Free Chapter - A Disruption in Finance

Who's up for a little deeper reading on the future of money?

This is a chapter from my upcoming book "Money" the story & psychology: how to make more, grow more & give more. This is the most fun I've had writing. It's also the biggest beast; likely to be 120,000 words (twice as long as "Life Leverage"). What are your thoughts on this (very relevant to property people):

A Disruption in Finance

Darwinian Times

In business, technology and money, we are in a Darwinian ‘survival of the fittest’ time, and seismic shift toward less cash and more speed of light transactions through devices and chips. We are moving fast through an information age into what is likely to become a technology age, or may be already. The industrial age is well behind us. Anyone still relying on manufacturing or manual labour work for freedom, wealth and early retirement is vulnerable, overworked and underpaid. They got left behind years ago.

This technological age is fast. So very fast. Moore’s law (not me) indicates that the processing power of computers will double every 2 years, as Gordon Moore, co-founder of Intel, observed that the number of transistors per square inch on integrated circuits had doubled every year since the integrated circuit was invented. This has the compound effect that gathers considerable momentum the longer it continues, in fact Moore's Law has continued unabated for 50 years, with an overall advance of a factor of roughly 231, or 2 billion. This significantly affects money because it speeds up the flow, increases the number of forms and platforms and creates significant leverage, much of which will be detailed in Money.

The world’s fastest billionaires

Almost in the blink of an eye global interconnectivity and disruptive monetary systems have enabled early adopters, innovators and Entrepreneurs to gain massive wealth in shorter than ever timeframes. If you look at the fastest billionaires list, 9 of the top 10 according to ‘The Hustle’ were post 1987. The slowest of all, surprisingly, was Bill Gates, who was also the oldest. Of the top 10, 7 of them were online leveraging the Internet, including Jeff Bezsos of Amazon, Mark Zuckerberg and Sean Parker of Facebook, the founders of Ebay, Groupon and of course Google. And additional one, Gary Winnick, was interestingly in fibre optic, which enables the internet and therefore the other 7 in the top 10 to build their platforms and their billions. In the Forbes fastest to a billion 14, the 5 slowest were 1986 (Warren Buffet) back to Rockefeller in the late 1800’s.

You can exchange money, anywhere in the world, at the speed of light, from a small device you hold in your palm. In the future these transactions and exchanges will be through virtual reality, artificial intelligence, Internet of things, wearables, contactless, subcutaneous chips and weird and wonderful means we haven’t yet dreamed up. All you need is WiFi.

You can also start up a shop or business with no need for staff, inventory or stock, virtually no overhead, and on someone else’s server or cloud. You can access a billion customers or followers for free, across the globe, as quickly as you can communicate. You can leverage social and marketing platforms and media fast and for free. You can grow multi-million and billion pound enterprises aggregating others people’s ownership, stock and responsibility. Alibaba.com, the world’s largest ecommerce platform, holds no stock. AirBnB owns no hotels. Uber owns no cars. Facebook creates no content. Netflix owns no cinemas.

Social platforms that have made zero actual sales have floated for billions. Twitter’s initial IPO [Initial Public Offering] sold $14.2billion of stock and there was no revenue model. Facebook raised $104billion in its 2012 IPO before they added Facebook ads to their platform. These companies are selling ‘ethereal promises’ and ‘future sales’ for billions set up by teenagers at student digs. Coders and hackers are the new celebrity rich. Anyone can post a video and get millions of views if they have a strong enough opinion and generate ￡10,000s in ad revenue or sponsorship for podcasts.

Our social and private lives are now in the public domain. We can get anything we want at the touch of a button. Tech has become intuitive thanks to Big Data and knows what want in real time. The gulf between the old and the new is widening further and further. Embrace the new technology age, or get left behind at an ever-increasing rate as the speed of technology compounds. This Moore’s law acceleration has upsides and downsides. Embrace and leverage the tech and innovations and disrupt convention, and you will get the highest margins and the highest growth. But continually miss the boat and you end up clinging to antiquated models in the hope that someone will come and save you. And so it is with money. In fact these fears are often exaggerated through money.

