Last week I gave a keynote on The Future of Banking to a group of the most senior risk leaders in a major bank, sharing some provocative ideas on how the banking landscape may change in the years to come.

One of the ideas I shared briefly was on how micro-payments between connected devices could enable an entirely new layer of the economy.



Payments between things

Imagine that the roads are populated by driverless cars. You might be in a hurry, and be prepared to pay a little each time another car makes way for yours to go past. Other car passengers may not be in such a hurry, and be happy to receive payments.

An agent system could be programmed with your parameters and entrusted to negotiate with other cars on whether it makes or receives payments.

Similarly, if our skies become filled with drones as deliveries take to the skies, these could negotiate priorities using micro-payments.

These examples reflect that in the ‘economy of individuals‘, many of us now receive payments as well as make payments.

In another domain, sensors could use agent models to find and pay for the lowest cost bandwidth given particular urgency for data. For example soil humidity and temperature measurement devices spread across farms may need low priority for small variations, but ask for high priority if there is danger of frost damage.

The cost of the fixed cost component of payments

However none of this is readily feasible with our current payment systems, which usually have a fixed price component, commonly in the order of 30 cents, as well as a variable component depending on the transaction amount.

Global payment systems are ripe for disruption, with one of many important drivers being the profusion of devices and potential transactions enabled by the Internet of Things.

That disruption could come from within existing payment systems, but many will seek to bring alternatives from outside. The reality is that the fixed component of payments has no relation to the true underlying cost of making the payment, it is a legacy of ancient systems and entrenched, self-reinforcing business models.

Lack of movement in existing systems could support greater use of Bitcoin and other crypt-currencies, which provide an essentially costless payment mechanism that bypasses current financial structures. There are other possible approaches, and there will undoubtedly be major platform plays in the payments space as technology companies such as Apple get involved.

The potential of machine-to-machine payments

What is clear is that there is an entirely new layer of the economy which could open up once payments with zero or extremely low (i.e. less than one cent) fixed costs are possible.

The potential is immense.