Monday, 31 October 2016

Money2020 16

CHYP on Tour Vegas 16

Money2020 was pretty different this year. I’m glad I went, it remains one the most important events in our calendar and it’s a fantastic opportunity for Consult Hyperion folk to meet up with all of our key customers and soon-to-be customers. And I’ll go again next year. But… it’s not like in the old days. Money2020 has matured into a mainstream business event. It’s no longer a place where people go to see fascinating presentations on what a blockchain is or how P2P lending works. It’s not longer a place where people go to watch passionate debate on panels full of conflicting views of the future. It’s a place where people go to do serious business. Here I am, for example, engaging in an in-depth discussion about the business opportunities for Payment Service Providers (PSP) because of the European Commission’s Second Payment Services Directive (PSD) open API provisions on the retail payments ecosystem in the UK, in the light of the UK Treasury’s parallel initiative, the Open Banking Working Group (OPWG).

CHYP on Tour 16  

I told our commercial chap Nick that I’d been into the conference and was a bit bored. He told me that we’ve done five times as much business at the event this year as we did last year. I couldn’t help but reflect on the fact that next door to Money2020 was the National Fasteners Conference. I’m afraid to say it, but this is the vision of a successful future: a trade show where everyone goes to do real business year after year. I spoke to a few other people about this. There was a feeling like we all know that SXSW will be more fun, but Money2020 will make us more money.  And to be fair, Money2020 was bigger, better organised and easier to navigate than ever before. They’ve built a very successful show.

Vegas 2016  

The main reason that I was at the event (apart from to make money for the company, of course) was because I had been invited to moderate one of the financial inclusion panels and I chose to focus on what the US could learn from emerging markets when it comes to the topic. They asked me who I would like to have on my panel and my first pick was Professor Lisa Servon from Penn. Lisa wrote one of the best papers on financial inclusion that I have ever read and I thought that the best way to explore the many aspects of the issues pertaining to the small percentage of American’s who are unbanked (perhaps around 7%) and the much larger proportion who are underbanked (perhaps 20%) would be to go to a Cirque de Soleil show, so I chose their Beatles show. It was great, by the way.

Vegas 2016  

I was delighted to welcome Lisa on board along with Jed McCaleb from Stellar, Michael Schlein from Accion, Daniel Monehin from MasterCard and Arjuna Costa from Omidiyar Network. Michael wrote a very good blog post on the key takeaways from this panel so there is no need to repeat them here. What I will say is that the panelists received a well-deserved compliment later in the week when I was told that is was one of the stand out panels of the event, and I wasn’t surprised. I refused to have a set script so I asked them interesting questions and they responded with interesting answer, discussion and debate. A great start to the event.

Money2020

I started to become somewhat deranged on the second day, partly because of lack of sleep, partly because of the over-stimulation at Bruce Parker’s top secret Payments Illuminati dinner (which had, I have to say, one of the best ice-breaker strategies I’ve ever come across at such events) and partly because of the amount of nonsense being talked about the blockchain was getting out of control. As you can see, my mental state was beginning to deteriorate. Someone tells me that the blockchain is going to revolutionise something or other. So I say “wow that’s great - how?” and they begin to describe some fantastical elaboration of some sort of distributed database with wholly mythic qualities and tell me “there, see”. I think perhaps some of his has to do with Money2020 Europe locating in Copenhagen, home of Hans Christian Anderson and his fairy tales. The spirit is permeating the event. I swear I saw a presentation that might as well have been about magic beans for all of the actual content it had or education it delivered. I was losing it, no about.

 Vegas 2016

In fact, the more I start to think about it, the more the whole thing seems like it was one big fairy tale. Most of the stories I heard weren’t true, they were marketing, and that’s a sort of fairy tale.

The Tale of the Ugly Blockchain.

