How data will change the nature of money

- By Collaborative Media & Publishing
Money has always derived its power from a shared belief that people will accept it as a medium of exchange. Not anymore. As cash is replaced by digital representations of currency, data is changing the very nature of money itself and introducing new capabilities.

"Money has lost the humanity and one thing that data will bring back is humanity… because we have more data about people," Tony Fish, Founder of technology consultancy AMF Ventures, said at last year's Sibos conference.

He believes this humanity will flow from the owners of data, who will have far greater knowledge about their customers and so have a greater duty of care to them. Fish also suggests two other characteristics of money: greater responsibility/accountability; and programmability.

Programmable money – more commonly called smart money – can define the conditions under which it can be spent, as well as remember how it has been spent.

The Commonwealth Bank and CSIRO’s Data61 explored the possibilities in 2018 by developing a successful blockchain-based proof-of-concept for NDIS recipients using smart money.

The money itself defined what the NDIS funding could be spent on and who it could be spent by, unlike existing conditional payment schemes, such as Medicare, where payment conditions are attached to bank accounts.

They estimated the system could save $160-$420 million per year by cutting administration costs and reducing the risk of fraud or accidental misspending across the NDIS ecosystem.

While the prototype has yet to be implemented more widely, Dr Mark Staples, a Senior Principal Researcher at Data61, says it is technically feasible to scale the technology across the entire NDIS system, although it would require significant architectural changes.

"However, if you wanted to capture every payment context in Australia with programmable money, that would be a major challenge," he said.
More data requires a better user experience
Programmable money brings new possibilities but also potential complexity. Staples says it was a key concern given the system allowed NDIS participants to attach changeable policies to money.

"People did find it to be very usable because there was a lot of effort spent on the user experience," he said.

"Commonwealth Bank led that side with iterative development and user testing that led to a mobile phone app interface. That provided a good user experience where people could get information about what their budgets were and how much they had spent over the year. They could also see what they were allowed to do with it and actually make payments, which were enabled through the app."

The app received an 89% net promoter score through user testing with participants and carers.

The proof of concept was designed so that, if it was scaled, the financial management functions could be integrated within the existing NDIS MyPlace participant portal and other plan management systems.
Dealing with privacy and security
The way data can potentially reshape money shows the way to new possibilities. But as data breaches and data misuse become increasingly common, it also raises governance issues around privacy and security.

Any NDIS payment is particularly sensitive because it often relates to personal medical concerns, while carers are often involved in facilitating payments and personal care.

To address this, the NDIS prototype scheme kept personal data off-chain, used public/private key-pairs for individual budget items (rather than for individual participants), used web interfaces to provide controlled access to blockchain data, while the blockchain was operated on a secure private network.

"We weren't trying to solve everything you would need to solve to build a complete solution, such as all privacy or confidentiality challenges, because it was a new research project," Staples says.

For example, if the prototype were to be applied to other conditional payment environments beyond the NDIS, it may be inappropriate to share some private information across all nodes. This could be managed by using multiple distributed ledgers, secure private computation technologies, or exploring zero-knowledge proof technologies.

While data can create smart money that gives people greater freedom, it can also be used to exert control.

For example, the federal government has already used a cashless card to restrict how certain welfare recipients are able to spend large portions of their money. Such income management schemes have been criticised as paternalistic because a set percentage of welfare payments are directed to accounts that only allow expenditure on certain items such as food, rent, or education (or bar expenditure on items such as gambling or alcohol).

The backlash against the government's proposed ban on cash transactions above $10,000 – an attempt to stamp out the black-market economy – shows just how much people still value the freedom and anonymity that traditional cash offers.

However, if used appropriately, smart money is likely to represent a leap forward, conferring new abilities on traditional currency.

This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY. Published by BPAY Pty Ltd.  BPAY is offered by over 150 Financial Institutions. Contact your Financial Institution to see if it offers BPAY and to get the terms and conditions. This is general advice – before using BPAY please review the terms and conditions and consider whether BPAY is appropriate for your personal circumstances.

Subscribe to the newsletter

Stay up-to-date about the changes in the dynamic payments industry, both in Australia and overseas.

Success! Thank you for subscribing.