My Prediction for NFC in the Next 12 Months

Yesterday someone asked me for my prediction on the NFC market over the next 12 months.  Here’s how I think the credit card companies view the wireless carriers’ attempts to get a foothold in the card processing business via NFC.

BitCoin Exposes Our Managed House of Cards – The Good, The Bad & The Great

Today Fred Wilson of AVC.com wrote about one of my favorite new topics in economics and money: Bitcoin.

As someone involved in the future of money and banking, I am asked almost every day what I think of Bitcoin and whether it could become mainstream. 

There are three parts to the Bitcoin story in my opinion: modern money, ongoing global wealth and income growth and the potential collapse of modern money in favor of multiple competing digital currencies.

Inflationary currencies (fiat currencies) and their monetary systems like the US Dollar, Euro, etc, that we use today are basically a “carefully” managed house of cards. We build the house higher by printing more money.  The house doesn’t collapse because there usually isn’t excess currency supply or excess investment leverage creating unnecessary risk – or needlessly weighing down the house. Modern fiat currencies maintain their strength of position by implicit legal contracts with our government to pay tax and other debt obligations.  In other words, you can’t pay your taxes with your Google stock or sheep or even tulips.  You have to sell these items for cash first and then use the cash to pay your taxes.  Remove these legal restrictions and modern currencies have a real problem.

 Ultimately the house of cards is kept alive via innovation and entrepreneurs who create value out of the new currency being printed and distributed through loans – not the other way around.  Such innovations include farmers expanding using new plowing technologies, industrial innovation building a manufacturing base, the military industrial complex, innovation via Internet, information and communications technologies, and on and on.  Sometimes this value is an illusion like in a housing or asset bubble.  That’s when the public starts to feel that there is a manipulated game going on out there but they really can’t fully explain what’s going on.  I also believe this is why a few of the people participating in Occupy Wall St sit-ins can’t really explain why they are so pissed off but still have a valid beef.

I believe that a carefully managed house of cards is the single best chance we have today for peace, democracy and happiness at a global scale as it incentivizes people to do their part to create new wealth and it (usually) incentivizes us to police people who try to game the system. This is part of why I’ve become so interested in behavioral economics the past few years.  We need to continue to find new and better ways to incentivize each other to participate positively in this ongoing 225-year experiment in peace and democracy through capitalism.

As we saw in 2008 the house of cards is put at risk when excess leverage is introduced such that a small percentage loss that is followed by a margin call can cause the house of cards to buckle at the girders when the proverbial music stops playing.

Beyond the dangers of operating within a managed house of cards what are the real world problems with Fiat currencies that could create the need for a different model?  The most cited problems have to do with government interference and individual liberty.  Most notably those ideas espoused by Friedrich Hayek and Ludwig von Mises who helped to create a modern “Austrian School” of economic thought.   If you watch Fox News or pay attention to Ron Paul you’ll get a good dose of the pop culture version of the Austrian School – my apologies for to those who really get the Austrian School for associating you with Fox News in this manner.

While the Austrian School’s philosophy is very appealing to me personally, we don’t live in that world today and I believe most people don’t want to live in that world.  

My bigger concern is what is likely to happen to our current house of cards over the next 25, 50 and 100 years.  First I believe that we’re witnessing a new form of wealth redistribution that is going to have very interesting effects on a global scale.  With the exception of the top 0.1% of the global population who will have an exaggerated benefit of compounded interest via rich parents’ inheritance, the rest of the world is moving towards a state of economic equilibrium at an amazing rate.  If you’ve ever watched one of Hans Rosling’s moving charts you know what I’m talking about.  Think about Chinese migrants building iPods, Mexicans building homes and picking fruit, and Indians working oil fields on the Arabian Peninsula.  (Note: “economic equilibrium is my term, not referring to any formal term taught in economics.”)

What happens to the house of cards when we reach something close to economic equilibrium on a global scale?  I believe the system collapses sometime before we reach that point of equilibrium.  Probably in about 75 years.  By that point, Africa, China, India, South America and other Asian economies will be moving towards per person GDP parity with the US and Europe at an unsustainable rate and then the rate will start to slow.  At that point managing a house of cards becomes difficult if not impossible, as our global interests in creating new growth will no longer be aligned.  Individuals will be more interested in personal advancement and enlightenment as well as technological advancement and less interested in growing the global wealth and income pie.  Of course this does create significant issues for wealth preservation which I’m not qualified to address here.  Ultimately this could be the point at which our collectively disparate agendas will no longer allow us to effectively manage the house of cards. 

