Money is any object or record that is generally accepted as payment for goods and services or as a store of value.
2,000 years ago the Romans used iron bars as money and a thousand years later the Chinese invented paper currency (it was a lot easier to carry around). Both civilizations recognized that putting the force of law behind a promise to pay made it much easier for strangers to trust—and do business—with one another. As this approach expanded and replaced barter, the world grew richer, smaller, and more peaceful—though not universally. Today money as a medium of exchange is a central pillar of every society on the planet. The tokens for this value take the form of bills, coins, cheques, credit cards and a fast-growing host of other options. But for all the choice in how to pay, money remains rooted in a very simple idea: trust.
As the world and technology have advanced so have payment options. Long before Steve Jobs gave us the iPhone, Canada built consumer electronic payment systems that worked very well. While Canada’s financial networks are robust and secure, some would argue that they are slower and less widely accessible than those in other countries. For example, the financial networks in Afghanistan and Iraq have been recently rebuilt from the ground up to be flexible and mobile as part of the re-constitution of their states. In many parts of the developing world where people are subject to institutional corruptness, cell phone companies have stepped in and now provide financial services that are immune to theft —digital envelopes seldom get lighter in transit.
New payment systems need to provide real incremental value rather than further codify two thousand year old methods.
These kinds of innovative payment systems aren’t just hallmarks of the developing world, where a lack of infrastructure means that any system is better than nothing: our friends in Japan and Korea have enjoyed mobile and digital payments for almost as long as we’ve been enjoying Interac. Clearly we have some catching up to do if we are to modernize how we make the some 24 billion transactions (more than 44 trillion dollars, that’s $44,000,000,000,000), made by Canadians annually.
But we shouldn’t necessarily adopt current technology just for the sake of catching up. New payment systems need to provide real incremental value rather than further codify two thousand year old methods. Let’s make it easier to transact online and increase value for both the consumer and the vendor. Let’s improve the in-store experience by eliminating the irritating lineup at checkout. Let’s make it easier to transfer funds to friends, relatives or our favorite Kijiji seller. Let’s do it all securely and at a very low transaction cost. Let’s streamline the payment process and eliminate the intermediaries and the fees associated with many digital fingers in the pie.
In the Canadian B2B sector, things are often even more backward: entire industries still rely on cheques and incur the high transaction costs to create, track and, process what are literally pieces of paper inscribed with numbers. These costs impose the greatest burden on small and medium sized businesses who historically lack the scale to avoid transaction costs or invest in electronic payment infrastructure. Predictably, these costs are passed on to the consumer.
Canadians are a plucky and creative people, and we now have the option to rethink and redesign how our payment systems work. Most of the money in Canada—or any developed economy for the matter—is already digital and is recorded in the systems of the banks and other financial institutions. By choosing to improve how the next-generation payment and value storage solutions work, we can reduce the amount of friction and cost imposed on money as it flows from one part of our economy to another. We owe it to ourselves and each other to choose a system that maximizes ease, efficiency, and prosperity for all.
Roman bars and Chinese papers were useful because they were portable. Today most citizens of the world carry with them a small computer that connects directly to the internet—though we usually just call them smartphones. These devices, which already have intimate links into our personal and professional lives, have begun to make inroads into our financial lives as well. But maximizing the use of smartphones for value storage and transfer will take the cooperation of governments, banks, credit card companies, retailers, device manufacturers and a host of other players—some of whom lack reputations for playing nice with one another. Central to all of this will be a trust, trust of the network, the technology and the institutions.
In the coming months we’ll be exploring in more detail how new digital alternatives can enable increased mobile financial flexibility. Canada benefits from many established trust frameworks. We expect that some can be amended to take advantage of the new digital realities while others will need to be replaced. Canadians are well aware of the precariousness of the global economy, and will demand thoughtful, forward-thinking, long-term solutions.
The Canadian financial system is already the envy of the world for its security and stability. We need to marry this with more sophisticated forms of money transfer and storage if our financial system is to continue to be the envied across the globe.