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"Smart codes" for micropayments


John James has come up with a generalized payment model related to disposable credit card numbers, that he calls smart codes (via).

Smart codes are "handles" to small bank accounts that can be spawned from existing accounts: for example, you can split the fund attached to a smart code into smaller funds each assigned to a new smart code.
These handles are in fact capabilities, because the authority to use the account (within the allowed boundaries set at creation of the smart code) is bundled with the designation itself.

One important idea is to lower the overhead of breaking an account into smaller accounts (thus generating new codes), so that users can easily provide restricted handles (one use, limited funds, ...) to merchants, which is less risky than providing a handle to the main account (ie. credit card number). This security property and possible lower transaction costs would help make small/micro payments possible.

Some of the issues I can see:

  • How to manage a large number of smart codes?
  • How are the transaction costs lower than that of credit cards today?
  • How do you cash out? How do you prevent frauds (money laundering)? Accounts still need to map to real money, so regulations (taxes, conversion fees) still need to apply.
  • I'm not sure which design is better: completely secret codes (like John describes) or a public code (account handle) with a secret authorization/confirmation code (as I described previously in my "credit cards and POLA" post).

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