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Dave Birch<\/em><\/p>\n A management consultant, Birch is also an expert in payments, technology, digital identity and money\u2014and an author.<\/p>\n The central thesis of his recent book, \u201cBefore Babylon, Beyond Bitcoin<\/a>\u201d, is that we are entering a period of great experimentation in money.<\/p>\n In future, he predicts, money will be anything to which we and our communities\u2014whether physical or virtual\u2014ascribe value.<\/p>\n That could mean we all end up carrying around in our mobile phone-based digital wallets an assortment of national fiat currencies, cryptocurrencies, private digital money and near-money like loyalty points.<\/p>\n \u201cThere\u2019s no reason why credit provision and payment should not be separated\u201d<\/p><\/blockquote>\n I start by asking Birch what there is in common between the payments business\u2014a booming area, full of financial technology (\u2018fintech\u2019) start-ups\u2014and banking, a sector that\u2019s been subject to intrusive regulation since the financial crisis.<\/p>\n \u201cReally, there\u2019s no reason why credit provision, which is a financial transfer that takes place over time, and payment, which is a transfer in space, should not be separated,\u201d says Birch.<\/p>\n He tells me that regulators hinted as long ago as the early 1990s that these two functions\u2014payments and credit-based banking\u2014might eventually diverge.<\/p>\n Indeed it\u2019s unlikely that the many fintech firms now itching to get their hands on payments would want the burden of regulatory compliance that faces traditional financial institutions, Birch explains.<\/p>\n \u201cGoogle recently got a payment institution licence in Luxembourg,\u201d he says. \u201cI\u2019d be stunned if they asked for a banking licence as well.\u201d<\/p>\n \u201cForcing banks to provide open interfaces to tech firms is half a good idea\u201d<\/p><\/blockquote>\n In Europe, the opening up of payments to technology firms has been helped by two ground-breaking regulations in the form of the Payment Services Directives of 2007 and 2015 (called PSD 1 and PSD 2).<\/p>\n The objective of the two directives is to increase competition, speed up payments and, in particular, to allow participation in payments to non-banks, who have jumped at the opportunity.<\/p>\n Birch has some reservations about the trend towards so-called open banking.<\/p>\n First, he points out that the promised exploitation by technology firms of bank-owned client transaction data is taking some time: PSD2 leaves open the details of the application programming interfaces (APIs) that third parties will use to connect with banks.<\/p>\n This means that fintech start-ups need to do their coding work to integrate with each bank separately.<\/p>\n But are we risking turning banks into mere data pipes for the likes of Google and Facebook?<\/p>\n For anyone concerned about the monopoly power of large, data-driven corporations, it\u2019s a worry.<\/p>\n \u201cForcing banks to provide open interfaces to tech firms is half a good idea,\u201d Birch tells me.<\/p>\n The missing half is reciprocity, he says. Tech firms don\u2019t have to give anything back.<\/p>\n Birch says he can\u2019t pass a moral judgement on this trend\u2014but he adds that others may wish to worry about the rise of monopoly capitalists who are no friends of freedom. I sense his tongue is wedged somewhere in his cheek.<\/p>\n \u201cUltimately, payments are about how you get client data\u201d<\/p><\/blockquote>\n Our conversation turns to China, where local tech giants WeChat (owned by messaging and social media firm Tencent) and Alipay (owned by Alibaba Group) now dominate payments. Chinese banks are nowhere to be seen.<\/p>\n \u201cSmart phone-based payments in countries like China have simply leapfrogged the legacy financial infrastructure\u201d, says Birch.<\/p>\n He explains that payment across platforms like WeChat and Alipay cuts out a whole layer of intermediaries, such as those involved when we pay with our credit or debit cards in Europe or the US.<\/p>\n But the result is that the banks also lose control of their most valuable resource\u2014client payment data.<\/p>\n \u201cIn China, WeChat and Alipay have now taken over the interface with the customers,\u201d Birch says.<\/p>\n \u201cIt\u2019s not the fact that the banks are losing the transaction-based revenue from client payments. That is a low-margin business anyway. It\u2019s that they are losing the data and have no idea what their clients are doing,\u201d he says.<\/p>\n \u201cUltimately, payments are about how you get that data,\u201d Birch says.<\/p>\n \u201cCentral banks allowed M-Pesa to scale\u201d<\/p><\/blockquote>\n The exclusion of banks from payments is happening in other countries, too.