Paynuphobia

There’s a lot of fear around the future of money. The statistics are quite alarming. New research from PayYourWay.org.uk, the Payments Council's consumer education campaign, estimates that 26% of people avoid using the latest payment methods due to security concerns. These people even have a phobia named after them: ‘paynuphobes'. More interesting is that only 25% of people are scared of spiders. I think it is also accurate to say that many people struggle to deal with change.

When contactless cards were released, just 13% of consumers had ever owned a contactless-enabled debit or credit card, while just 5% made a payment using one of these cards, in a study by Ingenico. It also found that 61% of Brits are wary of using contactless cards, as they do not feel they have been sufficiently informed about the technology. 41% said they didn’t even know about it.

The data of how many people feared sending money via email or Internet banking or smartphone banking or paying through Apps is irrelevant now, as we all take it’s use for granted, But it wouldn’t surprise me at all if the stats were similar or the fear was worse when some of these were released. You could argue is was a much more seismic shift going from cash, cheque and paper payments to early online payments, than all the current digital currencies and payment methods that simply leverage the Internet. The Internet was the biggest game changer because everything mentioned here leverages the Internet, and that shift happened in 1990, which feels like 973 years ago now. So come on, embrace it my friend.

A cashless society?

But there are also growing fears about a cashless society. My fear runs deeper that I won’t be able to bribe my 5-year-old future world number one Golfer son with real paper anymore. It won’t quite be the same having him win an electronic Bitcoin when he beats me at putting! People do fear that cash will be taken away and currency rendered worthless so the governments can control the flow and therefore increase the taxes. I can’t yet comment if this fear is well founded, but let’s embrace the dance between the authorities and the Entrepreneurs and innovators for a moment.

According to the Payments Council, The Federal Reserve estimates that there will be $616.9 billion in cashless transactions in 2016. That’s up from around $60 billion in 2010. In Sweden, about 59% of all consumer transactions are already cashless, and hard currency makes up just 2% of the economy. In the UK in 2014, the proportion of cash payments for consumers, businesses and financial organisations combined dropped under half for the first time, to 48%. Denmark, Sweden and Finland are the closest countries to a fully cashless society. The UK and the US would have to undergo some policy changes, but you can see the momentum shifting fast. Countries like Germany, Italy & Greece either don’t have the infrastructure or culturally they embrace these advancements more slowly. In Germany the word for debt and guilt are the same. I can imagine similar challenges and resistance came about when moving from barter to coins and coins to paper and then the removal of the gold standard. So just how different is this?

I strongly feel we should be truly grateful for these amazing advancements, count our blessings and fortune and embrace them. The story of money is simply repeating history in a different, more advanced form. Disruption is the new order. The only constant is change.

In many countries or demographics across the developing world, the most vulnerable to a cashless society are the elderly, the non-digital savvy and the poor. This is a skills and training issue much more than it is a tech issue. For people who are homeless, there are fundamental problems about proof of status that go beyond mere up skilling. Having no fixed abode renders getting credit facilities impossible, and managing a bank account incredibly difficult. It’s not like people who are homeless are going to start accepting crypto-currencies from passing strangers. While a lack of cash doesn’t make one homeless, it has the potential to widen the gap between rags and riches. You have an amazing opportunity to embrace this disruption in money and make more, grow more and give more.

This isn’t new, and many of these ‘disruptions’ are here, now. We’ve already benefitted greatly from the amazing convenience of Paypal. I remember the first time when my friend Matt, a fellow artist, send me a payment request via email for ￡1million with the message “mwahahahaha” attached. I was somewhat perplexed! A part of me was a little scared that somehow this could put me one million and fifty thousand pounds in debt if I pressed a button, but of course the greater part just thought it was a joke. And now it is normal. In fact eBay bought PayPal for $1.5bn in 2002, for a simple ‘pay via email’ concept. We’ve also benefitted from payments via Apps using conveniences like Uber, Airbnb, Amazon one click and prime delivery, and more. All of these instances of payment disruptions over time become more valuable to humanity and in their capital value when they speed up the movement of money, and therefor the convenience and time preservation. And it doesn’t end at the speed of light, as you will see in a moment.

