If a billion people each gave you a tenth of a cent, you would have $1 million.

Over the past few weeks I’ve become enamored with the power of financial friction. This could involve everything from adding a tenth or hundredth of a cent charge to every email sent, social media “likes,” video downloads, views of copyrighted photos, and much more.

Even though it may not seem significant, there is a huge difference between “free” and “0.1 cent.”

Tiny charges, much like the rest of life’s sandpaper, tend to give us clarity between what’s significant and what’s not.

The reason this has become such an important topic today is because transaction costs have plummeted along with the cryptocurrency invention of distributed block chain ledgers, and the possibility of creating “nano-payment” networks is opening the doors to thousands of new fractional payment models.

The traditional way of providing online services like email, news, or uploading photos has been to pass the cost of operating these services on to advertisers. But that could change.

Over the past decade, micro payment schemes have created successful business models around charges less than $1. As an example, Google’s AdSense charges advertisers as little as a few cents for every click of their ads.

It’s only recently that we’ve been able to consider much smaller charges, even less than a penny.

In the past I’ve been an ardent advocate of simplicity, but over time my thinking has changed. Automation enables complexity, and the intricacy of complexity is what opens the door for unusual new business opportunities.

Here are just a few ways these seemingly insignificant payment schemes could become a big deal in your future.

Tiny Town Taxes

Tax experts have long understood the value of tiny slivers of money.

In the Denver, Colorado area, we have a unique taxing district called the Scientific Cultural Facilities District (SCFD).

Colorado’s SCFD is the largest cultural tax district in the nation. Collecting just one penny on every ten dollar purchase in the seven counties surrounding Denver, the SCFD collected $47 million in 2013 which it distributed to over 280 non-profit organizations including the Denver Art Museum, Denver Botanic Gardens, Denver Center for the Performing Arts, Denver Museum of Nature and Science, Denver Zoo, and many more.

Tiny amounts of money coming from a large number of people have the potential to dramatically shift everything from lifestyle, to employment opportunities, and culture.

If, for example, a similar taxing district were established just for funding live musical performances, Denver or most other large cities could quickly establish themselves as the live music capital of the world. Struggling musicians would no longer be relegated to the scraps that society has to offer, and being an accomplished performer would move up the status ladder to being a well-respected profession.

A similar approach could be used to bolster other communities of interest like makerspaces, art colonies, niche incubators, and much more.

While many may think this is going in the wrong direction, nano-payments could be used for ultra-tiny forms of taxation, even as little as a penny on every $1 million spent.

Leveraging the Lectrons

The only limitations imposed on digital money are the limitations we impose on it. These are human based systems, and every barrier and limitation is subject to human intervention.

As a way of expanding our thinking in this area, here are 8 short scenarios with brief explanations.

1.  When it comes to e-books, would you rather pay $7.99 for the entire book or a tenth of a cent for every page you read? With this type of model it would be very easy to run the analytics and determine which chapters, sections, and pages most resonate with readers.
2. If you received a tenth of a cent for every “like” on Facebook, but also had to pay a tenth of a cent every time you “liked” someone else’s page or photo, would you be making money or losing some at the end of each month? How could this Lilliputian economy be translated in other areas?
3. For photos with a copyright, whenever someone clicks to expand the image, their account would be debited a tenth of a cent. In this scenario, the owners would be incentivized to having their photos show up everywhere to increase exposure.
4. As a blog reader, every time you click “continue here,” you would be sending a tenth of a cent, or multiple tenths for every page viewed, to the writer. Would this incentivize more blog writers?
5. Would you be willing to pay a tenth of a cent for every page on Facebook, Twitter, or LinkedIn just to avoid all the ads being directed at you? The amount you pay would be in direct proportion to how much you use these services, but still a relatively small amount.
6. Should every text message come with the option of paying a tenth of a cent to keep your service ad free?
7. When it comes to videos, should a pay-per-play charge of a tenth of a cent be added to every YouTube, Vimeo, Vine, Twitch, or Viddy play. Should people posting videos have that option for remuneration?
8. Similarly, does it make sense to add a tenth of a cent charge for every episode of RadioLab, NPR, Freakonomics, or TED podcasts.

Fractal Transactions

A while back I wrote a column of the concept of fractal transactions, and this is where automation comes into play.

A fractal transaction is simply an automated point of money distribution. Money flows into the transaction, from one or more sources, and is instantly distributed to one or more recipients. While this doesn’t sound like anything earthshaking, it indeed is.

A fractal transaction remove the bottlenecks. By removing the person from the distribution process, it opens up many new strategies for doing business.

In its simplest form, a fractal transaction would involve a product or service. Let’s take for example a manufacturer who creates a widget. When an end customer sees the widget on a retail store shelf and purchases it, money flows into the transaction and is instantly split between the retail store and the manufacturer.

Going a few steps further, money paid for a book on Amazon would be instantly split four ways between the author, the publisher, Amazon, and the shipping company. Additional recipients may be a co-author, a referring website that gets a commission, or a warehouse worker filling the order.