This is where Bitcoin comes in.

At the point where momentum towards equilibrium is unstoppable, we probably have a viable global education system, a global trading system and machine-based innovation happening at an amazing rate.  Thousands of self-organized meritocracies are likely to ensue based upon needs, wants and desires of individuals.  Traditional organized religion will start to take a back seat to the needs and wants of these meritocracies.   It is at this point I believe individual liberty needs to take preference over the needs of any state for the good of the human race and to ensure that we are appropriately incentivizing technologic progress.  This is also the point at which fiat currencies and fractional reserve banking probably no longer make sense.  This is the point at which anyone can create their own currency (re: asset) and these new assets can be easily represented digitally and traded electronically in real-time.  There is no difference between stock exchanges, currency exchanges, Amazon.com or the IRS.  Everything is just an asset and everything is fungible.

It’s easy to imagine lots of different groups issuing lots of different asset backed currencies similar to Bitcoin but with an underlying asset of value – such as intellectual property rights, physical property, art or other forms of content, gold, food, etc.

Today we don’t necessarily have well formed meritocracies throughout society but we do have some well-formed business and social circles.  

One such business circle exists today operating mostly in isolation from the rest of the modern business world.  Of course, that is the global drug trade.  The drug trade is probably the number one individual contributor to Mexican GDP and is run by very smart, albeit ruthless, criminals.   Another social and business circle is the millions of people who visit a Starbucks coffee shop every day, although I suppose that could be considered an extension of the drug trade – just kidding Starbucks.  In both cases these business circles could benefit greatly from having their own underlying currency representing the assets they are selling – or trading.  

In the case of Starbucks they have it already in the form of a Starbucks Card.  People buy Starbucks Dollars on a 1-1 basis for real US Dollars but Starbucks Dollars are only fungible for Starbucks’ products.  Great for Starbucks!  The consumer benefit is mostly in the form of less stress around feeling like you’re spending $6 for a cup of coffee.  There’s that pesky behavioral economics again.

In the case of the drug trade Bitcoin is clearly catching on, albeit slowly, as a form of alternate currency.  If you know what Bitcoin is I don’t need to explain why consumers and traders of illicit drugs love Bitcoin.  The more important point than our personal feelings on the global drug trading market is that this is the model that all social groups and meritocracies will utilize to conduct trade in the future.  Many of my entrepreneur friends get this, which probably explains why they are such big fans of Hayek, von Mises, and their ilk.

Once we have lots of fungible digital currencies floating about a new problem is created.  How do we normalize trade and transact across different digital asset types?  Several computer programmers and mathematicians have actually solved this problem in the lab already.  The e-Rights system could easily be used to trade Bitcoins for Goats and Goats for Starbucks Dollars.   E-Rights are a form of Smart contracts originally proposed by the genius Nick Zsabo.  Of course, the Bitcoin block chain could probably be used to simulate a lot of this as described here.

In short Bitcoins are a glimpse of what is to come in a post industrial-capitalist evolved world based on individual liberty and free forming meritocracies and social groups.  We’re not ready for this type of society yet but soon we’ll need to be.

Launching Boom!

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m-Via is making a major announcement today.  We’re taking part in the Department of State’s Global Diaspora Forum

Today we’re announcing a new, global mobile money service, called Boom!

 

Here are the prepared remarks that I will be giving at approximately 11:15AM EDT:

Good morning…..  First I’d like to extend a special welcome to our friends from various Diaspora community organizations throughout the US with whom we have worked so closely over the past several months.

Our focus at m-Via is 100% on making it possible for immigrant families to easily and safely share their wealth with their extended families at home and abroad.  Over 15 million of our fellow US citizens and residents send over $50 billion per year to family members in the US and to just about every other country on the planet.

So why is m-Via here today?

Today is a special day for us.  We are proud to announce our commitment to support this new Global Diaspora Alliance.  

As a result of this new partnership we have chosen today, here and now, to announce our NEW Mobile Banking service affectionately called ….Boom…. We chose the name Boom to reflect the booming expansion in financial access that we hope to create via this new and exciting service targeted at US Diaspora communities and their global families.

So what is Boom and how does it relate to our US Diaspora Alliance commitment? 

1.  Boom is the world’s first global, mobile phone based, bank account.
2. Boom enables fast, easy and safe money transfers for FREE, meaning Boom does not charge money transfer fees, ever.
3. Boom simply works in the recipient’s home country with any pre-existing mobile phone.  That means a Boom money transfer recipient can send funds via text message to anyone else in their home country, make a payment at a merchant in their home country and withdraw funds at any Boom location in their home country, even with an inexpensive $15 cell phone.
   