There once was a little blockchain. He didn’t use proof of work to form consensus, so all of the other blockchains made fun of him. You’re a quack, they told him. Quack, quack. And the little blockchain was very unhappy. But one morning the ugly blockchain was out playing by himself, because none of the other blockchains would play with him. In fact, they were chasing him with a hard fork. But then, as passing consultant saw what was going on and came over to help him. “Hey,” said the consultant, “what is a beautiful shared ledger like you doing out here with these ruffians?”. He wasn’t a blockchain after all, he was a double-permissioned shared ledger with a practical Byzantine fault-tolerant multi-round consensus algorithm! And he lived happily ever after.

Time for a glass of champagne. Luckily, they had some in green room for the W3C panel on “One-Click Buying: New W3C Standards for Web Payments” so I poured myself a large one and went on stage to toast the guys while they discussed the working draft of the W3C Payments Request API (July 2016). They deserved it, because in-app and in-browser payments are going to be huge. Bringing chip and PIN security into the web and mobile world is huge.

CHYP on Tour Vegas 16

The impact of this is, if the people I spoke to were anything to go by, considerably underestimated. The ability to make secure and convenient remote payments is transformational and it will inevitably mean a significant growth in online business. But more than that, it will drive more transactions in-browser and in-app and this will mean that there will be more competition, because its easier to introduce new payment mechanisms this way.

The Tale of the Princess and the POS.

Once upon a time there was a Princess. She went to see the King and told him that she was bored and that she wanted to be an entrepreneur so she wanted the money to set up a shop. She decided to set up a potpourri shop and it was very successful.

She ordered a lovely POS terminal and put it on the counter.

Several customers came in every time to buy potpourri, including a Prince, who was very attractive to her because of his tubby Dad body. The Prince paid with his John Lewis MasterCard but things didn’t go as smoothly as the Princess had hoped because it took far too long for the transaction to complete.

When she went to bed at the night, she couldn’t sleep. The POS was bothering her.

“It’s big and ugly Daddy and it takes up space that should be occupied by lovely potpourri”.

So the King got her a small POS and attached it to her mobile phone.

But when she went to bed that night, she still couldn’t sleep. The POS was still bothering her.

“Daddy all my friends have Venmo and Zelle, so why do we make them use stupid old cards like the peasants have?”

So Daddy took away the POS and next time the Prince came in for some potpourri, she got the money by Venmo. And his number.

“That’s better Daddy” she told the King. “Now that there’s no POS I can sleep properly again. And my potpourri sales have gone up because of the loyalty scheme in my app”.

The Prince and the Princess changed their status to “hooked up” and they lived happily ever after.

I was sent off to the exhibition like a flesh and bone drone remotely piloted from Guildford. I was getting instructions like “go to stand XXX and see if the PIN on glass solution is in the TEE (it was) and certified (it wasn’t)” and then “go to stand YYY and see if the demo is real or simulated” and so on. So I did, and then I ran into noted venture capitalist Matt Harris. I decided to tell him my theory about regtech being a more important use of new technology than fintech for many of our customers because of the disproportionate and uncontrolled costs of compliance. I think I may have convinced him. Then I explained to him why it sometime makes sense for Manchester City to play a “false 9” against teams who lack pace at the back, because midfield runners can always move around the centre backs who are caught between tracking and sitting back.

CHYP on Tour Vegas 16

I went off to a couple of conference sessions but since my first meetings of the day were at 7am on all of the first three days, I found it a little hard to concentrate. When I went to the Cafe Presse to get a little pick me up (quadruple shot latte with an extra shot) and I kid you not there were two guys in there who were fast asleep. Lightweights.

The Tale of the Emporer’s New Blockchain

Once up time, there was an Emperor. He ran a marvellous stock exchange. One day, a stranger came to town and she went to see the Emperor and showed him a blockchain. The Emperor said “I can’t see anything”. The stranger told him that only very clever people and management consultants could see the blockchain. The Emperor didn’t want to seem stupid, or provincial, or behind the times, so he told himself that he could the blockchain and that it was beautiful.

The Emperor went and told all of the people about his blockchain and the people were very happy.

