From Location to Microlocation

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I loved the 2014 book “You Are Here” by Hiawatha Bray of The Boston Globe. It tells the history of location and navigation technologies and explains just what a huge change in human affairs it was when suddenly you could always know where you were and how to get where you want to be. We take it for granted today, but GPS and Google Maps are pretty astonishing. My children have absolutely no idea what it would mean to be lost. There’s no such concept in a smartphone world where cars will soon be able to drive themselves home and your Bluetooth can tell you which office you are in and how to get to the coffee room.

Well, another big change in location is coming. Consumers will soon see a whole new range of services that are impossible to deliver using existing location technologies such s GPS or Bluetooth and these will in turn create incredible new opportunities for financial services. It hasn’t got as much attention as 5G but since the iPhone 11, Apple’s phones (and the series 6 Apple Watch and the new HomePod) have come with a technology called Ultra Wideband, or UWB. As does the new Samsung Galaxy Note 20. UWB heralds a new battle between the internet giants: the battle over micro-location (or µlocation, if you will).

Knowing where you are has changed the world. Knowing where everything is will change it again. Not only will you never get lost again, you’ll never lose any of your stuff again.

First of all, it’s important to understand that UWB is not really a new technology. The IEEE (Institute of Electrical and Electronic Engineers) standard on UWB (802.15.4) came out more than a decade ago. It was one of a family of wireless protocols (along with Bluetooth, ZigBee and WiFi) that were intended for short-range wireless communications with low power consumption. At the time it was assumed that, broadly speaking, Bluetooth was for a cordless keyboards and hands-free headsets, ZigBee was for monitoring and control networks, while Wi-Fi was for computer-to-computer connections to substitute for wired networks and UWB was for high-bandwidth multimedia links. It never really caught on though. WiFi worked well enough and it got faster pretty quickly.

So there was a pivot.

Engineers found another use for UWB, because the radio pulses that it uses have a very interesting characteristic which is that they allow you to determine location very accurately indeed. Much more accurately than you get from signal strength estimation (as with Bluetooth proximity applications). This means that with UWB it is possible to measure distance to a couple of inches and since apps can get this information a few times every second they can also tell whether another device is stationary, approaching or receding. For example, a UWB-enabled system can sense if you’re moving toward a locked door and it can know if you’re on the inside or outside of the doorway, to determine if the lock should remain closed or open when you reach a certain point.

Finding things is only the beginning, although it is by itself a huge market. Take tags. If you have a UWB phone and a UWB tag of some kind, the phone can work out exactly where the tag is. I’m a big fan of this kind of application because I’m old and forget everything and adore my Tile app! If you haven’t used Tile, it’s an app on your phone that can locate Bluetooth tags. You buy these tags and then attach them to things (I’ve got one on my keys, one in my wallet, one on my TV remote and one in my notebook) so that you can find them easily. I can’t tell you how many times I’ve misplaced my keys and saved hours of searching around the house by using the app.

Socks

with kind permission of TheOfficeMuse (CC-BY-ND 4.0)

A recent Apple patent application sets out how a system of “Airbags” might work. Suppose you have one of these tags in your notebook and you leave your notebook somewhere. When the notebook loses touch with your iPhone because you have walked away, the tag goes into a “lost mode” and transmits its encrypted details through any other device it happens to come into contact with. So a stranger with an iPhone walks past, the tag sends its position and that stranger’s iPhone passes the message on via Apple to your iPhone. So when you realise you can’t find your notebook, your iPhone can tell you exactly where it is. The idea that you can lose something will fade from memory. Just as the 4G generation cannot imagine being lost because their phone can always tell them where they are, so the UWB generation will not be able to imagine losing anything, because their phone will always be able to tell them where if they left their wallet in a store, if the TV remove control is still in the family room and if their stash has been moved from their secret place in the tree near the park.

A more mainstream use case (where Apple already has patents) is for keyless car unlocking. Apple is a charter member of the Car Connectivity Consortium, which created the Digital Key Release 1.0 specification in 2018, and I’m sure that this sort of thing is only the beginning. Who knows what applications inventive developers will come up with when they have the ability to determine location to this kind of accuracy. Look at the issues that have arisen with using Bluetooth approximations in the Apple/Google contact tracing services.

New Competition

UWB chips are already used for some amazing applications such as tracking players (and the ball) on a sport field or for finding equipment in hospitals, but now that they are arriving in consumer devices there is going to be an explosion of creativity from those COVID contact tracing services (much better with µlocation than with Bluetooth) to contact-free commuting (where the train knows where you got on and got off). Knowing where you are, and where your stuff is, to an inch instead of 30 feet opens up new possibilities which is a variety why industry analysts estimate that this market will grown around 20% per annum, hitting at least $50 billion in the five year.

So why am I thinking about this stuff now? Well, it’s because it has started to make inroads into the world of payments. In Japan, NTT Docomo has teamed up with Sony and NXP Semiconductors (their UWB chipset was announced last September) to trial technology that lets shoppers make NFC payments without having to take their phones out of their pockets. They are using UWB to follow user movement and positioning with location accuracy of a few centimetres. This takes the new location technologies into the transaction space, alongside the existing Wifi, RFID/NFC and Bluetoon technologies. Obviously this of particular interest to me because of the applications around payments, insurance and risk management but I’m sure there are kids in basements rights now working on applications that I’ve never thought.

It seems to me that location is going to be central to some pretty important battles in the consumer technology space. Wired magazine summed up one of these battles very well last year, noting that Amazon (whose Sidewalk meshes low-cost, low-bandwidth sensors and smart devices) and Apple have embarked on missions to extend their control of their customers’ devices so that “Apple can get out of the home and Amazon can get into it”.

Knowing where you are and where your stuff is begins to erode fuzzy boundaries between mundane and virtual and creates a new border zone where competition will spur a generation of innovation. Oh, wait… where did I leave my AirPods…

[This is an edited version of an article that first appeared on Forbes, 12th November 2020.]

Tokens, tokens everywhere

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You don’t have to be a cryptocurrency believer to think that the underlying technology of cryptocurrencies (value transfer without an intermediary, with double-spending prevented through distributed consensus) is going to change the financial sector. Indeed, the use of that underlying technology may well mean that cryptocurrencies in their current form are never needed, because more general digital asset transfer platforms will supplant them. These platforms, which enable the exchange of digital assets without clearing or settlement (let’s call these digital assets “tokens” for short), have real potential.