After years of testing we believe we have finally cracked the nut of how to generate true financial inclusion via US remittances and we couldn’t be more excited about it.

Today we are announcing that our first two Global Diaspora Alliance commitments for Boom will be focused within the Mexican and Haitian Communities.

Our first commitment is focused on the US Mexican Diaspora.  As you may know, Mexico receives over $25 billion per year in remittances via the United States.   However, rural remittances are still plagued with safety issues due to remote locations and long travel times.

Today we are committing to the US/Mexico Diaspora and their families at home that we will deploy the first mobile money agent network between the US and Mexico powered by Boom that will include, not only large towns and cities, but will also include at least 10,000 rural locations in Mexico for accessing cash and making payments.  Our first partners in this effort are the Mexican Government along with select hometown associations in the United States.  Together with the Mexican Government’s retail operation of over 25,000 owner operated village stores, we are deploying Boom across the nation.  This deployment will begin over the next several days.  That means that money transfer recipients who want to make small dollar purchases or withdrawals no longer need to leave their home village, they can simply text message the money to the owner of their village store.  

Our goal is to bank over 1 million US senders and Mexico based recipients of remittances in the next five years.  We also believe that eliminating cash can greatly improve the safety and security for all of the hard working Mexicans whose income includes US remittances.

Lastly, I’d like to turn our attention to Haiti.  Everyone here knows of the tragic devastation caused by the 2010 earthquake. 

What you may not know is that close to 30% of Haiti’s GDP is generated via US remittances.  That is, by far, the highest number for any country in the Americas.  

For the past year, we have been working with friends from the State Department, Mercy Corps, Fonkoze, our newly created m-Via Foundation and other Boom service partners to enable the Boom service for Haiti to dramatically change the financial landscape across these two great countries.  Today we are announcing the fruits of that labor. Together with our partners I’m proud to announce that we’re launching Boom into the US to Haiti market with zero transaction fees in Haiti for the first year.  We are thrilled to be working with several Haitian Home Town and Community Associations, a few represented here in this room today, to build community training and distribution centers for Boom directly in your own Haitian community centers in great cities such as Miami and New York City.  Our goal is to bank 15% of US senders and Haitian recipients of remittances within 5 years.  

You can get more information on Boom and our Diaspora commitments at useboom.com.

We’re honored to be a part of the new Global Diaspora Alliance and we’re equally honored to be able to serve all of you, the people who work tirelessly to support your global families wherever they may be.

Thank you very much.

 

Mobile Money Quote of the Day!

I wish it was as easy as putting up a billboard in every dusty village in Tanzania. But it’s a lot harder – it’s about guys walking around the villages with a T-shirt saying, “Ask me about M-PESA!” and striking up conversations. It’s about canopies in front of agent shops and a massive focus on educating one potential customer at a time.” – Jacques Voogt, Head of Vodafone M-PESA in Tanzania

Courtesy of CGAP

Responding to Comments on Mobile Money Innovation

I just reread a couple of CGAP (World Bank) blog postings on the supposed lack of innovation in mobile financial services.

I don’t understand the point of these articles.  Yes, I believe innovation for the sake of innovation is a good thing.  But in financial services it’s a huge uphill battle to encourage blind innovation because of the complex ecosystem of players (sorry I will use that word whether anyone likes it or not) and because of the incredibly complex regulatory environment surrounding financial services.  m-Pesa was unique in that several regulatory hurdles were removed to their benefit.  

Putting the onus solely on MNO’s and banks to innovate or to solve the problems of the financially underserved is not realistic.  They are inherently “me too” organizations by design.  Everyone buys from the same radio wave spectrum, all banks play under the same regulations, etc, etc.  Carriers all sell the same phones. It’s like innovating if you build nascar stock racing cars.  Good luck.  It takes small nimble groups focused on real validated problems to truly innovate imho.  On the other hand, Microsoft and Google spend a fortune on pure research related to product innovation.  What are the pure research budgets for Vodafone or Citibank?  They are all but non-existent.

The more interesting question to me is who really understands what problems people face when it comes to managing and dealing with money in any market, developing markets or otherwise?  Who is trying to tackle these problems?  Who is validating that these problems exist?  What is the inherent value of these problems to both the consumer and business solving them?  I would like to see the people complaining about innovation in mobile money clarify what these consumer problems are, what the opportunity cost of solving them is and insights as to how to solve these problems that can encourage the kind of innovations that they say is lacking.

