Tuesday, December 4, 2018

Designing better money

What is the future of money? With widespread electronic payment systems and new and emerging financial technologies such as blockchain, the way we use money is going to change dramatically. We need to understand what the opportunities for improvements are - as well as some of the things we are at risk to lose.

Belen Barros Pena is carrying out her Ph.D. at Northumbria University in collaboration with Santander bank. It is funded by the Arts and Humanities Research Council and the National Productivity Investment Fund. In this post, Belen writes about her research with users of financial services and how it can help us to design better money. Contact her at belen.pena@northumbria.ac.uk

Designing better money

As part of my PhD, which I am doing in collaboration with Santander UK, I’ve spent the last few months trying to understand what is money. In this blog post, I will share some of the things I’ve learnt so far.

If you ask an economist what is money, they will tell you that money is three things: a unit of account, a medium of exchange and a store of value.

Money is a unit of account

That means money is a measure of value, but also that money is not just coins and notes. Money is an account, a data record, information stored on a ledger. In fact, the bulk of money in circulation, at least in the UK, is made not of cash, but of these information records.

Ledgers are interesting because they split monetary transactions into two parts: the value transacted, for example, £10; and the information about the transaction: who pays how much to whom.
This split between value transacted and transaction information does not happen when I pay with cash. When I give you a £10 note, what I am transferring to you is the value embodied in that note, and the transfer is instantaneous. The moment the note is in your hand, the value is yours, and it is no longer mine. That’s it: nothing else required. I don’t need to know who you are, you don’t need to know who I am, and unless you record the transaction somewhere, it will be forgotten about. Nobody will ever know that I paid you £10.

But when I pay you £10 using a debit card, you don’t get the value straight away. What we are actually doing is storing on a ledger the fact that I want to give you £10. And at some point in the near future, the payment infrastructure will read that data and transfer the actual value from me to you. But the information doesn’t disappear when the transaction is complete: who paid how much to whom will stay in the ledger, probably forever.

Money is a medium of exchange

That means money is used to pay for things. Some people argue that thinking about payments purely in terms of exchange hides their real nature. Payments are not just exchanges: payments are relationships. Relationships between people, the state, its financial laws and regulations, and the owners of the payment infrastructure: traditionally banks, but more and more telecommunications companies and mobile phone operators.

Money is a store of value

Finally, an economist will tell you that money is also a store of value. That’s why we save it.

Old, new money

Understood as these three things, money is old. Very old. It can be tracked to around 8,000 BC, born as a unit of account in Sumeria.

However, what we mostly understand as money today - currency that is the monopoly of a nation state - is actually quite young. In the UK it was born at the end of the 17th century with the creation of the Bank of England. In the US only in the second half of the 19th century. As early as the 1860s in the US there were still around 8000 currencies in circulation, issued by railway companies, shops, hotels and of course, by banks.

Then, in the 1960s, money started morphing again, first into plastic cards, and increasingly into a wave of our mobile phones.

The owners of the payment infrastructure, the banks and the mobile phone companies, are very enthusiastic about these new forms of money. They advertise these new moneys to us, praising their advantages, but also telling us that all forms of physical money, things like cheques and cash, are no good. Cheques are inefficient: they take a long time to settle, and require pesky humans to do so. Cash is dirty, and not just in the literal sense. After all, who goes around with suitcases full of cash? Who uses the 500 euro note? Cash, they tell us, is used mostly by people who are up to no good, for money laundering and tax evasion.

What they forget to mention is that physical forms of money, like cheques and cash, have some very good things going for them.

Exchanging at par

For example, cash is the only form of money that exchanges at par. If I give you a one euro coin, you get one euro. But if I pay you one euro with a debit card, you don’t get one euro: you get 98 cents. 1 euro minus the 2% transaction fee charged by the owner of the payment infrastructure. Great for them, not so good for you.


Physical forms of money impose constraints on us. Constraints are great things, and people use them in all sorts of interesting ways. If I am a bit short of money this month, I might leave my house on Saturday evening with a £20 note, so that I don’t overspend. When I run out of cash, I go home. And if I break my leg and I can’t leave my house, I can give £20 to my neighbour to get me some groceries. If the neighbour is a bit of a crook and runs away with the £20, that’s all I lose: £20.

This might sound funny to some of us, but for a lot of people, the ability to get others to financially transact on their behalf is critical. People homebound because of illness, disability, or good old age, delegate financial transactions to others. They get others to pay bills for them, to buy things for them, to withdraw cash for them.