Disruption to the banking system

Peer-to-peer or market-place lending platforms which connect borrowers and savers such as Zopa, Funding Circle or Ratesetter have changed the lending and access to capital landscape. The opportunity for growth in these platforms is phenomenal because they make borrowing and lending money faster, easier and accessible to more people. You should by now be spotting some commonalties in these disruptions that you can leverage in your own enterprise, ideas and income.

I have a long time school friend who is a very successful banker, very high up in the commercial department of one of the biggest banks in the world. Now before you judge him, he’s a very grounded chap, and we have had some very interesting discussions over the last decade, especially through the crash and banking crisis of 2008. He shared a pandemic fear in the entire banking sector of many of these disruptions to finance, because it challenges the normal way the banks make money, and their perceived monopolies. The entire industry was very concerned that the banking system as they knew it could become obsolete. There were many seminars on disruptive and innovative financial instruments and vehicles in an attempt to move with these Darwinian times. The traditional profit centre for the banks has been to take deposits in and lend them out many times over with interest rates. They also packaged loans into synthetic finance instruments to capitalise now profits predicted for the future. When disruptions take place, like crowd funding, that has volume and scale (potentially every individual on the planet with some savings) then you can undercut the monopolised high margins of the banks. Despite some banks having between half and two times the GDP of an entire country, if every person loaned just ￡10 through a crowdfunding platform that has a much lower overhead, then all of a sudden you have bank scale capitalisation. This is a huge risk to the banking system and margins. You may have noticed the shift in the way the high street banks are advertising on TV. Natwest, Barclays and Nationwide are pumping hundreds of millions into ad campaigns showing their personal, caring side and their admirable values. How they help the elderly learn to use computers. That they are more than just a bank. They are reacting to a fast changing world. They have to, because assuming their size will keep market share and that they are indestructible is highly risky.

The Liberum AltFi Volume Index, which tracks peer-to-peer lending, puts cumulative lending in the UK at ï¿¡4.3bn. Not bad for a sector that is only celebrating its 10th anniversary. You can access millions of individual lenders with individualised risk profiles, regulated and risk-reduced by the crowd platforms, and access lending or lend your money though an App on your phone. You can have an idea for a business, take a few minutes to set up a Kickstarter campaign and fund your start up with all-or-nothing funding, which de-risks the lending environment. Nearly half of all Kickstarter campaigns have been successfully funded since inception.

Electronic & ‘crypto’ currencies

Recent tech that is changing the game of money and the speed of movement is electronic currency. The most recognisable example is Bitcoin, a ‘crypto-currency’ that is digital or virtual in nature. The concept has grown because it is difficult to counterfeit, organic in nature and not issued by any central authority. This renders it (theoretically) immune to government or corporate interference or manipulation. The transactional ease and speed are obvious, and this speed and leverage reduce overhead and so can challenge bank margins. Trade cost reduction results in increase trading. Increased trade brings about increased economic growth and the potential for economic growth in a future of frictionless money transfer is vast.

The blockchain data structure behind it makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central authority. It is virtually impossible to steal due to the networked nature, and it has a finite supply which protects it from inflation and monetary manipulation. This blockchain tech could be used for online voting, crowd funding and even embraced into conventional banking.

Initially Bitcoin was more underground. For example, it was the main currency exchange of Silk Road, the dark web online black market that was used to sell illegal drugs and other items. But now if you Google ‘where can I use Bitcoin’ you can buy meat, beer, pastries and furniture. It has spurned many other digital currencies, such as the Litecoin, Dogecoin, Peercoin and Namecoin.

All fear has opportunity, and all upsides have downsides. If some are concerned that cashless societies give control and power to the governments and central authorities, then the authorities themselves have the fear and risk of money laundering and tax evasion through these same entities. The very platforms that give us online and data security have the power to hack us and steal our identity. The disruptive qualities of these innovations by nature make them volatile, and as we will discuss later, for money to operate in and form or function there has to be trust. Trust comes with proof and time. How far are we really away from a completely digital financial world? Closer than you may think…

Subcutaneous chips & bio-hacking

But the disruption has only just started, both in this book and in the world at large. RFID (radio-frequency identification) chips, about the size of a grain of rice, are being implanted in people’s hands, at a bio-hacking company in Sweden. At first they will operate doors and photocopiers, then they will allow payment and the café, and then what? Many in tech believe there is no doubt more sophisticated chips will soon replace wearable technology like fitness bands or payment devices, and we will get used to being ‘augmented’.