Everyone I speak with working in the mobile money arena assumes that the unbanked need to be banked.  Really?  Why?  We need more talk about what people’s problems are and how we propose to solve those problems and less silly talk about more innovation.  If there is a viable opportunity cost associated with real problems then there will be real solutions and hence real innovation.  Innovation doesn’t have to be profitable but to see it through there has to be some motivation.

My colleagues and I have spent weeks interviewing people in remote villages only to realize that some of our assumptions as to their real problems were completely wrong and some were underestimated or undervalued.  We’ve watched consumers use mobile money services and realized that some problems that we undervalued were big and real and some problems that we overvalued are non-existent in their minds. 

As an aside, I see plenty of innovation just reading the comments to the CGAP blog entry I mentioned above.  So perhaps from that perspective this blog was a good thing.

The Impact of Disappearing Design in Computing

TED starts in 2 days. I’m really excited. It’s quickly become a place for me to recharge my batteries, generate new ideas, make new friends and get a new and better perspective on things that matter to me.

TED stands for Technology, Entertainment and Design.

Let’s talk about design for a moment.

While design aesthetic is often in the eye of the beholder, I think most would agree with me that Apple is far and away the leader in design as it relates to computing. What’s particularly interesting to me about Apple’s design is that it’s physically disappearing. Look at the iTouch or the recently announced iPad and you’re basically looking at a software UI behind a screen in an incredibly thin enclosure and nothing more. This enclosure will become ever thinner over time. Other than that there is nothing there! That’s truly amazing and unheard of in the first 35 years of personal computing whose user experience has been defined by keyboards, mice, trackballs, portable disks, external monitors, and more.

The implication of the absence of physical design is that software is now 100% of the user experience.

Truth be told design isn’t actually disappearing it’s simply becoming 100% about the software since there is really nothing else left to interact with.

I believe this elimination of physical design in favor of software design will continue until it’s the norm.

What this means is that we’re in store for a necessary revolution in computer/human interaction. If the hardware disappears we must interact directly with software bypassing hardware altogether. Of course, that is not quite yet the case today. Even with the iTouch/iPad the physical interface is a touch screen which acts as an interface into the operating system. The next step could be a wearable device that projects on the hand with similar iPhone or “Minority Report” like gestures. What if you saw the “iPhone like” UI in your head but didn’t have to physically hold a tablet or use your hands to gesture?

As the physical design of the last 30 years disappears the software/cognitive design of the next 50 years will be forced to take it’s place. The implications for education, entertainment, communications and office productivity are astounding. What if you could effectively inhale software that your brain could control directly? What if you could interact “wirelessly” with a computer program directly via your brain vis-a-vis the Matrix or the Borg nano-particles of Star Trek. An inevitable reality of computing, is the fulfillment of our desires to connect everything and eliminate interaction latency while maintaining an appealing design aesthetic. Modern mobile computing is starting to scratch the surface of disappearing physical design. In this world physical design disappears and software design takes its place.

Posted via email from The Blog of Bill Barhydt

The ATM of the Future is Viral

There are tens of thousands of bank branches in the world.

There are hundreds of thousands of ATM machines in the world

There are billions of mobile phones in use throughout the world today.

Decades ago someone decided that a plastic card with a mag-stripe was going to be the preferred means of identifying an account during an electronic payment transaction. It took decades for that ecosystem to take hold.

A few years ago someone decided that a mobile phone number would be used as the means for identifying an account during an electronic transaction. (Guess who!?)

The ATM of the future is a phone with an always on Internet connection or phone with text messaging. Think about this. If your friend has never used text messaging but you send them a text message, as soon as they read your text message they are now a text message user – that’s the purest example of viral distribution I can think of. Now consider money transfer via mobile phone. A migrant worker in the California farm belt sets up an account on their mobile phone to act as a prepaid wallet. They load the wallet by walking in to a convenience store and adding money to their mobile wallet at the cash register. If they “text money” from their wallet to a recipient in their family in Mexico that recipient will automatically get a new wallet account the first time they receive money – that’s as viral as text messaging itself. That recipient can “text money” to a yet another new recipient or an existing recipient and so on. At some point in this chain a consumer probably needs access to cash. They can request cash via text message, get a text receipt with a one time use code on it and get cash at a participating retailer bank or individual money agent using their cash code. This cash out code only works one time so it’s completely secure.

What this means is that the mobile phone as an ATM is just as viral as the mobile phone as a text messaging device. This simple process has the potential to help lift billions into the global banking system and out of poverty. The most powerful concepts don’t need to be complex.

Posted via email from The Blog of Bill Barhydt