I wrote in my book “Before Babylon, Beyond Blockchain” back in 2017 that tokens may make a real difference to the way the economy works and the subsequent evolution of the cryptocurrency world has reinforced my view. Not that my opinion counts for much. But the opinion of Jay Clayton, the chairman of the U.S. Securities and Exchange Commission (SEC), counts for a lot more and he is saying the same thing: in time, everything will be tokenised.

When the current craziness is past and digital asset tokens have become a well-regulated but wholly new kind of digital asset, a cross between corporate paper and a loyalty scheme, they will present an opportunity to remake markets in a new and better way. 

It’s a view that is supported not only by wide-eyed techno-utopian hype-merchants (eg, me) but by the sensible, forward-looking and rational financial sector leaders. I remember interviewing Jonathan Larsen (chief innovation officer of Ping An Group and head of the Ping An Global Voyager Fund) on stage at Money20/20 Asia. He told me that “Tokenization is a really massive trend… a much bigger story that cryptocurrencies, initial coin offerings (ICOs), and even blockchain” and confirmed my suspicion that long-term planning in the financial services sector must include some radically different scenarios. Jonathan spoke eloquently about the characteristics of the new asset class (including fractionalisation, which fascinates me) but went on to talk about the key characteristics of a digital asset platform that can fundamentally change the way the world of finance works: “transparency and universal access and the ability to reduce frictional costs”. I see this as a way to more efficient and liquid markets, and I am hardly alone in this.

Digital assets that are bound to “real world” value by regulated institution present not only the mechanism for a different financial sector but an innovative approach to a better financial sector. A sector that serves wider society more effectively and attacks the stubbornly high cost of financial intermediation in a modern economy. In a speech, Banque de France first deputy governor Denis Beau touched on inefficiencies in the sector and said that tokenisation could be a way to “answer the market’s demands”. I agree, obviously.

At the World Economic Forum this year, there was a discussion about what assets might be tokenised, with examples ranging from property to owning a fraction of a piece of art by Andy Warhol, although the ones that attracted the most discussion were enabling farmers in emerging markets to raise finance by selling future crop yields and sports stars selling the rights to their future income. I can foresee a rich and varied marketplace. Some tokens will be assets, and fractional ownership of assets. Some tokens will be claims on future products and services. Some tokens will be the currencies of communities.Who knows which of these might become a real markets, but one candidate for a successful token class (for which there appears to be real demand) is central bank digital currency (CBDC).

Monalistatidied

with kind permission of TheOfficeMuse (CC-BY-ND 4.0)

Don’t Listen to Me

Now, when people like me or the head of Ping An VC fund or a deputy governor of the French central bank talk about the inevitability of tokenisation, that’s one thing. But when Jay Clayton said at the beginning of October that while there were once stock certificates, today there are database entries representing stocks and “it may be very well the case that those all become tokenized” (my italics), I think it’s time to begin some serious planning for a reformed financial sector that is more efficient, more effective in serving the wider economy and more resistant to bad behaviour of all kinds.

That last point is important. Jonathan’s mention of transparency highlights one of the key reasons that we should all want to see this kind of financial sector. Look at some of the recent problems in the world of finance, such as the collapse of Wirecard. Corporate accounts included assets that simply did not exist. Since auditors and the regulators and the board were unable to prevent criminality on a grand scale here, it is reasonable to ask whether technology might be able to do better job. Well, I think the answer is yes, and I think tokenisation is part of consistent vision of just how it might do so: if I claim to own one-thousandth of the Mona Lisa it is easy for you to check on the digital asset platform to see that the token representing one-thousandth of the Mona Lisa is in my wallet.

Thus, while the tokenisation of financial assets and the creation of what I heard Jeremy Allaire of Circle call the “long tail” of capital markets is a much broader topic than CBDC its apparent inevitability means we should begin to explore this concept of CBDC as simply one kind of a more generalised digital asset, albeit one that is bound to risk-free central bank money. Even that most conservative of organisations, the Association of German Banks, says that in order to “maintain Europe’s competitiveness, satisfy customers’ needs and reduce transaction costs, the introduction of euro-based, programmable digital money should be considered”.

What they refer to a programmable digital money, and what I call smart money, is money built on tokens. In this model of the world, one might imagine using a platform built from cryptocurrency technologies to trade thousands or millions of different tokens, with one form of these tokens being digital currency and one category of token issuers being central banks. This is no crazy cryptomaximalist conjecture but a reasoned and reasonable projection of capitalism’s use of the new technology of value transfer.

Huw van Steenis of UBS, who I take very seriously on these matters because of his work at the Bank of England, says that there will be a “three-horse race” around the future of money with private tokens and CBDCs developing in parallel with efforts to improve the current system (see, for example, SWIFT gpi and the UK’s new payments architecture). This is wise counsel, and there is indeed every possibility of competition between these approaches stimulating innovation in the short-term but then a longer-term convergence as the platforms for exchanging digital asset tokens are used to implement both private tokens and public tokens (including CBDCs).

In this appealing vision of the future, there will be nothing technological to distinguish central bank digital currency from other digital assets that will be functionally equivalent to money, such as corporate currencies. Dollar bills from Bill’s dollars (I never get tired of this trope): one will be tokens backed by risk-free central bank money, the other tokens backed by Microsoft revenues. But they will both be tokens, exchanged without clearing or settlement through the same secure global digital asset platform.

[This is an edited version of a piece that first appeared on Forbes.com, 2nd November 2020.]

PayPal’s Bitcoin strategy is about much more than bitcoin

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Given that the people who are great supporters of bitcoin often talk about its key characteristic being that it is person-to-person, uncensorable value transfer you do have to wonder who will be using the new PayPal service that will allow them to pay merchants using the cryptocurrency. My good friend Ron Shevlin drew on a survey of 3,000 US consumers conducted by Cornerstone Advisors and FICO which found that around two-thirds of US smartphone users have the PayPal app installed (as I do), a seventh of all PayPal users already own some form of cryptocurrency and of those PayPal users, half of them used Bitcoin to buy products or services in the past year. So does this mean that the mass market use of cryptocurrency for payments is just around the corner?

I think not. The overwhelming majority of all cryptocurrency transactions are purely speculative and the people who think that bitcoin is a good investment* are never going to use it for payments. Bitcoin was originally billed as an elecronic cash system but most bitcoins aren’t used as currency in transactions for goods and services. Surveys have shown that the majority of bitcoin are held for speculative purposes and while some retailers accept Bitcoin, they see cryptocurrency purchases having a higher drop-out rate than cards and cash payments.

