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Technology, IoT monetization to usher in 'programmable economy'

Our current economic systems have failed to keep pace with today's business transactions. Technology will soon close the gap, Gartner says. Make way for the 'programmable economy.'

The economic systems in use today, which were designed hundreds of years ago, aren't working and need to change. That's because the economic activities people want to do today are generally faster than the systems that support those activities. So said Gartner vice president and research fellow David Furlonger, who presented on the topic of IoT monetization and the "programmable economy" at the Gartner Symposium/ITxpo in October in Orlando, Fla.

As an example of the problem, Furlonger pointed to a recent bill he paid online, inadvertently using money from the wrong bank account. He tried to correct his error during the in-progress transaction, but the system didn't allow him to make the change. When he called the bank, he learned it would take two days to make an interbank transfer -- despite the fact that shifting money from one account to another typically can be done instantaneously. "That to me is a recognition that the system is somehow broken. The technologies that we're using are somehow broken," he said. "We're expecting instant gratification and that everything is available all the time. And that's not happening in the current economic environment."

The economic model of the future

Furlonger painted a picture of a very different economic model in the not-too-distant future, suggesting that within 10 years, we'll be paying for things using units of value from loyalty programs, such as airline miles, and reputation rewards on platforms such as Facebook. In the coming programmable economy, monetized things and actions -- enabled by technologies such as Internet of Things (IoT) -- will grease the wheels of our financial systems.

Agents, sensors, algorithms will have the ability to make the same kinds of, as well as different, decisions that humans currently make today.
David Furlongervice president and research fellow, Gartner

He laid out the developments that will enable this new model. First, he said, by 2020, a "pure algorithmic entity" -- one that conducts business based on autonomous decisions -- will be among the top 500 fastest-growing companies in the world. By 2022, 5% of economic transactions will be initiated by autonomous software agents. "That means that agents, sensors, algorithms will have the ability to make the same kinds of, as well as different, decisions that humans currently make today," he said.

Indeed, he said that by 2022 the majority of global financial assets will be "shadow assets": financial assets that aren't represented by monetary currency. And by 2025, the majority of shadow assets will be "programmable."

"Shadow financial assets today make up $75 trillion. It's about 25% of the overall financial assets of the existing economy," Furlonger said. "We know from various financial services bodies … that the percentage share of traditional bank assets is going down dramatically and the percent share of shadow assets in the big tech type space is growing dramatically. That crossover could happen sooner than is predicted."

Today's tech shortcomings trigger need for programmable economy

Furlonger drilled down into the problem with today's technology as an enabler for the programmable economy. "How many of you are still using systems that were designed in the 1960s or 1970s or 1980s, where the speed of movement of information, the ability to access information, is very different than it is today? … You're trying to create apps and you're trying to link APIs with systems that clearly weren't designed for that. You're trying to move across ecosystems between one country and another or between one supply chain and another supply chain. Your systems just won't accommodate that kind of flexibility."

Another problem is that business models in use today were designed in the early 1900s and are flawed: static, one-directional and not very flexible, he said. Today's "fail fast" business mentality is challenging existing business models.

Over the next few years, Furlonger predicted, there will be a transition to an economic model that will better support organizations' move to digital business. IoT will play a key role in this transition. "The Things will start to act as proxies for us. You see that with things like virtual personal assistants, virtual customer assistants, different algorithms for robots … making decisions on our behalf in the transactional supply chain. That's just the beginning," he said.

Furlonger said robotic services -- including those attached to IoT -- will become increasingly autonomous. "There's no reason -- because everything is connected to the Internet -- why they can't access your bank account, why they can't pay tax, why they can't transfer money. It's just another Internet-based connection, and then they become part and parcel of this new economic environment," he said.

In part two of this report, we look at the technological environment that will be required to enable the new programmable economy, as well as recommendations for CIOs to prepare for it.

Next Steps

Also from Gartner Symposium/ITxpo: Pixar's Ed Catmull on getting to "fail fast"

Gartner Symposium panel weighs in on the path to CIO

Investigative reporter Brian Krebs on the virtues of curiosity

This was last published in November 2015

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What problems might the programmable economy bring to your business?
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The interesting thing about the possibility of shadow economy payments (such things as loyalty programs or air miles in lieu of cash) is that we open up many more avenues for potential fraud and misuse. It's one thing when the transactions are simply dollars (I say simply because they are what we tend to track and pay attention to; I know what's in my bank account, but I wouldn't be able to tell you how many air miles or reward points were used as cash and how frequently, or if someone other than me used them). This promise of "credits" for everything has been coming for decades, but cash still persists.
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The notion of 'programmable economy' sounds exciting. The advancements in technology are enabling micro-economies. The expression 'programmable' at this time does look a bit futuristic but it appears that such is the future, because speed of life today needs it. Also, a lot of us, particularly the digital generation, today are willing to sacrifice security and privacy for added facilities and services. Moreover, it all starts first with low-value and low-risk entities, moving gradually towards high-value entities, and the technology gets matured and robust in the path.  
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I certainly see that the delay in some financial applications is falling too far behind the needs of the users, but it seems to be account provider specific. For example, I have one account in which I’m forced to schedule a payment three days prior to the due date so that the payment can be posted on the due date. Other accounts post the same day. Still, the current system could certainly use an update to better reflect the current state of how business is done.
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"Furlonger said robotic services -- including those attached to IoT -- will become increasingly autonomous. "There's no reason -- because everything is connected to the Internet -- why they can't access your bank account, why they can't pay tax, why they can't transfer money. "

As the saying goes, to err is human, to really mess things up takes a computer. I don't even do automatic bill pay because I don't trust the systems to do things right, and I don't want some financial Sorcerer's Apprentice to decide to pay my gas bill 200 times, which is how my housemate ended up with an $800 credit with the gas company.
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