After a while, though, the people shouted that they wanted to see the blockchain, so the Emperor decided that he would show it to them and impress them. And he took out the blockchain that the stranger had given him and showed it to the crowed.

But then one small boy consultant standing at the back said “I can’t see a blockchain. The stock exchange has only one node!”. And then everyone in crowd realised that was the boy said was true. There was no blockchain, just a database run by the Emperor as before.

The Emperor was upset at first, because everyone else had a blockchain and he didn’t. But then he realised that no-one else had one either, so he cheered up and started to invest in artificial intelligence chatbots instead and he lived happily ever after because he had a defined benefit pension.

xx

Photo ID  

Here I am engaged in a heated debate with noted retail banker over the likely future identity and verification ecosystem. He said that given the dynamics of the space, and given that banks already have to carry out the rigorous KYC, it makes sense for banks to develop a co-operative sector-wide kind of financial services passport that could be used cost-effectively by third-parties while the underlying identities are strongly protected by tried and tested cryptographic techniques including tokenisation and blinding. I said “wha-hey you're my best mate you are”.

 CHYP on Tour 16

By the final morning, I was going about my normal business, albeit in a persistent vegetative state, when I was accosted by the shy and retiring head of the Emerging Payments Association. We had a fruitful discussion about using strong biometric authentication against revocable tokens to use pseudonyms (with strongly-attested attributes) in transactional environment. He said that he thought that this might be where the blockchain makes sense because the transparency around shared reputation management was a positive, whereas sharing private transactions was a negative and would require complex strategies to maintain commercial confidence. I said “stop shouting”.

CHYP on Tour 16

I think that for our clients and friends in the USA, the most important commercial announcement was the launch of Zelle by EarlyWarning. Zelle will launch in 2017, the equivalent of Paym/PingIt in the UK: instant account-to-account payments. It launched with 19 banks: Ally Bank, Bank of America, Bank of the West, BB&T, BECU, Capital One, Citi, Fifth Third Bank, FirstBank, First Tech Federal Credit Union, Frost Bank, JP Morgan Chase, Morgan Stanley, PNC, USAA, U.S. Bank and Wells Fargo. Pretty impressive. If you look at Venmo's hockey stick, it's clear that a P2P proposition has a ready market. But my sense of Venmo is that it suceeded because of social media integration so I suspect that Zelle’s long term role will be as an API for other platforms (e.g., Facebook) to use rather than as a standalone app or something that is tucked away in bank apps. This is the sort of thing that is best considered with a Mai Tai, by the way.

CHYP on Tour 16

Back home, here I am trying to work out exactly how much I lost in the casinos. I think it might have been as much as $80, because I’m pretty much of a high roller, especially when egged on by VocaLink Vixens and Money2020 Molls. Still. Vegas.

Dollars

Thinking about it, almost all of the interesting things I saw or heard about weren’t really about fintech and payments, they were about regtech and identity. It’s almost as if Identity2020 is the new Money2020.

See you next year.

Sunday, 30 October 2016

Cashless society: Average Briton now carries less than £5

xxx

Half of adults in Britain now carry less than £5 in cash in their purses or wallets amid a surge in popularity for online shopping and contactless card payments, new research shows.

From Cashless society: Average Briton now carries less than £5

Surprisingly, the same survey showed that 7% of Brits had more than £50 on them, which I thought surprising.

Saturday, 29 October 2016

Would you trust a digital identity? | The Mandarin

xxx

This rising phenomenon of frustration is what executive general manager of Australia Post’s Trusted eCommerce Solutions division, Andrew Walduck calls “identity friction”

From Would you trust a digital identity? | The Mandarin

xxx

Tuesday, 25 October 2016

Witness for the prosecution | Consult Hyperion

xxx

Witness protection in the age of Facebook is a whole lot more complicated because protecting your privacy in an online age is a minefield

From Witness for the prosecution | Consult Hyperion

xxx

xxx

An identity service founded on the principles of post-modern relativism thus has no problem dealing with the multiple identities. In essence, it would treat all identities as pseudonyms. The use of the pseudonym that happened to coincide with your “real” name would not be a special case.