<\/p>\n I ask Birch how the M-Pesa mobile money of Eastern Africa\u2014launched in 2007 by Vodafone\u2019s African arm and Safaricom, the largest mobile network operators in Kenya and Tanzania\u2014took hold. Birch\u2019s consultancy firm, Consult Hyperion, wrote the pilot project for the new currency.<\/p>\n \u201cThe reason M-Pesa took off is that there was a regulatory window for it to do so. The local central banks allowed it to scale,\u201d says Birch.<\/p>\n \u201cIn Nigeria or India, where a similar scheme could have worked, the banks and the central banks didn\u2019t want to allow competitors into payments,\u201d he tells me.<\/p>\n India, meantime, has gone down the path of allowing social network operators\u2014notably WhatsApp\u2014to enter payments. But payments then run on a banking \u2018rail\u2019, to use the industry jargon.<\/p>\n \u201cIndia\u2019s United Payments Interface (UPI) connects WhatsApp to your bank account,\u201d Birch explains.<\/p>\n \u201cIf payments were pre-funded, we could have global real-time payments\u201d<\/p><\/blockquote>\n Faster settlement is another recent payments trend. In the UK, the Faster Payments service, launched in 2008, allows retail clients and small businesses to settle payments nearly in real time, compared to the three days that transfers used to take. The eurozone\u2019s Single European Payments Area introduced instant euro credit transfers in 2017.<\/p>\n In the US, banks long resisted any shift away from a lengthy settlement period for payments, motivated by the fees they could earn from late payments and overdrafts. However, the US also introduced a new faster payments scheme in 2017, apparently also in response to the potential disruption threat from tech firms.<\/p>\n I ask Birch how far we are from a global payment system that involves near-instantaneous settlement.<\/p>\n It comes back to the continuing lack of a separation\u2014on a global scale\u2014between credit and payments, says Birch.<\/p>\n \u201cIf payments were pre-funded\u2014in other words, if there were no credit risk\u2014we couldn\u2019t have any obstacles to a global real-time payments system,\u201d Birch says.<\/p>\n \u201cBut then it would be bitcoin,\u201d he adds with a smile.<\/p>\n Birch and I take a break from discussing payments technology to muse over the tortuous progress of Brexit.<\/p>\n Birch suggests that he may respond to the UK\u2019s exit from the EU by taking the disintegration trend a step further. He tells me he may launch Wessexcoin, a digital currency for one of the most successful early Anglo-Saxon kingdoms.<\/p>\n He suggests that regional currencies backed by regional tax revenues may be the future. Again, I can\u2019t tell if he is joking.<\/p>\n But, compared with a few years ago, the future break-up of the UK no longer seems an outlandish suggestion. We wonder why investors in government bonds are not factoring in such tail risks.<\/p>\n \u201cThe big problem is identity\u201d<\/p><\/blockquote>\n As our meeting approaches its end, I ask Birch what is the greatest remaining inefficiency in payments.<\/p>\n \u201cThe big problem is identity,\u201d he replies instantly. \u201cPayments are easy if you know who everyone is.\u201d<\/p>\n \u201cIf I walked into Patisserie Valerie and they knew who I was\u2014not necessarily \u2018Dave Birch\u2019, but \u2018person 123\u2019, for example\u2014they could just send a message to the bank, the Bank of England, whoever, saying \u2018transfer the money\u2019,\u201d Birch explains.<\/p>\n \u201cPayments only get super-complicated when you don\u2019t know who the counterparties are,\u201d he says.<\/p>\n Birch says he hopes Brexit will reinvigorate demands for the introduction of a national identity scheme in the UK, a project he\u2019s been supporting for years<\/a>. He says that future government entitlement services could then easily be run on smartphones.<\/p>\n We head out of the caf\u00e9 into a dark London evening. Later, the newswires carry the story that Patisserie Valerie has been placed into administration, with all its branches to be shuttered pending a company reorganisation.<\/p>\n The Old Compton Street branch, the original caf\u00e9 in a chain that overexpanded and ran into financial problems, will not reopen in the morning.<\/p>\n As if anticipating the risk of closure, Birch tells me the next day that he had tipped our waitress in cash, instead of using a payments card or his phone. Paying the tip digitally would have led to the money being frozen by the company\u2019s administrators.<\/p>\n Technological advances are shaking up the world of payments. But we\u2019re likely to be using a variety of moneys\u2014and transaction methods\u2014for some time yet.<\/p>\n