Paypalpassword

with kind permission of TheOfficeMuse (CC-BY-ND 4.0)

So this can’t be much of a payments play. Think about it. If you think that the bitcoin is going to the moon (and will be worth $1 million each within five years, as this former Goldman Sachs hedge fund person has just predicted) then why would you waste even a tiny fraction of a bitcoin buying the pizza or a Pez dispenser? No, the people who will use their PayPal wallet to exchange bank dollars for PayPal bitcoin are simply investing. If they choose to pay a merchant using bitcoin from their wallet, PayPal gives the merchant dollars anyway. Neither the consumer nor the merchant ever has any actual bitcoins in their possession.

When people do use bitcoin to buy things it tends to be things they can't buy using PayPal anyway. Click To Tweet

The amount of cryptocurrency spent on “dark markets” rose two-thirds to reach a new high in the final quarter of 2019, according to Chainalysis and the New York Times says that this data is likely to understate the number transactions for illegal purposes because the company cannot identify all activities relating to drugs, ransomware, tax evasion and money laundering. If I use bitcoin to buy illegal drugs, example, because of its “anonymity” and uncensorability, then I am hardly likely to start buying drugs using PayPal. The example of adult services makes this point rather well. Adult performers who are engaged in a perfectly legal business complain that PayPal refuses to allow payments to them and so they are forced to use third-parties who, according to the New York Times, take anywhere from a third to four-fifths of performers earnings in fees. Those people still won’t be able to use PayPal, whether in dollar or bitcoin, so the new service won’t make any difference to them.

PayPal’s Big Picture

Well, since the people who run PayPal are much richer and much smarter than I am, I am forced to conclude that they must have a plan that goes beyond earning some spreads from buying and selling cryptocurrency for retail speculators. I have no knowledge what PayPal are doing or why, but I do have some experience looking at strategies for financial institutions exploiting new technology, so I think I can make some informed guesses.

First of all, PayPal’s move is to be admired purely in marketing terms. The announcement put five percent on their stock price and garnered gazillions of column inches, links and commentary such as this. Even if they never turn a profit on bitcoin itself, their investment in software and licences has already paid off. I worked on a project for a global financial services financial services organisation a couple of years ago and I can remember the calculations around brand and exposure. To old-timers like me, PayPal is the grandparent of fintech, an upstart storming the walls of the entrenched incumbent financial services giants. But to youngsters, such as the son who I just asked about the company, PayPal are part of the establishment, no different to Wells Fargo or Barclaycard. A bit of cryptocurrency glitter does not hurt the brand, even if it is cosmetic.

Secondly, the technologies of cryptocurrency (shared ledgers, cryptographic proofs and so on) are going to be the foundations of a longer term shift to the trading of digital bearer instruments that are exchanged without clearing or settlement networks so building up institutional expertise is valuable. It’s reasonable to imagine that these instruments might well be implemented as tokens traded across decentralised networks, so exploring the trade-offs around infrastructures and interfaces is a good investment of time and effort.

Thirdly, and much more importantly though, I suspect that PayPal are making two much more strategic and long-term plays around the wallet and its contents. They are no doubt looking enviously across the water to the Asian “super apps” and thinking about the impending Alipay IPO. Turning PayPal from being a repository of balances to fund payments into a financial hub managing a number of different assets for a broad range of consumers is attractive to them. In their scenario planning, PayPal undoubtably started to think about the opportunities that will arise from the trading and management of digital assets (in the form of tokens) in the not-too-distant future. By gaining expertise in decentralised alternatives to commercial bank money and the regulation that does with them, PayPal is being very smart.

I don’t think PayPal’s experiment with bitcoin is really much about bitcoin at all. I think this is a measured and intelligent step towards the transactional environments of the future where digital assets compete with digital fiat across a payments landscape that is utterly different to that of today. As Ajit Tripathi pointed out, crypto-believers might feel they have occupied Wall Street but the reverse is true. Banks (and their regulators) have won and some of these interesting new digital assets are on their way to becoming part of the financial mainstream.

There is one particular category of digital asset that is inevitable: Central Bank Digital Currency (CBDC). In the run-up to the biggest IPO in history, Jack Ma talked about how digital currencies may play an important role in building the type of a financial system that will be needed for the coming generation and said that digital currency could “create value and we should think about how to establish a new type of financial system through digital currency”. Just as the Chinese government have begun to distribute their digital currency through third parties, including commercial banks and apps, so PayPal might reasonably expect to be an invaluable partner to the US government when it finally gets its act together to deliver some sort of digital dollar. If PayPal were to pivot away from the traditional infrastructure of banks and accounts, payments cards and interchange towards an infrastructure of wallets exchanging digital dollars (or perhaps, as Meltem Demirors speculates from a very well-informed perspective, their own alternative to Facebook’s Libra private currency) that would be a significant shift in the dynamics of the payments sector.

* I am not saying that I do or do not think cryptocurrency is a good investment. I am not making any comments that might be misconstrued as financial advice. Please note that any comments I make about cryptocurrencies as an asset class are for entertainment purposes only.

[This is an edited version of a piece that first appeared on Forbes.com, 25th October 2020.]

Kim Kardashian, COVID and escape to the cyburbs

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Kim Kardashian’s trip to a private island with a few close friends has attracted some criticism from normal people who are unable to outrun this virus in their Gulfstreams, but she is hardly the only one percenter to be using her wealth as an alternative to social distancing, face masks and work-from-home lockdown misery. Douglas Rushkoff wrote eloquently about the phenomenon of the rich moving out of cities to comfortable mansions in the country to avoid the pandemic. He talks about the rich building their “escape pods” and (with what I imagine to be frightening prescience) how the journey from video doorbell to autonomous robots sentries is constrained by money, rather than by ethics.

Inept government responses to COVID are pushing those escape pods to escape velocity irrespective of the actual risk. Indeed, as Rushkoff goes on to say, he “can’t help but wonder if the threat of infection is less the reason for this newfound embrace of virtual insulation than it is the excuse”. The rich have had enough of the rest of us and they don’t want to be another country, they want to be another planet.

As a wage-slave scrabbling to make a living in the post-pandemic ruins of a career, I will never be able to afford that private island with ground-to-air missile defences and live-in help. But I can afford a nice chair for my study, some patio furniture of when it’s warm and high-speed broadband (props to Virgin, by the way). With this, I can retreat from a dangerous, unpleasant and confusing physical world into a controlled organised and above all safe virtual world. I am more than happy to commute through cyberspace rather than on crowded, unpleasant and disease-ridden trains.