The New Nano-Payment Paradigm

Yes, some people may view nano-payments as “death by a thousand paper cuts.” But in reality they’re just the opposite, the sparks that fuel a thousand new cottage industries.

A pay-per-use model could eventually replace many of today’s financing options. Instead of paying $300 for a printer, the printer could be free with nano-charges assessed for every page printed.

Every mobile app could be funded through an in-app nano-payment system that gets assessed with every use.

Video games could have a series of nano-payment options embedded inside each field of play.

Since opinion polls require so little effort, adding a nano-payment charge to the mix may be enough friction to make answers more meaningful. This line of thinking opens the door for creating a payment democracy, where users vote with nano amounts of currency.

Not only would we end up with a more accurate assessment of what people value most, but global voting systems themselves could also be financed and managed this way.

Final Thoughts 

With transaction costs approaching zero, old school paradigms will fall by the wayside.

Nano-transactions are the key to unlocking efficiencies the world has not yet known. The tempo of business will continually ratchet up, new business models will begin to materialize, and the old ways of doing business will lose favor as the flow of money begins to short circuits them completely.

Disruptive technology is always most effective when it can be applied to lucrative industries, and banking and finance is one that entrepreneurs have had their eye on for decades.

Nano payments are easy to overlook because they requires so many of them to appear significant. But with billions of people online, making literally trillions of transactions every year, the numbers are already there.

In the words of Nobel Physicist Richard Feynman, “There’s plenty of room at the bottom.” And indeed there is.

Launching a New Era in the Future of Money

Imagine yourself sometime in the future sitting in front of a television, watching your favorite show, and a pizza commercial comes on. This is one of those commercials that hits you at exactly the right time and you instantly start craving pizza. For the next few seconds you stare at the screen and your mind thinks of nothing other than pizza. Finally you give in and utter the single word “yes”.

Thirty seconds later a flying pizza drone docks at your house with a piping hot pizza with exactly the right toppings. In addition to the pizza the drone also comes with a six pack of beer, and not just any beer, but you’re favorite import beer from Australia. When you gave the command by saying “yes” it automatically knew what you wanted.

The marketing world has long tried to figure out a way to combine the buying moment with the marketing moment. In this example I take it one step further and combine the marketing moment with the buying moment and the fulfillment moment. No time to second guess yourself because the transaction is complete. In this scenario, you will very likely have a slice of pizza in your mouth before you realize how much you spent. For major cravings, price is irrelevant.

Some people believe this to be the ultimate transaction with instant gratification, instant money exchange, and a satisfied customer. Personally I’m glad we don’t have anything like this yet because I’d weigh over 800 pounds. Adding a little friction between my brain and my stomach is a good thing.

But the transaction world is changing and some emerging new technologies are attempting to turbo charge impulse purchases by making it very, very, very easy to say “yes”.

Speed Sells

Nothing kills a purchase quicker than making people wait. Take a crowded store and bottleneck the checkout process with too few checkout lanes and you can see the potential customers walking away. Some will even leave full shopping carts in the aisles. People hate to wait.

Today many retail outlets have converted over to self checkout lanes because even if people have to wait, it won’t be long and customers have more control over the process. Major retailers in Europe have stepped up their installation of the self-checkout systems after finding out that sales increased an average of 10 percent.

A recent survey in Munich, Germany, in April 2006 by Visual Merchandising Initiative, showed that 73% of customers strongly preferred self-checkouts to attended checkouts. Also, 70% said self-scanning enhanced their shopping experience, and 64% welcomed a reduction in waiting in store lines.

M-Commerce = Mobile Money

When it comes to wireless handheld devices, the Japanese are moving faster than almost everyone else in the world. Given Japan’s cash-focused consumer economy and the high percentage of people using cell phones, a wallet phone becomes an obvious next step.

According to a recent eMarketer study, over 95% of Japanese consumers already have a mobile phone. This compares to 75% of consumers in the U.S. and 61% in Canada. Japan is a culture that promotes the early adoption of new technology, and 16% of Japanese mobile phone customers already use some kind of m-commerce.

The idea that mobile wallets could replace traditional wallets is not science fiction to Japanese consumers. Over a third of those surveyed by NTT DoCoMo said that mobile wallets would not just replace wallets, but coins as well, and 26% even think that currency will disappear completely over time.

Mobile wallet chips can hold far more information than just a few bank balances. For example, they can eliminate keys from your pocket in the same way that a mobile wallet can eliminate the need to carry cash. Besides cardkeys, mobile wallets can also carry insurance information and other data found in the traditional wallet.

Even though mobile wallets are a relatively new phenomenon, NTT DoCoMo found that 57.5% of Japanese consumers are interested in using them.

Payments made by mobile wallets can provide instant feedback as well as the location of the consumer. For marketing people this creates value far beyond the dollar amount of the transaction. Experts on the Internet have often theorized how the targeting and feedback potential of the online marketplace will dramatically change things. Mobile advertisers who aim promotions at mobile wallet users will take this potential even further.

