At the beginning of this year I wrote that the transition to universal mobile digital money is likely to be among the most exciting, important and challenging projects the world will undertake in the coming decades. Everything I have learned through the year indicates that, while still in the very early stages, the transition is well underway and gathering momentum.
This transition involves a lot more than the transformation of money - cash, checks, credit and debit cards, and so on, - from physical to digital objects that we will carry in our smart mobile devices. It encompasses the whole money ecosystem, including the global payment infrastructures, the management of personal identities and personal financial data, the global financial flows among institutions and between institutions and individuals, the government regulatory regimes, and so on.
In other words, just about every aspect of the world’s economy is involved. Over time, mobile devices will truly become our personal windows into an increasingly global, digital economy. This will take decades to fully play out, - historical transitions take their time. But, it is most definitely underway, with an increasing number of market pilots and research studies already taking place around the world.
As part of my work with Citi, I have been spending a lot of time thinking about the implications of this historical transition to a digital money ecosystem. The more I learn about it, the more I am convinced that this is truly a major paradigm shift that will change the very way we think about money.
The transition to a digital money ecosystem brings to mind another recent paradigm shift, - the emergence of the World Wide Web, and the accompanying digital information revolution. By the mid 1990s, we were able to access all kinds of information over the Internet in the form of web pages. Anything that resembled a physical page could now be digitized and made available over the Web, including documents, brochures, catalogs and books.
What we discovered over the next few years is that digital information gave us access to a lot more than pages. Just about all content could now be digitized and made available online, including pictures, video and voice. Moreover, once information was digitized, it could be manipulated with sophisticated software and algorithms. This has resulted in all kinds of innovative applications, - search, e-commerce, entertainment, social networks, Watson-like intelligent systems, and so on. These new digital capabilities have been transforming just about every aspect of business, society and our personal lives.
Most everyone will agree that the transition to digital information is a historical paradigm shift. Starting with the digitization of pages and other content, it has been taking us into many unexpected areas we could not have begun to anticipate back when it all started.
I believe that something similar will happen with the digitization of money. Let me thus briefly review some of the factors that have accounted for the successful transition to digital information over the past twenty years, to see what lessons we can learn that could help us with the transition to digital money over the next few decades. Three main factors come to mind: standards; collaboration; and marketplace experimentation.
The Internet and World Wide Web introduced a culture of standards to the IT industry. Until the early 1990s, it was quite difficult to get different kinds of IT systems to talk to each other. Just sending an e-mail across two different applications from two different vendors was quite a chore
Then, in the early 1990s, Tim Berners-Lee developed the World Wide Web while working at CERN to help physicists around the world share information over the then version of the Internet. To make the Web work across disparate systems, he used a relatively simple, common sense set of standards, including HTML, HTTP, URLs and a few others.
The early Web was primarily being used by the research community for which it was intended. It was not easy to use, since the original browsers were based on cumbersome text interfaces. Then in 1993 came Mosaic, the first browser based on graphical interfaces. Mosaic brought together all the disparate pieces of the Web, and made it possible to access information in very simple ways that just about anyone could quickly learn. Moreover, since all the key technologies of the Web came from the research and academic community, they were available to anyone free of charge, including open source implementations of many of the key software components.
The rest is history.
Like the early Web, most of the digital money efforts underway are leveraging existing, tried and true infrastructure and banking standards. But, there is a lot more standards work to be done. For example, just like the browser has been the window enabling us to access digital information across the Web, I believe that digital wallets will likely become our window for accessing money, identity information and different kinds of financial services from our mobile devices. While there are a number of different web browsers from different vendors in the marketplace, they are all built around the basic design and standards introduced by Mosaic, to which they then add unique, proprietary functional enhancements. If you know how to use one browser, it is relatively simple to quickly learn to use a browser from a different vendor.
That is not yet the case with digital wallets and related digital money mobile platforms. Different vendors are developing digital wallets based on markedly different designs. As far as I know, no standards or open source reference platforms have yet emerged that all vendors are willing to embrace for their basic wallet functions, which they can then complement with their unique proprietary enhancements. This could prove confusing if people have a hard time learning to use different wallets from different vendors. Hopefully, something like the World Wide Web Consortium (W3C) will soon be organized to coordinate digital money standards across all major participants around the world.
Given its research and academic roots, the Web had a collaborative culture from its very beginning. What was remarkable is how much of that culture stayed with the Internet and Web as they became huge commercial successes in the mid 1990s. Many companies embraced this collaborative, open culture.
From Java platforms to Service Oriented Architectures (SOA), a number of key infrastructure elements underlying the Web have been co-developed by otherwise fierce competitors. Generally, open source reference implementations of basic Web components are made available so everyone can quickly embrace the standards and interoperate with everyone else.
The digital money market pilots already underway are typically partnerships of various institutions from different industries. This is not surprising, since as discussed earlier, money involves a complex ecosystem of private and public sector institutions, and it is that whole money ecosystem that is now going digital.
For example, the Google Wallet initiative, launched earlier this year, is a partnership between Google, Citi, MasterCard, First Data, Sprint, a number of merchants and other vendors. ID³, a non-profit organization recently founded to develop open source architectural frameworks for the protection, sharing and monetization of personal data, involves a growing number of collaborating institutions. By its very definition, building an effective digital money ecosystem requires broad collaborations and partnerships.
The fundamental technologies of the Internet and Web are relatively simple. Their tremendous power and success has come from all the marketplace innovations they continue to enable. There is no one killer technology or killer product you could work on in the labs that would make you a success in the marketplace. The appropriate strategy and business models have to be discovered in the marketplace, working closely with partners and clients. The various offerings and applications have to be tested in customer trials until they either become successful or it becomes clear that they are not going to make it.
Similarly, getting digital money and payments right will require considerable experimentation. A number of market pilots are being conducted around the world. M-Pesa, operated by Safaricom in Kenya and other African countries is probably the best known such initiative. The Google Wallet has started trials with a number of merchants in a few locations in the US. Quite a number of financial institutions, mobile network operators and technology companies are involved in similar digital money pilots.
As is usually the case with major paradigm shifts, it is hard to anticipate the changes that a digital money ecosystem will bring about and how long they will take. At the moment, it may look as if progress is painfully slow. But, given the increasing efforts underway around the world, all my instincts tell me that at some point in the not too distant future we will reach critical mass, progress will significantly accelerate, and a digital money ecosystem will form around us, bringing with it innovations that we can barely begin to anticipate.