From Witness for the prosecution | Consult Hyperion

xxx

Wells Fargo Fiasco Lays Bare a Broken Identity System | Bank Think

xxx

A few forward-thinking banks, such as U.S. Bank, BBVA and USAA, have been exploring opportunities to themselves act as identity providers. They have to know everything about their customers under anti-money-laundering regulations, but other businesses don't. Netflix, for example, may need to know that someone is old enough to view adult content, or located in a jurisdiction where certain material is not under copyright restrictions, but it doesn't need a birthdate or a street address.

From Wells Fargo Fiasco Lays Bare a Broken Identity System | Bank Think

xxx

Witness for the prosecution | Consult Hyperion

xxx

If you are a spy, or an undercover policeman, or in the witness protection programme, or perhaps even a restaurant critic, you may have perfectly legitimate reasons (in some cases very literally a matter of life and death) for wanting one identity asserted over another.

From Witness for the prosecution | Consult Hyperion

xxx

This is why people hate banks

For many, many years I have had a John Lewis MasterCard. It gives cash back in John Lewis vouchers and is our preferred card for household spend. For what seems like the last century, when I sit down to check the credit card bills once per month I have paid 

 

So, I logged in and sent a few grand to my John Lewis account, logged out and went on my way. I got a text message from my bank saying that the few grand had been transferred and forgot all about it.

A couple of days later, I logged in to 

Thursday, 20 October 2016

POST Lights, camera, inaction

It’s an old meme on this blog, but I think it is essentially true that the Big Brother of Orwellian nightmare isn’t really the government, who do their best to spy on us all the time in order to track down people who post abusive tweets and such like, but us. We are Big Brother. The mobile phone and the Internet have combined to

I’m sure most people, as I do, assume that if they are in a business meeting them someone will be recording them on a pen with a movie camera in it or through their glasses or whatever. But what is to be done?. I remember a super story about this that I saw in a newspaper a while ago. Some Austrian wildlife photographers had set up cameras in a forest in order to capture exotic forest creatures going about their business, but instead caught an Austrian politician up to his

Members of the Carinthian Hunting Society in southern Austria are accustomed to observing animals in the wild, such as the western European red deer or wild boar, with the help of cameras in the forest. But the hunting society got more than it bargained for last week when their cameras recorded footage of a politician enjoying an explicit sexual encounter in the woods.

[From Forest Sex Footage Sparks Debate in Austria - SPIEGEL ONLINE]

As one comment I saw had it, "if it had been with his wife it would have been even bigger news". Amusing, indeed. But the story does raise some interesting points about mundane privacy in a camera-infested world. I don’t know whether, in a world of smartphones and social media, one might have a reasonable expectation of privacy when having sex out in the woods somewhere. I would have thought not, but I am not a lawyer (or a wildlife photographer). It’s getting really hard to think about privacy and what we want from it.

Privacy is not a static construct. It is not an inherent property of any particular information or setting. It is a process by which people seek to have control over a social situation by managing impressions, information flows, and context.

[FromWhy Teens Are Innovators Of A New Public Form Of Privacy | Co.Exist | ideas + impact]

As I’ve written, blogged and spoke about many times before, I think that the only construct that makes sense is to think about privacy as a function of control over personal information.

I've talked before about how privacy is not a "thing," it's a tradeoff.

From Privacy Is About Tradeoffs... And Things Go Wrong When Those Tradeoffs Are Not Clear | Techdirt

xxx

xxx

a big problem is that the tradeoffs aren't as clear or as explicit as they should be.

From Privacy Is About Tradeoffs... And Things Go Wrong When Those Tradeoffs Are Not Clear | Techdirt

xxx

Apple Promotes A Cashless Society In Japan (AAPL, SNE) | Investopedia

xxx

In an interview with Nikkei news agency, Apple CEO Tim Cook said the company intends to use its products – Apple Pay, iPhone, and Apple Watch – to become “a catalyst for taking cash out of the system.” “We don’t think the consumer particularly likes cash,” he said. Cook also said

From Apple Promotes A Cashless Society In Japan (AAPL, SNE) | Investopedia

xxx

Distributed proof of jerk – Medium

xxx

The blockchain does not solve this problem. It records a decision, but it does not record the circumstances.