The future future, now

On my podcast ‘The Disruptive Entrepreneur’ I interviewed Kevin Kelly, founding editor of ‘Wired’ magazine, noted as a participant in cyberculture and author of many futurist books including ‘The Inevitable’ on the deep trends of the next 20 years. The two main future trends he felt were both coming and here and real, were AI (Artificial Intelligence) and VR (Virtual Reality). I learned a lot interviewing Kevin, and whilst already keenly interested in how the future affects and drives business, enterprise and money, this sent me wild with excitement and a hunger to learn as much as I can. I feel the more you learn about the future and what is happening now that has only just started that can change the future, you positively affect your own future. Anything that serves humanity can be turned into vast wealth and money, because money serves humanity. A block of flats has recently been 3D printed, as has a man’s ribcage and sternum, drug warlords have created drones that can pack 1000 kilos of drugs and you can buy a fridge with a brain.

AI, VR & IoT

Artificial Intelligence is intelligence exhibited by machines. Anything electrical can in theory gain intelligence, like your car now has a brain. A future where every electronic device has AI and tracks data, behavior and makes decisions is not far away at all. Your fridge will be doing it, as will your wearable or even your subcutaneous chip. Your phone already is, and knows more about you than you might wish. And if you move early and fast enough, as a disruptive Entrepreneur you will find a way to get money flowing through all of these very fast. Remember money loves speed. IOT (Internet of things) will mean that every electronic device will be able to access the Internet, which means it can plug in to all shared data across the web; likening it eerily to Skynet, the AI ‘neural-network in theTerminator films. Every household is likely to have one or Virtual Reality headsets where you will be able to view houses, have virtual holidays, have augmented gaming experiences, and other, er, cough, benefits that I would know nothing about at all.

FTL (Fast than Light)

In recent years, some physicists have conducted experiments in which faster-than-light (FTL) speeds were measured, testing to the limit Einstein's theory of special relativity; that light speed is the absolute speed limit for matter and information.

Quantum Entanglement (QE) describes how the state of one sub-atomic particle can instantly influence the state of the other, no matter how far apart they are. You could call this simultaneous information exchange.

In 1964, the scientist John Stewart Bell performed a number of tests to try to prove QE, but all the 'Bell tests' performed still contained 'loopholes' that, according to critics, could invalidate proof of QE. Now, writing in the journal Nature, scientists say two of the most important loopholes have been closed by a new version of the test. A Dutch team ‘entangled’ electrons held in tiny diamond traps 0.8 miles (1.3km) apart on opposite sides of the campus at Delft University. If found that the 'spooky action at a distance' phenomenon was indeed real, and information was exchanged simultaneously between the electrons. The functions of this discovery boggle the mind, but to keep this on concept, if money can be exchanged simultaneously then a whole new level of opportunities to leverage this further increased speed and reduced fiction opens up to you. And as money loves speed, money will fall in love with simultaneous information exchange.

Back to reality

Sorry to bring you back to the land of the living reality, but I felt it important to point out that change is exciting. Change brings huge opportunity, and money loves change, especially when the change increases in speed. In Darwinian times, it is not the strongest of the species who survive, nor the most intelligent, but the ones most responsive to change. Embrace this change and disruption in finance and money. If many people fear change then this adds to the opportunity for you, as your competition is reduced.

The one fact around the evolution of money is that the speed of flow (velocity) has continually increased. It used to flow at the speed of an animal, then the speed of machinery, then telecommunications, then light, and in the future simultaneously. As the speed of money increases, the speed at which it moves from those who value it least to those who value it most increases. The speed at which it flows from the poor to the rich increases. The opportunity for you to create more enterprise, economy and wealth increases. Time is the most precious commodity we have and anything that preserves it will bring wealth, riches and money your way.

Thoughts & feedback welcome. Raw edit so may contain typos. This is one of 56 chapters