Has the payments industry accidentally given rise to Big Brother?
The history of the rise of the social media giants shows there is a common thread to their development. They have all come to expound a business model that provides a product or service for free and then, over time, found ways to monetize the relationships they form with their customers. The virtue they claim is that the service offered is free, available to all, easily taken-up on a global basis and therefore stratospheric rates of uptake can be achieved. However, hiding behind these virtues is the reliance it creates on the use of personal data to generate revenues. The use of this data takes many forms but ultimately it leads to the same place. Personal and often private data is filtered, cross-referenced and further information inferred and then sold to companies that wish to sell things to us.
The social media giants have made a virtue of the “freemium” model, where a very large number of users that pay nothing, are actively “farmed” to become super-users or “fans” willing to pay for exceptional or privileged access to services. Privilege in this instance may merely mean not being exposed to endless adverts but it rarely means that personal data will not be sold on.
These business models were driven by the absence of a way of receiving very small value of so-called micro-payments, that is available to all and affordable to both buyer and seller. Had there been such a service would we have the business models we have today? Could Facebook and Google have achieved better social outcomes by charging very small amounts for each interaction with their service? Could they have created a world in which people are paid for providing data that is sold to third parties?
The dominant retail payment systems of today evolved over many years to support payments for relatively large value items at physical locations. The systems, processes and economic model that they rely on could not serve the emerging social media players. Importantly they have struggled to overcome their inherent limitations and are still unsuited to support such business needs.
One way to avoid the data driven business model of today would have been to build an internet payment method that revolutionise payment sat the same time that the internet was liberating innovation in business models including social media. That would have required collaboration between market entrants because a fundamental requirement of successful payment services is ubiquity. Even very large, ring-fenced payment services fail because they cause the payer to place funds in multiple payment silos and this reduces their ability to manage their wealth.
If we imagine a micro-payment solution that could have addressed this need and avoided today’s business model, what characteristics would it have had? It would have been similar to cash in many ways; available for use by all and not dependent on an account held by a regulated entity. Value would pass from participant to participant seamlessly without centralised clearing and settlement processes. It would allow in-flight conversion from one store of value to another. For example, from Sterling to Bitcoin. It would provide the basis for identifying the individuals involved in the transaction and leave an audit trail for customer service and regulatory purposes. It would be usable in the physical and virtual worlds, and it would have costs for payer and payee that were low and proportional to the value of the transaction. Finally, it would treat payer and payee as equals with the ability to send value in either direction.
In the presence of such as service the internet would have been a boon to many businesses not just the tech start-ups. It would have allowed many more innovative business models to emerge far beyond those that have become successful so far. It would have allowed newspapers to charge for news items delivered through digital channels. The ability to charge small amounts and receive payment for an article would have supported the growth of proper journalism in the internet age. Advertisers could have paid a small fee to those interested in watching their ads or even a fee proportional to the viewers’ net worth.
Pre-empting the internet, the payment schemes have tried to deliver a solution with schemes such as Mondex and VisaCash. However, these were built on yesterday’s infrastructure and failed for that and other reasons. Until a payment service is developed that meets the needs of the internet social media and other internet-based companies must continue to generate revenues by selling personal information. How long this model can last in the face of regulatory pressure and rising consumer concerns is open to debate.
If such a payment service does not emerge, when today’s data driven business model becomes unsustainable, it is interesting to ponder the future of the internet. Fortunately, technologies are emerging that would enable this new payment model and provided these are made available to all, in a universal model for payment services that mirrors the openness of the internet, the future looks different.
