To celebrate the new year, I read my favorite science fiction writer, Gregory Benford, to see his vision of personal financial services of the future. Unfortunately, his latest book deals only with pocket universes, so I had to create my own vision for the year 2099.
My scenario has three main components: Everything will be electronic, each household will have a Household Electronic Database and Intelligent Agent (Hedia) to manage finances and data, and households will directly tap the capital markets.
Retreating to the annals of history will be paper currency, coins, personal, travelers and cashier's checks, and money orders. So will paper- based communications such as direct mail, statements, and confirmations.
At any physical point of sale, people would identify themselves with chips embedded in their hands. All payments would be originated and then processed real-time as part of a ubiquitous global virtual financial network with billions of end points.
Recurring payments not requiring a physical presence would be handled by Hedia, 2099's version of home banking. Hedia would also take care of reporting and analysis; nothing would happen in a household's finances without the involvement of Hedia.
An important corollary of the all-electronic world is that today's anonymous, unrecorded transaction would disappear. Originally, anonymity existed because of technology limitations, not for policy reasons. By 2099, when purging electronic payments costs more than archiving them, governments would have no reason to support anonymous payments.
Today most payments-typically small and inconsequential-go unrecorded. By 2099 electronic transactions, combined with population growth, will create a deluge of data.
Additional data, such as the payee and the purpose, would be captured from each payment.
As a result, each household's Hedia would know all. It could track where every penny goes, when, and why. It could create accurate records of household expenditures, consumption, and patterns. If a defective item needs to be returned, Hedia would have the electronic proof of purchase, warranty conditions, and ability to automatically contact the right party.
Suppose the household needs to impose spending controls on its college- age children. Hedia would receive detailed instructions from the parents on appropriate types of purchases and amounts, and transmit them to an authorization system, which would check transactions against a base of detailed household wishes.
Big Brother, however, would not emerge as payments lose their anonymity. Large dollar payments are already electronic; the small payments to be converted would not be of interest. The enormous data bases of household financial patterns would be used by marketers, but Hedia would prevent unwanted intrusion.
Like a corporation's data warehouse, Hedia would include bills, invoices, static data, policies, history, legal documents, and more. Households of 2099 would have no paper information. The future equivalent of e-mail would carry all text-based communication, and Hedia would be the repository.
Household insurance would be handled similarly. Hedia would know everything: policies, coverage, restrictions, deductibles, and so forth. Claim submissions and adjudications would happen electronically. Most households have already forgotten who their carrier is, but Hedia wouldn't. If a home insurance policy requires an annual roof inspection, the result would be electronically communicated via 2099's equivalent of electronic data interchange.
Marketing wouldn't be eliminated, but would be conducted differently. Competition still would be intense. For example, credit would be available everywhere for anything, instantaneously at the point of sale. Lifetime credit lines linked to financial assets would be available at competitive rates. Providers of investment vehicles would trumpet their returns. Junk e-mail would grow to tremendous volumes.
Hedia would intercept and filter it all.
Hedia, by necessity, would be virtual. There would be far too much data to reside in one place, such as the household's home data center.
The data and logic would be found throughout the global network. Of course, by 2099, bandwidth and low-cost storage would be almost infinite.
Hedia's interface would reflect 2099's far-advanced voice technology, high-quality graphics, and text responses. Household members would relay orders or queries through advanced artificial intelligence devices in Hedia.
A detailed discussion of financial planning for college would include numerous "what-if" issues and an extensive dialogue. The consumer wouldn't know or care how Hedia came up with the answers. Likewise, they wouldn't need to check account balances daily, because of regular advisories from Hedia.
Data would be transferred contactlessly between Hedia and the chips embedded in consumers' hands. Besides identification, the chip would allow network access and store some short-term data, ranging from receipts to information relevant to insurance claims. But it wouldn't keep permanent records of transactions. That data would exist within the global network.
Because human nature won't change, financial responsibility won't be better or worse than today. But Hedia would exert some control by handling negotiations between the household and its counterparties. For example, a delinquent taxpayer trying to work out a payment plan with the IRS of the future may call, e-mail, or visit IRS personnel. Hedia would play a role in enforcing the settlement. The 2099 equivalent of a collector's call would be an electronic dialogue between Hedia and a lender's system.
Though financial services products in 2099 will be more complex, personal interaction will still occur. A talk between a household and its "full service" broker would really be a four-way verbal and electronic discussion among the broker, the head of the household, Hedia, and the broker's system. Today the broker asks the consumer questions about household finances. In 2099 the two systems will exchange information directly.
Securitization will change the household balance sheet dramatically by 2099. Today, many household assets are held in securities, and many liabilities are resold by the originator as pooled securities. By 2099, households could issue their own securities to be resold through a global trading function.
The ubiquitous electronic network would allow households to act as direct providers or users of funds.
Of course, this would require standardized data, detailed reporting, and risk control. Versions of household financials that meet "Household GAAP c. 2099" would be made available by Hedia whenever a household issues a bond- or will it be equity? Constant matching will occur, driving down overall spreads. In essence, every household (as well as every business and organization) would be its own bank.
Thus, today's thousands of household investment choices would mushroom to millions by 2099. These millions would be changing in real time. Hedia will be part of a great global ebb and flow of funds occurring 24 hours a day, 365 days a year. All investment selection and reporting will done by Hedia.
Interest rates and/or net asset values would probably be measured in minutes, not days or years.
A household rating system would manage the millions of households directly gaining access to the capital markets.
Depending on income, expectations, intents, proceed purposes, cash flow, cross-guarantees, and so forth, a household's cost of funds could change in real time. Today, when a breadwinner is laid off, it might take months for the news to reach lenders.
In 2099 the breadwinner's annual evaluation or quarterly sales commission would be reflected that day in the price of the household's debt, much like today's corporate action systems.
Further control of investments through tax treatments is likely. As a result, investments would probably become illiquid, encouraging longer-term commitment. Portfolio reporting should become very complex, with households using hedges, swaps, and derivatives as much as corporations do today.
Though 2099 looks like a different world, personal financial services in 1899 were perhaps even further removed from today's practices. Bank accounts were for businesses and the rich; most individuals didn't have them. Cards of any type, mutual funds, and even the Federal Reserve didn't exist. All people knew were specie and bearer bonds.
My science-fiction tale probably understates what will happen in 2099. No one can predict the future, but those who ignore it won't get there at all. Mr. Teixeira is the president of Tower Group, a financial technology research firm in Needham, Mass.