Speedtest

Escape velocity, Woking-style.

There must be a lot of people thinking this way right now, judging by the deserted streets I saw in London last week. And it is interesting to me because I agree with Sam Lessin’s observation that if a result of the pandemic is more online working, online commerce, online education, online government and so on, then we will see that digital identity will be a crucial pivot. His point that “if the jobs people need are in digital rather than physical space, the internet’s side of the fight will gain a lot of power” is accurate and I think the consequences of that win are more significant and more far-reaching than may at first be obvious.

The digital identity that I use in the online world will be vastly more important to me than the physical identity that I might occasionally need at an airport. Click To Tweet

In other words, the digital identity that I use to traverse the highways and byways of the online world will be vastly more important to me than the physical identity that I occasionally need at an airport (should I ever get to fly anywhere again).

Never mind a flight to the suburbs, I predict a flight to the cyburbs.

The safe, digital space where I will earn a living is a cyburb, a little corner of the internet where I will live with people are who, broadly speaking, like me. Kind of like the gated community that my cousin retired to in America. A crucial difference, however, between these gated communities in cyberspace and their real-world equivalents in the Hamptons is that digital identity will form a more effective boundary than the barbed wire and armed guards of the gated communities that the rich will retreat to in the real world. The people living in the cyburbs will be happy to pay taxes for better broadband and efficient home delivery and neighbourhood security, but it is going to be pretty difficult to persuade them to pay tax to support public transport in the city that they never visit, police they never see and services for (as they see it) the unchecked angry youth roaming the city streets.

When the residents decide on a new ordinance, they can enforce it instantly and effectively and will exclude transgressors by removing access from their virtual selves. There may be all sorts of constitutional and legal issues with stopping people you don’t like from walking down your physical street, but there’s no problem at all with stopping them from walking down your virtual street. In a reputation economy, justice takes a different form: taking away your attributes can be much more of a punishment than putting you in jail. Life will be ordered and managed. It will be safe.

Out in the cyburbs, code is law.

It seems to me that if society divides across the online and offline fault line, then for a great many people the emerging new world looks more appealing than the old physical world. Lessin’s observation that “a world where people come to earn money mostly online and disconnected from the physical world is a world of internet ascendancy” reinforces the view set out in my book Identity is the New Money (LPP: 2014) that we are going back to the future. What I meant by this was that mobile phones, the Internet and social media allow us to escape the urban anonymity of the industrial revolution and organise ourselves by communities. In the neolithic world, of course, people lived in one community and its boundaries were geographic. Our brains were assembled for optimal interaction in the clan of around 150 people, a number well known to social scientists. In the online world, each of us will belong to multiple overlapping clans that are defined by what people are rather than who they are and the boundaries will be soft, defined by credentials not identity.

These clans will range from friends and family to work and play. Between my Dungeons and Dragons clan and my extended family clan and my Arrest The Prime Minister clan, I’m fine. You can see why people will prefer to live this way. If I break the rules of the Woking FC Season Ticket Holder’s clan, then I will be cast out. End of story. There won’t be a bill of rights any more than there is one for Facebook Groups, no more free speech than there is on Twitter and no more right to reply than there is on Instagram.

Cyburbia might sound like a virtual Disney village to you, a bland echo chamber existence devoid of creativity or imagination, but to a great many people it sounds like heaven.

(This is an edited version of an article that first appeared on Medium, 7th September 2020.)

Breaking up Big Tech is so last century

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What should regulators do about the power of the big technology companies? In America, the Justice Department has just filed massive anti-trust suit against Google, which many think marks the beginning of a new era of regulation for “Big Tech” and the the House Judiciary Committee’s antitrust panel have just completed a 16 month investigation into Amazon, Apple, Google and Facebook. That panel found that Big Tech has what is calls “monopoly power” in key business segments and has “abused” its dominance in the marketplace. It was a thorough condemnation of the internet giants. The panel complains that there is “significant evidence” to show that BigTech’s anticompetitive conduct has hindered innovation, reduced consumer choice and even weakened democracy.

So, what is to be done? I had the honour of chairing Professor Scott Galloway who is the author of “The Four”, an excellent book about the power of internet giants (specifically Google, Apple, Facebook and Amazon – hence the title), at a conference in Washington a while back. He set out a convincing case for regulatory intervention to manage the power of these platform businesses. Just as the US government had to step in with the anti-trust act in the late 19th century and deal with AT&T in the late 20th century, so Professor Galloway argues that they will have to step in again, and for the same reason: to save capitalism.Galloway

With Professor Galloway in Washington, DC.

Professor Galloway argues that the way to do this is to break up the internet giants. Should Congress go down this route? Well, one of the panel’s own members, Ken Buck (Republican), while agreeing with the diagnosis, said that the Democratic-led panel’s proposal to force platform companies to separate their lines of business (ie, break them up) is not the right way forward. I agree. Forcing Amazon to spin out Amazon Web Services (to use an obvious and much-discussed example) won’t make any difference to Amazon’s role in the online commerce world.

Breaking up big companies seems to me an already outdated industrial-age response in the post-industrial economy. Click To Tweet

Google is not U.S. Steel, data is not the new West Texas Intermediate and Facebook is not the new Standard Oil. However, the idea of focusing regulation on the refining and distribution of one of the modern economy’s crucial resources has logic to it. We need this regulation to protect competition in the always-on world of today and there are plenty of alternatives to breaking up technology companies, as Angela Chen explained very well in MIT Technology Review last year. Perhaps the most fruitful way forward is an approach based on a future capitalist framework along the lines of what Viktor Mayer-Schönberger and Thomas Range called in Foreign Affairs a “progressive data sharing mandate”.

There are many informed observers who say that America should to look see what is going on in Europe in order to formulate this kind of approach: Here in Forbes last year, Robert Seamans and “Washington Bytes” highlighted data portability as a potentially valuable approach and pointed to the UK’s open banking regulation as a source of ideas. I think this makes a lot of sense and that a good way to explore what some form of data-centric remedy might look like is indeed to take a look at Europe’s open banking regime. More specifically, start with what it got wrong: because in that mistake are the seeds of a solution.

Cake

with kind permission of TheOfficeMuse (CC-BY-ND 4.0)

Back in 2016, I wrote about the regulators demanding that banks open up their APIs to give access to customer data that “if this argument applies to banks, that they are required to open up their APIs because they have a special responsibility to society, then why shouldn’t this principle also apply to Facebook?”. My point was, I thought, rather obvious. If regulators think that banks hoarding of customers’ data gives them an unfair advantage in the marketplace and undermines competition then why isn’t that true for Big Tech?

