Should Money Go Digital?
“There is no problem on this earth that can’t be solved,” Peter Diamandis declared on Sunday, in Las Vegas.
Diamandis is a Silicon Valley gadfly best known for creating the X Prize, an award for designing the first functional, private spaceship. He was giving a keynote speech at Money2020, a conference about the future of money. His tan skin and slicked-back hair glowed as if he had partaken of the Google life-extension research that he evangelizes. Name a problem, and Diamandis believes it can be fixed, from the challenge of hauling a lot of people into space to that persistent über-problem, death.
The presumption at Money2020 is that money, as people use it today, comes with its own set of problems. It takes up space, is relatively hard to transfer from one person to another, and moves slowly through the financial system. In other words, it’s primed for the tech industry’s favorite noun: disruption.
Money2020’s presenters had a lot of high-tech solutions for money’s challenges: “mobile wallets” that help customers use their smartphones to pay digitally at stores rather than with cash or cards; “gamified” savings accounts (as in, accounts that incentivize saving with game-like rewards); and digital checkout counters for brick-and-mortar stores.
The conference attracted big companies like Google, Visa, and PayPal along with smaller upstarts, which created a dynamic of gentle rivalry. Among the larger companies, Google, PayPal, and Square are launching their own mobile wallets. Some startups are taking a similar approach.
“The competition is plastic, and plastic makes for a really good experience,” Mike Abbott, the C.E.O. of a mobile-wallet company called Isis, explained during his keynote address. Abbott hopes to get people to put their credit cards on their phones. With his product, you carry around an image of your credit card that serves the same purpose as the card itself; all you have to do is tap your phone to an in-store device to pay. (Of course, the store has to adopt Isis-friendly technology first.)
Other companies are even more offbeat. Paul Aitken is the C.E.O. of borro.com, an online-only lending platform that offers loans against luxury goods like watches, antiques, and art. “We target clients who have wealth tied up in assets but have cash issues,” Aitken explained. Essentially an online pawnshop, borro.com takes possession of the goods until the loan is repaid—a business as old as time, now moving to the Internet.
Another attendee, Gabriel Sukenik, wore a pin on his lapel displaying the symbol for bitcoin, the algorithm-based “digital currency” that is unregulated, untaxed, and traded online. Bitcoin’s supporters say a major advantage is that, because it doesn’t have to pass through currency exchangers who each take a cut of the sum, it’s cheaper to transfer money around the globe. This saves billions of dollars that are usually lost to intermediaries, particularly in the case of remittances sent home by workers abroad.
Sukenik is the director of Coinapult, a service that transfers bitcoins via e-mail and text messages and is attracting some unorthodox clients. Credit-card companies often charge higher fees to pornography providers, and PayPal has threatened to stop working with publishers of “obscene” content. So some porn companies are accepting bitcoin “because it’s not charged super high,” Sukenik explained. The same goes for gambling sites, where a foreign player might choose to bet bitcoins rather than wire money through a bank and get slapped with big fees.
At the beginning of the conference, Diamandis indulged in a version of what the critic Evgeny Morozov calls technological solutionism: the zealous belief that technology can fix any problem, even ones that don’t really exist. And yet the biggest issue facing digital-payment companies may simply be that the technology that’s already out there—cash and cards—is too good.
Purely digital transactions are great for those who can adopt them, but for the luddites or the unconvinced, money remains stuck in the traditional world of big banks and leather billfolds. “We’re just very comfortable with our banking system now,” Colleen Dorwart, a senior manager at the outdoor-gear outlet Cabela’s, said during a panel on gift cards.
And there’s a downside to trying to overhaul tried-and-true technologies: the upstart replacements need to work out some kinks of their own.
The conference, which runs through Thursday, comes the week after the shutdown of Silk Road, an illicit marketplace that used bitcoins as an anonymous medium of exchange. In fact, the Silk Road shutdown could help the currency gain more mainstream credibility by cutting down on illegal usage, as Brian Patrick Eha wrote on Saturday. U.S. government representatives recently met with bitcoin supporters to better understand the currency.
The conference panelists in a session called “Bitcoin 101” were nonplussed about the Silk Road shutdown and the possibility of regulation for bitcoin. “Regulatory compliance is a positive; it protects the consumer side,” Megan Burton, the C.E.O. of the CoinX digital-currency exchange, said. Yet bitcoins retain a certain mystique. Outside the panel, the C.E.O. of a bitcoin-related firm pulled out a small wallet filled with physical coins worth around ten thousand dollars, drawing a small crowd of gawkers.
In any case, the question of whether cash should continue to exist or must be disrupted out of existence by innovative companies masks a deeper reality, beyond the hype of venture capital. Physical currency, in the form of seashells, or tobacco, or salt, has existed as long as civilization, and is likely to persist, complemented but not replaced by new technologies.
Even some of the conference attendees were skeptical of all the excitement around replacements for cash and credit cards. Henry Helgeson, the C.E.O. of Merchant Warehouse, which acts as a middleman between mobile-payments companies and retail businesses, expressed some doubt while perched near a Starbucks inside the conference hotel. “There’s already a good system for consumers being able to pay,” he told me. “Putting a credit card on a phone doesn’t really add value. This is bubble 2.0 territory here.”
Then he strode away from the conference back toward the busy coffee shop, where greenback bills remained abundant.