Irving Wladawsky-Berger

The Emergence of a Digital Money Ecosystem

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.

Open, Collaborative Trust Frameworks

A couple of weeks ago I attended a workshop on Inventing the Future of Finance cosponsored by ID³ and the MIT Media Lab.  ID³, - the Institute for Institutional Innovation by Data Driven Design, - is a new multidisciplinary non-profit institution formed to develop architectural frameworks, open source software and educational content for the protection, sharing and monetization of sensitive data. 

It was founded by MIT Media Lab Professor Alex “Sandy” Pentland, and by John Clippinger, who is currently a Research Scientists at the Media Lab, and until recently was a Senior Fellow at Harvard’s Berkman Center for Internet and Society.  Clippinger is Executive Director and CEO of ID³, while Pentland serves as its Chief Scientist.  I just joined its Board of Directors.

One of the key missions of ID³ is the creation of trust frameworks, which it defines as:  “A combination of software mechanisms, contracts, and rules for defining, governing and enforcing the sharing and protection of information according to a common and independently verifiable standard of performance.  Whenever possible, such governance mechanisms and contracts should be self-executing and self-correcting.”

A Neural, Digital System for the Economy

Most everyone will agree that the world’s economy is undergoing historical structural changes, mostly caused by the digital technology revolution taking place all around us.  In particular, ever since the explosive growth of the Internet in the mid 1990s, we are seeing the emergence of a global, digital economy.  What does this mean?  How can we best describe the nature of this emerging digital economy?  What are some of its key implications for the overall economy?

There is clearly no simple answer to these questions.  But, I recently read one of the clearest and most elegant explanations of the changes our economy is going through in an article in McKinsey Quarterly by economist W. Brian Arthur, - The Second Economy.  Dr. Arthur is external professor at the Santa Fe Institute and visiting researcher at PARC’s Intelligent Systems Lab.

“Digitization is creating a second economy that’s vast, automatic, and invisible - thereby bringing the biggest change since the Industrial Revolution,” he writes at the very beginning of the article.  He illustrates his point with an analogy to the transformation of the US economy by the railroads in the second half of the 19th century.”

Open Services Innovation

Earlier this year, UC Berkeley professor Henry Chesbrough published a new book, Open Services Innovation: Rethinking Your Business to Grow and Compete in a New Era.  This is his third book on open innovation in the last eight years, having published Open Innovation: The New Imperative for Creating and Profiting from Technology in 2003, and Open Business Models: How to Thrive in the New Innovation Landscape in 2006.

Professor Chesbrough is in the faculty of Berkeley’s Hass Business School and executive director of the Garwood Center for Corporate Innovation and of the Program in Open Innovation.  I met him over a decade ago when I first got involved with Linux and open, collaborative innovation.  He is a top expert on the value of open innovation to business.

When I recently found out that he had published a book on services, I was eager to learn how he framed the subject.  For over ten years now, I have been thinking about the application of technology and innovation to services.  Over the years, I have given quite a few seminars on the subject, including a graduate course in MIT in the Fall of 2010.  I have also written a number of entries on services in this blog.