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Can money compete with free?

Steffan Aquarone bounds to the podium and dares us to hate him. His prediction: in five years, people will prefer to buy where there is no "payment step"; in ten years payments will be free. To paraphrase, he's saying banks and credit card companies are about to face their "Napster moment". After all, cyberspace is where your money is precisely because payments transfer digits rather than gold.

Aquarone is telling this story to this year's Digital Money Forum, now renamed the Tomorrow's Transactions Forum. "I have a passion for things with a small chance of success," he says. He produced the 2012 film Tortoise in Love, made by a village in Oxfordshire. Yes, "by", not "in". His current "thing" is the mobile payments app Droplet, launching on iPhones, and soon on Android, dreamed up over pints in a Birmingham pub. With no marketing, he says the system already has 1,500 users. The company is closing its first round of funding; a recent hire came from Visa Europe.

How it works: download app, add money using the conduit of your choice, and thereafter you can send anyone money for free. I like that the phone isn't storing account information, limiting the risk. It sounds like early Paypal pitches that that you could send money to anyone with an email address. The disruptive bit is that incoming payments to merchants are also free, unlike every other type of payment known so far. Mobile money - transmit a few numbers in a couple of seconds - ought indeed to be a whole lot cheaper than cash or credit cards. But free?

Apparently the pub cocktail napkin is Britain's Silicon Valley garage. Aquarone was instantly mobbed. I heard "£2 million".

In 2013 doesn't everyone have a mobile payment scheme in their back pocket? There's the mobile wallet crowd - Google, Paypal, Square. Electronic bank transfers. The weird little underground economy of Amazon gift cards. Credit card companies and phone manufacturers bet heavily that contactless (NFC) is the Next Big Thing, but so far NFC's big winner is Transport for London. Cue Yandex's Jane Zavalishina, explaining that in her country, Russia, mobile wallets are being embraced, but, "NFC is the hard way to solve problems that don't exist." (Ouch.) Mobile should be the native home of purely digital currencies - Bitcoin, e-gold, but who accepts them? You'd have better luck with stuff we barely think of as currency: loyalty points. LoyLogic's Dominic Hofer calls frequent flyer miles "the biggest currency in the world": all the miles in all the programs add up to more than US dollars.

For small transactions, all these things are way too expensive or limited; micropayments are still a mirage. So everyone is scrambling; legacy players know they must reinvent themselves. Like the Royal Canadian Mint and Mintchip: "Our goal is to deliver a cash-like product that costs less to transact than other electronic payment solutions," explains Mint CFO Mark Brule. Essentially, the Mint mints the chips just as it would money; once embedded in devices they move money from one to another by sending date, time, and amount - "instantaneous, non-revocable, simple". A challenge last year created example apps. The Mint's survival as a business that makes money from making money - and even pays taxes - is at stake. As it, and at least some other legacy players understand, the economics and incentives are changing. The percentage charged to merchants in credit card fees, for example, was probably a better deal at the beginning, when they were competing with paper cheques and cash and the fees bought lowered risk and less hassle. But now? If they sue you when you report a problem? If the alternative is a secure, instantaneous transfer of a few electronic digits? And free?

At this point, the suspicious person asks: are we talking free as in speech, free as in beer, or free as in puppies?

A few hours earlier, Zavalishina had said (while expressing skepticism that banks and payment companies could ever muster *enough* data for it to be called "big"), "The only value is in big data". Speed-reading through Aquarone's slides behind his head, there it was, "data analytics". Free puppy!

What data are they going to analyze? Aquarone says that the system will give anonymized data to merchants, only with users' consent. Quizzed, he knows that "anonymized" is more or less impossible; what he means is that within their system your "know your customer" identity information is permanently separated from your behavioral profile, which users must opt in to make available to merchants. For him, the heart is the merchant-customer relationship; Droplet's next stage is a loyalty platform on which to build transactions from which the company can take a small cut.

And this is where the story gets so, so familiar. If Aquarone is right, what we'll see is the Web's business model - basic services free at point of use and advertising-supported, charges for value-added services - moving into payment structures. Aquarone and, if he is successful, his imitators will leverage the thousands of people working to improve the existing Web infrastructure. There will be a pitched battle over business models and key players.

"Once you wean people off legacy systems, all sorts of things become possible."

Wendy M. Grossman's Web site has an extensive archive of her books, articles, and music, and an archive of all the earlier columns in this series. Stories about the border wars between cyberspace and real life are posted sporadically at the net.wars Pinboard - or follow on Twitter.


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