The much-vaunted Internet of Things will be rooted in finance. The process has already begun, somewhere you might not expect.

Apple has been leading the way with wearables, launching the Apple Watch in 2015 and shifting an estimated 12 million units in the first year. The watch represented the first major wearable product launch, and has been followed by systems such as Samsung SmartThings to create a connected home. We all know that Google is working hard on smart cars that drive themselves, and the Internet of Things (IoT) is gradually becoming a reality.

The gating factor for this reality is payments. You cannot have the IoT if you have a slow and expensive payments system, built in the last century for the transactional system of large payments by card and cheque, and small payments in cash. The IoT is leading us to a world where machines trade with machines, and they won’t be using cash. So what will the IoT be built on? Real-time micro-transactions.

The next generation of the internet – in which our homes, cars and even our clothes are transacting and smart – will see a new payment infrastructure emerge as well. The basis of that infrastructure is already in play, as demonstrated by contactless payments on the subway that can now be made with your smartwatch. However, the IoT goes further than this: think of your fridge ordering a restock of groceries from the local superstore; your television ordering the 10th season of Game of Thrones on your behalf; your car looking after its own oil and fuel orders. How will your fridge, television and car do that?

Identity politics

The first stage is to create a digital identity. Your 'things' cannot order over the internet if the store does not know who you are or that those things belongs to you. This is why it is pretty exciting to see what is happening with the technology that came out of Bitcoin, called blockchain. Although it is very early days, banks and government organisations are betting on this technology to build future digital identities by creating a highly secure database on the internet that they can share.

The key is that it needs to be shared. It is as simple as that: a shared, distributed ledger database of identities on the internet that can be accessed and used by all the bank systems to verify who you are and what you own.

Except it is not as simple as that, because we now have separate identities in the financial world, the government world and in other worlds. For example, your government issues you with a social security number, your bank gives you a bank account number and your mobile provider a telephone number. They are all different and separate. It is in this area that the next generation of the internet will make a difference, and we can already see this happening in Africa.

The continent has undergone a massive transformation in the past decade thanks to mobile telephony. Some 82% of Africans now have a mobile telephone, and one in three use it for making and taking money. This is a radical change given that most African citizens had no access to a payment system before.

Now governmental and charitable institutions are using blockchain technology to build mobile digital identities for Africans to enable them to get access to previously unavailable insurance and banking services. In fact, the objective is to build a pan-African financial system based on mobile and blockchain technologies, enabling digital identities. In other words, the next generation identification system where your machines buy and sell on your behalf might already have arrived in Africa.

When it goes global, we will all have cheap and easy transactions across the globe. Welcome to the future.

Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.

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