When I said that the regulators were giving Big Tech a boost in “Wired World in 2018”, no-one paid any attention because I’m just some tech guy. But when Ana Botin (Executive Chairman of Santander) began talking about the lack of any reciprocal requirement for those giants to open up their customer data to the banks, regulators, law makers and policy wonks began to sit up and pay notice. She suggested that organisations holding the accounts of more than (for example) 50,000 people ought to be subject to some regulation to give API access to the consumer data. Not only banks, but everyone else should provide open APIs for access to customer data with the customer’s permission.

This is along the lines of what is being implemented in Australia, where open banking is part of a wider approach to consumer data rights and there will indeed be a form of symmetry imposed by rules that prevent organisations from taking banking data without sharing their own data. The Australian Competition and Consumer Commission (ACCC) has already had enquiries from international technology companies wanting to participate in open banking. The banks and many others want this method of opening up to be extended beyond what are known as the “designated” sectors, currently banking and utilities, so that if a social media company (for example) wants access to Australian’s banking data it must become an “accredited data recipient” which means it turn that it must make its data available (in a format determined by a Consumer Data Standards Body).

A symmetrical approach along these lines would not stop Facebook and Google and the others from storing personal data but it would stop them from hoarding it to the exclusion of competitors. As Jeni Tennison set out for the UK’s Open Data Institute, such a framework would allow “data portability to encourage and facilitate competition at a layer above these data stewards, amongst the applications that provide direct value to people”, just as the regulators hope customer-focused fintechs will do using the resource of data from the banks.

SIBOS 2020

This year, the SIBOS event was totally online.

At this year’s SIBOS (it’s a sort of Burning Man for bankers), the CEO of ING Steven Van Rijswijk re-iterated the need for reciprocity, saying that he wanted the regulators come up with an equivalent for banks so “the data flow can go two ways”. Well, this may be on the horizon. As the Financial Times observed, an early draft of the EU’s new Digital Services Act shows it wants to force Big Tech companies to share their “huge troves” of customer data with competitors. The EU says that Amazon, Google, Facebook and others “shall not use data collected on the platform . . . for their own commercial activities . . . unless they make it accessible to business users active in the same commercial activities”.

It seems to me that U.S. regulators might use this approach to kill two birds with one stone: requiring both Big Banking and Big Tech to provide API access to customer’s data. Why shouldn’t my bank be able to use my LinkedIn graph as input to a credit decision? Why shouldn’t my Novi wallet be able access my bank account? Why shouldn’t my IMDB app be able to access my Netflix, Prime and Apple TV services (it would be great to have a single app to view all of my streaming services together).

Symmetric data exchange enforcing consumer-centric data rights can lead to a creative rebalancing of the relationship between the technology and banking sectors and make it easier for new competitors in both to emerge. Instead of turning back to the 19th and 20th century anti-trust remedies against monopolies in railroads and steel and telecoms, perhaps open banking adumbrates a model for the 21st century anti-trust remedy against all oligopolies in data, relationships and reputation. The way to deal with the power of BigTech is not to break them up, but to open them up.

[This is an edited version of an article that was first published on Forbes, 12th October 2020.]

National Wealth Service

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In the UK, last year’s report on “Consumer Priorities for Open Banking” by Faith Reynolds and Mark Chidley (which is, by the way, an excellent piece of work and well worth reading) set out just why it is that open banking by itself delivers quite limited benefits for consumers. They point towards a future of open finance (and, indeed, open everything else as well) and talk about an industry that uses the new technologies of artificial intelligence, APIs, digital identity and so on to take a more complete view of a customer’s situation and provide services that increase the overall financial health of that customer. I thought this was a very interesting way of creating a narrative for the next-generation fintech and regtech propositions.

Oct1 financial health

with kind permission of TheOfficeMuse (CC-BY-ND 4.0)

We are beginning to see initiatives focused on financial health and wellness. My good friend Rik Coeckelbergs, founder of “The Banking Scene” in Belgium, talks in those terms also. He recently wrote that a bank must support its customers in having “a financially balanced life, helping them to reduce financial stress by improving their financial wellbeing”. The more I think about it, the more I agree with Rik that this should be one of the societal responsibilities of banks as heavily-regulated players crucial to the nation’s well-being. Just as electricity companies are regulated to not only produce electricity but not to pollute their environment or kill consumers because of poor safety, so perhaps it is time to apply some similar thinking.

Two-thirds of executives surveyed said financial health was important but less than fifth were reporting on it. Click To Tweet

Where should we start? As the CFSI reported, while more than two-thirds of executives surveyed said financial health was a “strategic priority”, less than a fifth were actually reporting on customer financial health, which would seem to be a good trigger for practical initiatives and a way to encourage regulators, partners and customers themselves to ask questions about improvements in financial wellbeing. That’s not to say that nothing is happening, of course! For example, JPMorgan Chase have committed to give $125 million over the next five years to non-profits working around the world to improve the financial health of underserved communities and efforts such as this deserve applause.

Writing more recently in the Harvard Business Review, Todd Baker and Corey Stone explore some interesting ideas around this. They say that the prevailing paradigm (of markets and choice) has created a regulatory system that “largely places responsibility — absent the most egregious abuse — on the individual consumer”. They argue for a radically different regulatory structure to more directly connect the success of financial services providers to their customers’ financial health, a where-are-the-customers’-yachts approach where banks prosper when their account holders prosper. They draw an interesting analogy by comparing this approach with experiments in the American health marketplace that pay providers for improving patients health, “rather than paying them simply for treating patients regardless of the outcome of the medical intervention”.

My good friend Ron Shevlin wrote a great piece about this in Forbes arguing that financial health platforms will emerge to provide this next generation of financial services and pointing out that it will provide some terrific opportunities for fintechs. He suggests that aggregators such as MX, Plaid, Yodlee or Finicity could be a real catalyst in making something happen. I agree: if we can connect the potential for open banking to provide the data to the potential for new players to use that data, we can expect to see real innovation. This kind of thinking delivers a useful narrative for stakeholders to communicate around the post-pandemic financial services they must necessarily develop to support communities in their recovery from the COVID chaos and beyond.

I think this is really important. Refocusing the sector on delivering financial health, rather than financial services has implications that go way beyond choosing better credit cards or spending less on coffee and more on pensions. The American Psychological Association considers financial stress to be one of the top stressors in America and research shows clearly that financial stress and economic hardships link to a variety of very negative physical and mental health outcomes, ranging from abuse and neglect to household dysfunction and heart disease. There is no doubt about it: improving financial health improves health in general.

