The ongoing revolution in payments merits everyone’s attention.
That’s because it’s not just a question of winners and losers in the battle over payment technology or the societal impact of the accelerating abandonment of cash.
It’s because payments are ultimately a question of politics. And the rapid changes in payments mean our political and economic systems are also going to have to adapt—fast.
The Paytech book, a crowdsourced compendium of essays by payment industry experts, tells us why an apparently innocuous activity—transferring value from one person to another—is once again raising difficult questions.
In the introductory chapter, Bill Maurer, a cultural anthropologist at the University of California, reminds us of the link between money and nation states.
“Payments are political in that they are a function of state sovereignty and also an extension of it,” Maurer writes.
This may seem old news.
After all, France’s finance minister warned Facebook a few months ago not to encroach on a key area of national power, money printing, with its Libra project.
And a year earlier the head of the Bank for International Settlements, the key policymaking body for central banks, told the young creators of cryptocurrencies to ‘stop trying to make money’.
But the balance of power between governments and citizens was shifting even before we got to the coronavirus pandemic, which has accelerated the move towards blanket state surveillance.
In payments, governments have been engaged in overreach for some time, suggests Maurer.
“It goes without saying that the Chinese government is able to garner vast troves of information on its citizens in-country and overseas by tapping into the data streams of mobile payment services,” he writes.
“Much is being made of the partnership between Alibaba, the parent company of Alipay, and the Chinese government around various ‘social credit’ scoring schemes,” he says.
“But I think the more mundane practice of state surveillance via machine learning algorithms, which are learning to spot shopping behaviour in which the government believes it has an interest, is more chilling because it is so banal,” Maurer says.
Still fancy that international version of the digital renminbi?
modern-day disagreements over money and payments have older roots
But it would be unfair to point the finger just at China.
It was Visa, Mastercard and Paypal that cut off payments to Wikileaks in 2010 under pressure from the US government, an act that caused bitcoin’s pseudonymous creator(s), Satoshi Nakamoto, to disappear from public view.
“They created one of those moments when the politics of payments were made explicit: in the ability of payments infrastructures to serve political ends,” Maurer says.
In fact, many modern-day disagreements over money and payments have older roots.
Maurer maps the current debate over the role of the central bank in the US monetary system to a much older, civil war-era conflict between northern elites and southern elites.
The northerners wanted a single national cheque clearing system, managed by a central bank and with all US dollar claims cleared at their face value (or ‘par’).
But many southerners preferred the old system of non-par banking (where banknotes and cheques drawn on different state banks could trade at a premium or discount to their face value).
“That the majority of non-par banking states were historically members of the Confederacy only underscores the politics of payment,” says Maurer.
“One can trace a lineage from those in Congress who argued against par clearance of cheques to today’s white nationalists,” he argues, pointing out that many of those nationalists also support cryptocurrencies.
Amplify this kind of debate to a global scale, then throw in the increasing involvement of non-state providers in the payment business, and we are left with an overarching question.
“How can the payment technologies and the relationships we design point towards to a new politics, adequate to this data-saturated, rapidly warming and politically unstable world?” Maurer asks.
For the time being, emerging payment businesses have to deal with a complex patchwork of national legal frameworks.
who will govern these networks?
It’s unsurprising that nearly half the chapters in the Paytech book have to do with regulations and compliance.
The reading in this part of the book isn’t for the light-hearted, but nor is the underlying regulatory framework.
Take Europe’s payment services regulations, for example.
In a chapter called ‘PSD2 Open Banking’, David Parker, CEO of Polymath Consulting, takes readers through an incredible list of payment-related acronyms generated by the European Union and its national financial regulators.
Do you know your ASPSP (account servicing payment service provider) from your AISP (account information service provider) or your PISP (payment initiation service provider)?
Does your third-party provider (TPP), which can be either an AISP or a PISP, have approved status from a national competent authority (NCA)? If so, the TPP will need to get an eIDAS certificate from a qualified trust service provider (QTSP). Unless the TPP is in the UK. Got that?
Given that old payment systems never seem to disappear, we can expect the industries of RegTech, FinTech and PayTech to be around for a while.
But our future payments seem almost certain to be increasingly seamless, invisible and interoperable, as we pay digitally using our mobile phones.
Payments data, which carry immense value, will probably be readable and understood by all components of the network, rather than being segmented, as at present.
But who will govern these networks? Will it be some kind of global, multipolar framework, as suggested by former Bank of England governor Mark Carney?
Will we have a clash over money and payments between the two most powerful nation states, the US and China? Or will a private sector firm gain control of what is arguably the most valuable part of the global tech infrastructure?
All these questions remain unresolved.
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