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On Reinventing Money.


When about a month ago I read a blog by David Marcus “State of Payments: Reinventing Money” it triggered an immediate reaction in me to respond.  That reaction was not of a disagreement necessarily but of a protest against a flat one-sidedness of Mr. Marcus view on ‘money reinvention’.  With all respect to the author, I could not accept a notion of money reinvention as merely a matter of overlaying technology his company is working on.  Mobile devices, cloud computing, Bluetooth, GPS, wearable devices, … - all the technological innovations put into work to eliminate frictions and improve ‘in transaction’ experience (as was promised in the blog) have a character of overlaying technology (to me), resting on layers of history and practice of money movement between bank accounts.  So, reinventing money for David Marcus is to build a new layer of services - sure great and sophisticated - on top of what is available.  End of the day, that was a particular development within ‘wallet’ framework Mr. Marcus had shared his insights for.  Leather or mobile, a wallet renders a service of holding payment instruments (plastic cards, checks and banknotes) and making them available at point of sale or transfer.  Somehow subjects of money, money movement, risk management, B2B payments, AML compliance, growing or shrinking universe of a bank account,... - all were left unmentioned and unnoticed in the blog that pretended to explain money reinvention (freely defined).  That subject in my opinion is a whole world broader than an “in transaction” services offered by mobile technology to the amusement of already glowing with radiation his majesty consumer.

A lot more is happening today and therefore not a single blog can sum it up without massively generalizing or missing this or that component of developing reality.  Important is to call things their real name.  Reinventing money, strictly speaking, cannot imply (or imply only) consumer transaction experience at the counter.  So, the blog title is simply wrong.  Let’s correct it: “State of Payments: Reinventing transaction experience..”.  Better now.

A lot more is happening today in the realm of Financial Services innovations... out of which few things spontaneously come to mind to fit this blog page.  

Money gets redefined.  Fiat currency with advantage of state protection and disadvantage of fractional reserve practice will compete with new assets capable of rendering better service as money to trading parties and individuals.  As a part of evolution crypto currencies got traction in the past few years.  Whatever their fate is, other assets with more substance - stock, IOUs, metals, … - can gain qualities applicable for the events of exchange.  Easy to see how technology can work its way to improve velocity and liquidity of such assets that will make possible any form of trade - online, offline, retail, wholesale, domestic or cross border - against instantly convertible units of "near cash" assets.  The news of someone issuing a debit card against bitcoin account proves the point.  "Near cash" state of assets makes them qualified (pre-)tokens of exchange being practically a medium of it and a store value facility at the same time.  More personal wealth can be kept in the form of portfolio of assets since even grocery shopping will get effected one day against that portfolio due to immediacy of asset-to-currency conversion or direct asset transfer to seller in exchange for goods.  The brokerage account will morph into demand deposit account as instantly as a point of sale instance is, - seconds or less.

Assets.  There are going to be many more of them to trade.  Supplier invoices, POs, other trade documents will become progressively more digital, verifiable and tradable.  Trade finance will be better intermediated by financial firms and individuals instead of being bloating areas of sellers balance sheets.  Various reserve accounts (say, a merchant rolling reserve with an acquirer) might become tradable notes, - securitized or not.  This movement toward lower (by business size merit) strata of financial notes, their effective exchange on trade platforms is something that is in development already today and we will see many more financial services innovations that will aim at improving cash flow positions of commerce participants.  As a general direction (with a variability none can predict) more financial trade will be created out of assets of SMEs, micro merchants and individuals that technology will be able to validate, verify, aggregate, transport between trading accounts, properly ledger, properly risk-price, reconcile and report.  Specialized services firms and functions will be created to manage new class of assets from customer care, risk management, advisory and whatever else perspective.  New tradable assets, new forms of finance in the realm of small business, higher velocity and again near cash-ness of notes with a prospect of them being acceptable payment type for B2B settlements - all to come.  Most likely.

In the world of Acquiring many new requirements are starting to (trans)form processing enterprises into “payments Operating Systems”.  What makes up acquiring business, every facet of it - merchant underwriting and boarding, terminal deployments, auth, settle, funding, risk management across entire life cycle of merchant account and transaction life cycle, various operations from chargeback processing to customer service, billing, Statementing, reporting, hierarchy management, … - all will develop into modular web services, quickly expandable to unforeseen use cases, smart and fully risk based, covering all geographies, all payment methods and progressively instant.  Here is what a processing enterprise might continuously develop itself into:

  • it offers Real Time Underwriting and On-Boarding which are paperless and smart to account for full compliance, fraud and credit risks across all processing geographies.  Offered as a service, via UI, API, Batch, it should be capable of making instant underwriting decisioning on behalf of banks/ISOs/PSPs, according to their ever changing risk logic and followed by instant account activation and automatic hardware deployment.
  • can acquire all relevant national and global payment methods.  Complete and global Funds-In!
  • can settle and fund in every geography, every account type (bank account, e-wallet…) and via most optimal (time-cost-risk wise) transfer mechanism (national clearings, wires, correspondent banking, wallet networks..).  Complete and global Funds-Out!
  • can fund smartly - instantly via onus, T+n via what is economically suitable - according to Risk and perceived cost and benefits.  This area of risk management (at auth and/or at funding) will see a lot of development given fraud pressure but also opportunities with new data and new technologies..
  • fully connected to a multitude of data services and data providers for a web of purposes.  Say, connected to FedEx and UPS for enhanced Chargeback litigation experience.  Things like that..
  • fully amalgamated to other services (like SME lending, for instance) to improve profitability given obvious and persistent downward pressure on processing fees.  Processing enterprise that is tightly embedded into Merchant Banking, ERP, EDI and other such wonderful things will face lower attrition and stronger bottom line.  
  • fully embedded into a growing universe of a bank account.  Especially reporting but also dispute management and risk management.   
  • all relevant services / modules can be accessed via any mode: API, Batch, UI.  Consumed individually or as a bundle.  

At the lower strata of things, - retail clearing (ACH) will gradually develop real time capabilities.  (Like already in the UK and other few countries).  Might become global.  Will develop new standards for full remittance data to better support B2B trade.   Independent nested services will develop on top at the overwhelming rate. 

And so on…

I was obviously guessing here, in this blog, but one thing is for sure - as of ever, the State of Financial Services: Continuous Reinvention.


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