In order to do this, financial health providers will need a better picture of individuals and their circumstances. They need the raw data to work with. Just as the doctor needs X-rays, bloods and histories, so the AI that powers an effective financial health provider needs your transaction records from your checking account, your mortgage, your pension, your insurers and everywhere else. In the current economic downturn, to highlight the obvious example, many people make a lot mistakes in managing their finance through stressful and unfamiliar circumstances. But as was pointed out in the Wall Street Journal recently, most of these mistakes are very basic. It does not take a giant supercomputer and all of the data in the word to stop people from falling into common traps around the way they borrow, save, spend and invest.

I wouldn’t go so far as to say that we need a National Wealth Service in the UK, but we might imagine a situation where employers strive to improve employees wealth, just as they provide health benefits now by funding financial counseling as an employee benefit. The cost of providing such services, in a world of AI and machine learning, is affordable and delivers something of real value to the normal person who is, frankly, as ill-equipped as I am to make decisions about pension plans and savings and so on.

This is why I so sure that the connection with open banking, open finance and open data means the potential for a real revolution in consumer finance and this time it will be a  revolution that will make life better for the average consumer.

[This is an edited version of an article that first appeared on Forbes on 1st October 2020.]

Helicopter money (and Hitler)

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Pressure groups, reformers and economists (such as Positive Money) have long argued that “Helicopter Money”, a term coined by Milton Friedman in his 1969 work “The Quantity Theory of Money” (although to be fair Hitler had had the same idea a generation before so I don’t know why they don’t call it Heinkel Money), is better than Quantitative Easing (QE) in circumstances of disaster and distress. Their argument is that instead of pumping money into financial markets (as central banks did with QE in response to the Great Financial Crisis of 2008), it would stimulate the real economy by transferring money directly to citizens.

As I wrote in Financial World magazine, the traditional financial system is of course an option. Instant cash handouts work well in an economy where everyone has a bank account (let’s say Denmark, for example, where 99.92% of the population over 15 has one) and some form of widely-accepted digital identity (let’s say Denmark, where 92% of the population over 15 has one) it’s quite straightforward. The central bank harvests from the magic money tree and sends the fruit to the commercial banks, the commercial banks add it to the accounts of individuals who register for it with their digital IDs (as in “I am Dave Birch and I claim my £5”). And for the the few remaining people who feel that they have missed out on the free cash, well, they can go to a Post Office or whatever. But what if you are in a country where not everyone has a bank account? The UK, for example, where the Financial Inclusion Commission reckons that there are one-and-a-half million adults without a bank account (and the World Bank puts us in the world top ten for banking inclusion!). Only half of them actually want a bank account although I suppose they might be persuaded to get one for the purposes of receiving a stimulus payment.

It can’t go on like this.

When the next pandemic arrives, things will be different. Or at least they will be different in some countries. The ones with digital currency. In report on digital currency for the CSFI, back in April, I wrote that central banks have long considered it a key advantage of digital currency that it adds to their policy toolkit in interesting ways. It removes the zero-lower bound on interest rates, increases economic activity (the Bank of England Staff Working Paper No. 605 by John Barrdear and Michael Kumhof, “The macroeconomics of central bank issued digital currencies” estimated that substituting only a third of the cash in circulation by digital currency would raise GDP by 3%) and, of course, enables helicopter money. If every citizen has an electronic wallet, then sending electronic cash over the airwaves and directly into those wallets becomes simple.

One of the unexpected consequences of the COVID crisis and the international response to it may well be to accelerate the transition to digital currency. Click To Tweet

One of the unexpected consequences of the COVID crisis and the international response to it may therefore be to accelerate the transition to digital currency that can be delivered directly to citizens. This may have seemed the province of Bitcoin fans until quite recently. However, in the Spring the People’s Bank of China began testing their “DC/EP” system (it stands for Digital Currency/Electronic Payment) in four cities: Shenzen, Chengdu, Suzhou and Xiong’an. The uses will vary, but we already know that in Suzhou, the pilot began in May by paying half of the travel subsidies given to public sector workers as digital currency.

DCEP phone

with the kind permission of Matthew Graham @mattysino

At the virtual SIBOS 2020, PBOC’s deputy governor Fan Yifei said that by late August, the bank had already processed more than three million DC/EP transactions worth some $160+ million, with over  6,700 pilot use cases implemented. He went on to say that “113,300 personal digital wallets and 8,859 corporate digital wallets have been opened”.

Lets hope the Bank of England don’t take this laying down. When the next pandemic rolls in, Andrew Bailey should be able to juggle his spreadsheets and have the stimulus Sterling in our pockets like greased lightning, no helicopter (or commercial banks) needed.

Me with patriotic cushion

Hitler’s plan for Helicopter Money failed.

If you are curious about Hitler’s plan for helicopter money, by the way, the story is told in the brilliant film “The Counterfeiters”, which won the 2007 Oscar for best foreign film. It is the true story of Operation Bernhard, which was the name of that Nazi plan to devastate the British economy by printing money. The idea, conceived at the very start of the Second World War, was to drop worthless counterfeit banknotes over England, thus causing economic instability, inflation and recession.

The film is based on a memoir written by Adolf Burger, a Jewish Slovak typographer who was imprisoned in 1942 for forging baptismal certificates to save Jews from deportation. The Nazis took Burger and more than a hundred other Jews from a variety of trades — printing, engraving and at least one convicted master counterfeiter, Salomon Smolianoff — and moved them from different death camps to a special unit: “Block 19” in Sachsenhausen concentration camp. There they set about forging first the British and then the American currency.

(The BBC produced a comedy drama series based on Operation Berhard in the early 1980s, “Private Schulz”. The characters were based on the real inmates of Sachsenhausen, where 30,000 people were murdered during the course of the war.)

In the end, the prisoners forged around £132 million, which is about five billion dollars in today’s prices. The forgeries were perfect, but the Nazi plan probably wouldn’t have worked. They were churning out £5, £10, £20 and £50 notes at a time when the average weekly wage in Britain was a fiver. The Bank of England though were so concerned that should the Sachsenhausen operation switch to lower denominations then there could be trouble. For this reason, it had to make a contigency plan to withdraw the £1 note and the ten shilling note! So British Intelligence asked Waddingtons Games (who made Monopoly) to print five shilling (25p) and two-and-half shilling (12.5p) notes to replace coins instead of its usual game currency money.