With cheques and cash, because of the constraints built into them, they can manage the risk this entails and build trust on others progressively. If my neighbour runs away with a £20 note, that’s all I lose. But if I give my debit card and my PIN to my neighbour to get me some groceries, and my neighbour runs away with it … see what I mean?

New forms of money undermine our ability to manage risk when entrusting others with our finances. This is because their design assumes finances are personal, and they ignore the fact that, more often than not, our finances are communal.


The fact that cheques take time to settle also has certain advantages. The delay gives the person issuing the cheque a chance to get cold feet, to change their minds and cancel the transaction.

Have you ever heard people complaining about how Amazon’s 1-Click makes it too easy to spend money? That’s because they have removed all friction, without realising that friction, like those delays in cheques, has a role to play.

This idea of bringing friction back is becoming rather popular amongst banks, particularly in the context of protecting customers from financial scams.

Finally, cash is the only form of payment that allows us to remain anonymous. That’s because it is the only form of payment that does not split a transaction between its value and its information: cash is the only non-ledger form of payment we currently have. If only because of that, I believe it is worth preserving.

All the things we’ve lost

It looks like with our new fancy money forms we have lost a few things:
  • The ability to exchange at par.
  • The ability to manage our risk when trusting others with our finances.
  • The ability to change our minds about a payment.
  • The ability to remain anonymous.
Can we recover these things? Can we build them back into our new forms of money?

Designing better money

In the case of anonymity, it turns out that we can, as proven by Taler, a form of digital cash.

Like physical cash, Taler does not split transaction information from its value. When I pay you £10 with Taler, you get the value straight away.

There is a twist, though. With cash, the ability for the payee to remain anonymous is what makes tax evasion possible, so Taler removes that. Transactions guarantee the anonymity of the payer, but not of the person receiving the money. The payee must declare her payment income, making tax evasion hard. So Taler is cash, only better!

Taler demonstrates that it is possible to build some of the strengths of physical money, in this case anonymity, into our digital money. It also proves that digital platforms provide an opportunity to design better money.

What else can we do to improve our money? Can we build upon the strengths of physical forms of money to design better digital financial services? That’s the question our research is trying to answer.


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Kaye, J., McCuistion, M., Gulotta, R., Shamma, D.A., 2014. Money Talks: Tracking Personal Finances, in: Proceedings of the SIGCHI Conference on Human Factors in Computing Systems. Presented at the CHI 2014, Toronto, Ontario, Canada. ACM New York, NY, USA, pp. 521–530. https://doi.org/0.1145/2556288.2556975

Lanchester, J., 2016. When Bitcoin Grows Up. London Review of Books 38, 3–12. https://www.lrb.co.uk/v38/n08/john-lanchester/when-bitcoin-grows-up

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Stallman, R., 2018. A radical proposal to keep your personal data safe. The Guardian. https://www.theguardian.com/commentisfree/2018/apr/03/facebook-abusing-data-law-privacy-big-tech-surveillance

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Vines, J., Blythe, M., Dunphy, P., Monk, A., 2011. Eighty Something: Banking for the older old, in: Proceedings of the 25th BCS Conference on Human-Computer Interaction. Presented at BCS-HCI 2011, Newcastle-upon-Tyne, United Kingdom. BCS Learning & Development Ltd., Swindon, UK, pp. 64–73.

Vines, J., Blythe, M., Dunphy, P., Vlachokyriakos, V., Teece, I., Monk, A., Olivier, P., 2012. Cheque Mates: Participatory Design of Digital Payments with Eighty Somethings, in: Proceedings of the SIGCHI Conference on Human Factors in Computing Systems. Presented at CHI 2012, Austin, Texas, USA. ACM New York, NY, USA, pp. 1189–1198. https://doi.org/10.1145/2207676.2208569

Vines, J., Blythe, M., Lindsay, S., Dunphy, P., Monk, A., Olivier, P., 2012. Questionable Concepts: Critique as a Resource for Designing with Eighty Somethings, in: Proceedings of the SIGCHI Conference on Human Factors in Computing Systems. Presented at CHI 2012, Austin, Texas, USA. ACM New York, NY, USA, pp. 1169–1178. https://doi.org/10.1145/2207676.2208567

Image credits 

Money Key by Mike Lawrence - CC BY 2.0

British pounds by Alan Light - CC BY 2.0

New VISA card by Peter Hellberg - CC BY-SA 2.0

check by Rikki's Refuge - CC BY 2.0

Money Laundering by The Preiser Project - CC BY 2.0

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