £19.99.