These notes were never used and were destroyed at the end of the war, because the Nazis were never able to put their plot into operation. They packed up all the printers’ plates and counterfeit bills into crates which they dumped into Lake Toplitz in Austria, from which they were subsequently retrieved, which is how it is that I have one of the real fakes hanging in my study.

[An edited version of this piece appeared on Forbes.com, 26th July 2020].

Credit cards are 62. OK, Boomer.

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In their excellent paper “The Ascent of Plastic Money: International Adoption of the Bank Credit Card, 1950–1975” in Business History Review (Issue 92, 2018), Bernardo Batiz-Lazo and Gustavo A. Del Angel state unequivocally what we all know to be true: that the bank-issued credit card marked a turning point in the history of retail payments and most countries saw an explosion in the number of new domestic entrants into “paying with plastic” following the spread of the American pioneer BankAmericard (eg, to Barclaycard in the UK) and its later rival Interbank.

The genesis of that pioneering BankAmericard was the “Fresno Drop”, a day that should be celebrated throughout the financial services sector and every other sector as well. On 18th September 1958, Bank of America officially launched its first 60,000 credit cards in Fresno, California, setting in motion an experiment that changed the American way of borrowing, paying and budgeting.

And, in time, changed everyone else’s way of doing those too.

Now is not the time to go over the whole story, and I am sure most of you are familiar with it anyway, but if you want a good introduction to the history of the credit card, from the Fresno Drop up to the Internet, I’d recommend Joe Nocera’s “A Piece of the Action“, which I read many years ago and still pick up from time to time. On the other hand, if you want to spend five minutes having a quick look at where the modern credit card business comes from, here’s the short version (courtesy of CNN Money): The most extraordinary episode in credit card history is the great Fresno Drop of 1958. The brainchild of a Bank of America middle manager named Joe Williams, he mailed out 60,000 credit cards, named BankAmericards, to nearly every household in Fresno [and] thousands of ordinary people suddenly found that thousands of dollars in credit had literally dropped into their laps…

No applications, no credit scoring, no approval mechanism. Almost every household got one. Each card had a credit limit of $500 (that’s around $5,000 adjusted for inflation). It was an astonishing and audacious experiment.

Windhield

with kind permission of TheOfficeMuse (CC-BY-ND 4.0)

There you go. Now you can go ahead and bore at least one person today with the story of the Fresno Drop. I know I will, because I cover the drop in my book Before Babylon, Beyond Bitcoin, where I point out that what is sometimes overlooked from our modern perspective is that the evolutionary trajectory of credit cards was not a simple, straight, onwards-and-upwards path. For the first decade or so, it was far from clear whether the credit card would continue to exist as a product at all, and as late as 1970 there were people predicting that banks would abandon the concept completely. Margins were thin and as Dee Hock, the visionary founder of the inter-bank organisation that became Visa, wrote in his history of the industry that at the end of the 1960s fraud was spiralling out of control and threatening to kill the industry stone dead. Blank cards were stolen from warehouses, personalised cards were stolen from the mail and organized crime was on the scene.

What changed everything was a combination of regulation and technology: regulation that allowed banks to charge higher interest rates and the technology of the magnetic stripe and computer networks for online authorisation systems. This changed the customer experience, transformed the risk management and cut costs dramatically while simultaneously allowing the banks to earn a profit from the business.

(I can’t resist pointing out that it was the London transit system that pioneered the use of magnetic stripes on the back cards. The first transaction was at Stamford Brook station on 5th January 1964, well before BankAmericard introduced their first bank-issued magnetic stripe card in 1972 ahead of the deployment of electronic authorisation in 1973.)

OK, Boomer

So now they are 62, where do these baby boomers go next? When cards went through middle age they bought the sports car of tokenisation and made some younger friends (Apple Pay and GooglePay). But now, as cards approach their golden years, who are the millennials set to inherit the (less profitable) Earth? Many years ago, I saw Anthony Jenkins (the former CEO of Barclays) give a terrific talk at a product launch in which he predicted that mobile phones were going to replace cards long before they replaced cash, a view echoed earlier this year by Deutsche Bank research in their future of payments study. I think they are right, of course, but what exactly will we use those mobile phones for? Instant credit transfers or digital currency? Request-to-pay and Libra transfer or WeChat message with digital Yuan inside? Bank credit transfers or AmazonAMZN credit transfers?

What seemingly failing financial technology experiment of today will change the world a decade from now because of a combination of regulatory and technological change? Click To Tweet

Remember, it took more than a decade for the Fresno drop to turn into the mass market business, integral to the economy, that we know today. So I cannot resist asking you all what seemingly failing financial technology experiment of today will have an impact of a similar magnitude a decade from now because of a combination of future regulatory and technological change? DeFi or Digital ID? FacebookPay or the Lightning Network?

My guess is that will be something to do with digital asset token trading, but I’d be curious to hear yours.

[An edited version of this piece first appeared in Forbes, 18th September 2020.]

No consensus on CBDCs

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Earlier this year, Jeff Wilser was kind enough to write an article about me called “The Man Who Forecast a Currency Cold War” for Coindesk in the run-up to the annual Consensus blockchain conference, which is sort of like SIBOS but for blockchainers rather than bankers.

Screenshot 2020 05 18 12 21 20

Consensus Distributed 2020

It is an annual event in New York and, like many other events, it went virtual this year. I took part in the “Money Re-imagined” session with Michael Casey. Mike chatted to former Treasury Secretary Larry Summers (who is on record as saying that the US should invest in improving SWIFT rather than a digital dollar), digital dollar visionary Chris Giancarlo, Dante Disparte of the Libra Foundation and crypto-industry luminaries Joe Lubin and Caitlin Long. I took part in a discussion with Sheila Warren of the World Economic Forum.

Summers too much privacy

Larry Summers said there may be “too much privacy” in payments.

(If you are curious, I used this discussion session as a case study for my new Fintech Writer’s Workshop video series, so do head over to my Youtube channel DaveFlix and take a look.)

Mersch tokens

Yves Mersch talked about using tokens to implement CBDC.

What particularly caught my eye was the contribution of Yves Mersch from the European Central Bank who talked about the idea of using tokens to implement a Central Bank Digital Currency (CBDC). When I first wrote about this a few years ago, it was probably seen as something out of left-field but by the time I gave a talk about it at the Blockchain Innovation Conference in 2018 it had become if not mainstream, exactly, certainly a topic for discussion in polite society, so it was very interesting to see such a well-informed “insider” talk about this approach.

