Chris Skinner: The next‐generation financial systems is African
IoT is leading us to a world in the immediate future where machines trade with machines, and they won’t be using cash.
Apple have been leading the way with wearables, launching the Apple Watch in 2015 with an estimated 12 million units sold in the first year. The Watch represented the first major wearable product launch, and has been accompanied by other smart systems such as the Samsung SmartThings to create a smart home. Similarly, we all know that Google is working hard on smart cars that drive themselves, and we are gradually seeing the emergence of the Internet of Things (IoT) as a reality. The gating factor for this reality is payments. You cannot have IoT if you have a slow and expensive payments system, built in the last century for the transactional system of large payments by card and cheque, and small payments in cash. IoT is leading us to a world in the immediate future where machines trade with machines, and they won’t be using cash. So what will IoT be based upon? Real‐time micro‐transactions.
The next generation of the internet – where our homes, cars and even our clothes are transacting and smart – will see a new payment infrastructure emerge as well. The basis of that infrastructure is already in play, as demonstrated by contactless payments on the subway which can now be made with your smart watch. However, IoT goes further than this. Just to illustrate how far IoT will go, think of your fridge ordering a restock of groceries from the local superstore; your television ordering the tenth season of Game of Thrones on your behalf, and your car looking after its own oil and fuel orders. How will your fridge, television and car do that?
Well the first thing is to create a digital identity for you. Your things cannot order on the internet if the store does not know who you are or that it belongs to you. This is why it is pretty exciting to see what is happening with the technology that came out of bitcoin called blockchain. Although it is very early days, banks and government organisations are heavily focusing upon this technology to build future digital identities. How this works is that the technology can be developed to create a highly secure database on the internet shared by governments and banks. The key is that it needs to be shared. It’s as simple as that. A shared, distributed ledger database of identities on the internet that can be accessed and used by all the bank systems to verify who you are and what you own.
The thing is that it’s not quite as simple as that, as we currently have separate identities in the financial world, the government world and in other worlds. For example, your government issues you a social security number, your bank gives you a bank account number and your mobile provider a telephone number. They are all different and separated. It is this area where the next‐generation internet will make a difference, and we can already see this happening in Africa.
Africa has seen a massive transformation in the last decade thanks to the mobile telephone. Some 82 percent of Africans now have a mobile telephone and one in three are using it for making and taking money. This is a radical change as most African citizens had zero access to a payment system before. Now they have various governmental, philanthropic and charitable institutions that are using the blockchain technology to build mobile digital identities for Africans to enable them to get access to insurance and banking services previously unavailable to all. In fact, the objective is to build a pan‐African financial system based upon mobile and blockchain technologies enabling digital identities. In other words, the next‐generation identification system where your machines buy and sell on your behalf may already be emerging from Africa. When it does, we will all have cheap and easy transactions across the globe. Welcome to the future.
Chris Skinner is the author of numerous books covering everything from European regulations in banking through to the credit crisis and the future of banking.