The Payee Side of a Transaction

Every transaction involves two side of the equation, the payer and the payee. While some version of the mobile wallet will be changing life on the payer side of the transaction, we are also setting the stage for some major changes on the payee side as well.

Throughout history businesses have lived or died on the timing and flow of revenue. As a result, traditional deal brokers place a huge emphasis on controlling the flow of money. All non-cash money transactions in the past involved a time float to allow time for the money to clear their respective accounts, and even cash transactions involved delays in getting posted to a bank account. Delays were often the proverbial straw that broke the camel’s back.

The initial recipient of money was always in the driver’s seat controlling the speed, timing, amount, and if and when money would ever get paid to the secondary and tertiary recipients down the financial food chain.

Model of a traditional financial transaction with a traditional one-person bottleneck

Fast forward into today’s world, where Moore’s Law has dramatically changed the timing of transactions. Society has continued to speed up and the traditional time float has gotten squashed to zero. We have begun to see an era of real-time transactions. And along with real-time transactions comes other opportunities far less obvious to financial communities whose thinking has been based on the traditional linear way of doing business.

Fractal Transactions

A fractal transaction is simply an automated point of money distribution. Money flows into the transaction, from one or more sources, and instantly leaves the transaction, automatically distributing money to one or more recipients. While this doesn’t sound like anything earthshaking, it indeed is. Fractal transaction are destined to crack open many new rich veins for business strategists to mine.

To begin with, fractal transactions remove the bottlenecks. When a purchase is made, money flows into a transaction and is distributed instantly – no waiting for someone to write the check, authorize payments, or waiting for money to clear. This removal of the bottlenecks has the potential of dramatically improving the flow of money and at the same time opens up many new strategies for doing business.

In its simplest form a fractal transaction will involve a product or service. Let’s take for example a manufacturer who creates a widget. When an end customer sees the widget on a retail store shelf and purchases it, money flows into the transaction and is instantly split between the retail store and the manufacturer.

The amount paid to the manufacturer can either be a fixed amount or a percentage, or it can be a percentage with a fixed amount minimum. The amount paid to the retail store can either be a single lump payment or a piece of it can be pealed off in the form of a commission for a sales clerk. In this example the options are still relatively simple, but there are a variety of complex decision points that can be engineered into the transaction.

Amazon Example: In this example a customer buys a book from Amazon.com. Money paid for the book is instantly divided four ways in a split between the author, the publisher, Amazon, and the shipping company. Additional recipients may be a co-author, a referring website that gets a commission, or a warehouse worker filling the order.

Fractal transaction example of purchasing a book from Amazon

The amount of money going to each recipient is determined by how the fractal transaction is set up, and in the middle of the transaction will be a bank or financial institution serving as a checks and balance entity for the system. They will be compensated with a small percentage of the money.

eCommerce Example: A typical ecommerce transaction will involve multiple splits. In the following example money is split between the manufacturer, distribution center, call center, shipping company, and the point of sale, which in this case is a website operator.

A product with a complete distribution plan built into it is an easy product for most online storefronts to handle. Their primary decision points will then be whether or not it fits into their current product mix and if they can make any money off of it. If done correctly, they will only need to add their commission to the fractal and post the product on their website. The fact that it is a fractal transaction means that they will get instant money from a purchase. People in the online world will be much more likely to carry a product if the money is instantaneous.

Architecting the Fractal Transaction

Ideas surrounding real-time distributed financial transactions like this are mere seedlings waiting to sprout. So building a core architecture for fractal transactions that is both open and flexible, yet at the same time secure and accountable, will be the key to its success.

I’m aware of several patents that have been filed in this area but working models and functional business systems are still in the experimental stage. But these are some of the critical factors that should be considered.

When a person who is producing a new product decides to sell the product online, one of their first tasks will be to set up the fractal transaction. This setup will involve establishing payment strategies and at the same time building a distribution plan with warehouses and call centers and shipping companies built into the mix. This information all becomes part of the fractal.

Once the fractal is set up, the product will be offered to people in the online world who will decide if they want to distribute it. Properly executed, a fractal transaction architecture will make it extremely easy for websites to market a product. With good margins, an interesting product could organically be posted on hundreds of thousands of websites overnight.

The Future of Fractal Transactions

This is, in effect, three-dimensional thinking in a traditional financial world founded on a very linear, two-dimensional mindset. But the introduction and growth will happen quickly.

Fractal transactions are the key to unlocking an efficiency the world has not yet known. The tempo of business will ratchet up a few notches, new business models will begin to materialize, and the old ways of doing business will begin losing participants as the flow of money short circuits and passes them by.

One problematic issue will be the accounting and bookkeeping side of the business because few people are acquainted with the automated spreadsheets and structures necessary to track and monitors these types of transactions. But that too will get created.

In the end, the people who control the transaction world will be in the driver’s seat to control much of the future business world as it unfolds. Competition will be fierce.