More likely are the use-cases that don’t even exist today and can’t exist without smart money Click To Tweet

Anyway, the reason that was thinking about Yves’ comments was that Martin Walker, Director of Banking and Finance at the Center for Evidence-Based Management wrote a great piece exploring these issues for the LSE Business Review. He reflects on the idea of using some form shared ledger, digital asset tokens and “smart” “contracts” to implement a digital currency, what I referred to in my book “Before Babylon, Beyond Bitcoin” as smart money, and quotes Robert Sams points on the potential for innovation: “More likely are the use-cases that don’t even exist today and can’t exist without [smart money]”. I am very sympathetic to this view and can’t help but feel that this is where we should focus. Walker goes on to observe that while there probably is scope to “create more mechanisms for adding more conditionality in the financial system, locking up funds until an event happens or creating more easily accessible escrow arrangements” it is not obvious that autonomous consensus applications are the best way forward. Indeed, the early lessons learned from the world of “decentralised finance” (or “DeFi”) suggest that there’s a lot of work to be done to bring working, population-scale schemes to fruition.

I think Martin’s words of caution are entirely justified but along with Yves, I also think that the concepts should be explored. Yes, we could implement digital currency without tokens, but if we are going to create digital currency, then surely we want it to be a platform for new products and services, designed for the economy to come and not simply an mimetic electronic echo of what we already have?

Apple Pay whatever, Apple ID wowza

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We’re all familiar with Apple Pay and Google Pay and how much easier (and more secure) they make online commerce. It would be nice if this security were to extended to online interactions of all kinds, not only payments. I think this is not that far away. Apple has recently registered a number of patent claims across the general field of “verified claims of identity” which quite rightly attracted some attention. In July, they filed an application with the U.S. Patent & Trademark Office that describes the technology it is trying to develop to replace traditional driver’s licenses, passports and varied ID cards for government purposes or access to private property. I think these applications are really important and that the fact that Apple wants to control means of presenting and verifying “identity” through devices, including iPhones, is a signal to the industry that the wallet wars are about to heat up.

What's in your wallet?

If I look in my wallet, most of the stuff in there is nothing to do with payments.

If Apple or Google want to replace my wallet, that means that they have to replace my driving licence, my loyalty cards, my rail discount pass, my blood donor card, my AA membership… well, you get the point. And in the real world, I only have twenty or thirty of those cards but in the virtual world I have hundreds if not thousands. Replacing the payment cards was easy. Replacing the identity cards is hard. But in the long term, it’s much more valuable.

It would be nice if the security and convenience of the digital wallets were to be extended to online interactions of all kinds, not only payments. Perhaps this is not that far away. We already use them make online access easier. If I’m signing up for a new services (eg, when I signed up for the New York TimesNYT recently) then I’ll look for the “sign in with Apple” button first and only if the web site does not support it will I then select “sign in with Google” (after first remembering to log in to my “John Doe” Google account). But this is about authentication, not identification. Apple told the New York Times that I am “blahblahblah@blah.apple.com”, not that I am David Birch or that I am over 21 or that I am a UK resident or whatever.

It’s about time, Frankly. The lack of a digital identity infrastructure is big problem in an online world and it has to get fixed whether by governments, financial institutions, specialist players or someone else. Since governments, banks, telcos and others have not fixed the problem (at a level of global interoperability comparable to the internet and mobile phones), it looks as if someone else is going to have to do it.

Since governments, banks, telcos and others have not fixed the lack of a digital identity infrastructure, it looks as if someone else is going to have to do it. Click To Tweet

At the time of writing, Apple are advertising a vacancy in Cupertino for a product manager for identity. The job description posted is for a “top-flight identity product professional with industry experience in physical and digital identity to join us on the journey of replacing the physical wallet”). Maybe Apple is going to be the someone else who is going to deliver mass market digital identity.

They can do it, and I’m hardly the only person to have said this. A couple of years ago here in Forbes, for example, Panos Mourdoukoutas predicted that Apple’s next big revenue source wouldn’t be another device, but the “monetization of the ID Apple assigns to its customers”. This prediction, I should stress, was not especially radical or unusual. Indeed, back in 2016 I was working on the strategic assumption that this was an inevitable direction. I wrote at the time that “it is a very short step from Apple Pay to Apple ID, where revocable identification tokens are loaded into the tamper-resistant hardware”. This was hardly a mystical prediction. I was merely building on the obvious fact that if the “secure enclave” inside an iPhone is safe enough to store payment tokens then it is safe enough to store a variety of the virtual identities that I will need in the online future, having written back in 2015 that if my “Apple ID” provides a convenient mechanism for mutual recognition in person and on line, it will be indispensable in short order.

(Without getting distracted by technical details, it is important to note that what Apple appear to envisage is that a device — such as an iPhone, to highlight the obvious example — will be storing credentials obtained from a variety of sources. My hope is that Apple, Google and others support an interoperable standard — W3C VC, to highlight the obvious example — so the credential providers and users will move to authorisation-based transactions as soon as possible.

So the idea that the platforms might step in and provide the digital identities that will be crucial to our online existence — because banks, governments and others have not — is not what is new. What is new, and why we are talking about identity now, is the coronavirus and the extent to which is has both illustrated the problems caused by not having digital identities and accelerated the drive toward workable solutions. Suddenly we are having to figure out not only how to shop and bank online but how to work, learn, visit the doctor, vote (to pick a very current and contentious example) and access government services online. In the UK, as in the USA, we don’t yet have anything like the infrastructure needed to do this so we end up with costly and imperfect silo solutions.

My point is that we need to put some serious thought into developing a digital identity infrastructure. And we must think about how that infrastructure will evolve and develop. Does the USA want a system as in China where you have a single identity that must be used to do everything and the government knows what you are doing at all times? That has some interesting consequences! For example, for years, the government there has been trying to stop kids from playing too many video games. Now the Chinese have ruled that anyone wanting to play a game must log in using a state-run authentication rolling out this month.

Now, that may be the right way to run a country or the wrong way. That’s not my point. My point is that we need to think about the problem and make some choices about what we want because if you think that digital identity is just about making it easer to log in to your bank, you are wrong. Should the government know that you have logged in to my bank? Should Apple know that I am playing Fornite? Should Facebook know that you are voting online? How exactly can we design an infrastructure to deliver both privacy and security? These are serious questions: Digital identity is the foundation of existence in an online society and choices that are made about how those identities work will be fundamental to how that society is going to work in the future. We need to begin this discussion now.

[This is an edited version of an article first published on Forbes, 29th August 2020.]