From Distributed proof of jerk – Medium

xxx

Privacy Is About Tradeoffs... And Things Go Wrong When Those Tradeoffs Are Not Clear | Techdirt

xxx

I've talked before about how privacy is not a "thing," it's a tradeoff.

From Privacy Is About Tradeoffs... And Things Go Wrong When Those Tradeoffs Are Not Clear | Techdirt

xxx

xxx

a big problem is that the tradeoffs aren't as clear or as explicit as they should be.

From Privacy Is About Tradeoffs... And Things Go Wrong When Those Tradeoffs Are Not Clear | Techdirt

xxx

Tuesday, 18 October 2016

Apple's Next Goal: Killing Paper Money Once and For All

xxx

“We would like to be a catalyst for taking cash out of the system,” Cook said. “We don’t think the consumer particularly likes cash.”

From Apple's Next Goal: Killing Paper Money Once and For All

xxx

Monday, 17 October 2016

Transport Secretary says passengers should be able to pay with a 'flick of a card' | Daily Mail Online

xxx

Chris Grayling said by the end of 2018 everyone should be able to travel with a ‘flick of a card’ or the ‘touch of a mobile phone’.

He said passengers should never have to queue again for a ticket, and should be able to buy them from the comfort of their home or while enjoying a coffee at the train station.

From Transport Secretary says passengers should be able to pay with a 'flick of a card' | Daily Mail Online

xxx

Sunday, 16 October 2016

Surge in explosive attacks on European ATMs

xxx

Criminals blew up 492 cash machines across Europe in the first half of 2016, an 80% increase on the same period the previous year, according to figures from the European ATM Security Team (East). Most of the attacks used gas, although 110 involved solid explosives, says East, with hits causing an average loss of EUR16,600, although this does not take into account the significant collateral damage done to equipment and buildings.

From Surge in explosive attacks on European ATMs

xxx

Friday, 14 October 2016

Seqr launches contactless payments service in the UK

xxx

As of today Seqr customers in the UK are now able to quickly and simply link their bank account to the Seqr app and make payments directly from their bank account.

From Seqr launches contactless payments service in the UK

xxx

Thursday, 13 October 2016

| Could Bitcoin Be the Future of Blockchain Post Trade?

snippet

Speaking of the direction where the disruption will come from, Yermack sees three potential players. These include challengers (complete outsiders looking for disruption); collaborators (like Overstock and R3); and regulators (countries like the UK, Australia, and Canada).

He was optimistic that regulators might be the most active agents of change, even going so far as to mandate changes that enable the technology to be used more broadly.

[From

| Could Bitcoin Be the Future of Blockchain Post Trade?

]

snippet

Monday, 10 October 2016

Identity, money and conservation

Identity and money

 

Mark King

 

I think I might touch on this in my keynote talk on Digital Identity at FinTechStage in Cannes on November 30th.

Saturday, 8 October 2016

POST Cash and compliance

As I always tell everyone, the fastest way to learn is by arguing with smart people. So I particularly enjoyed arguing with old chum Ian Grigg about the relationship between cash use and tax evasion. I decided to take the time to go and research some up-to-date figures.

The average bank spends £40m a year on KYC Compliance, according to a recent Thomson Reuters Survey, which also revealed that some banks spend up to £300M annually on KYC (Know Your Customer) Compliance and Customer Due Diligence (CDD).

[From The spiralling costs of KYC for banks and how FinTech can help | ITProPortal]

So let’s say a £1 billion for the big four and another £1 billion for the rest. So £2 billion in KYC. And that doesn’t include (obviously) the £5 billion that the UK Treasury estimates that UK banks spend on "financial crime compliance" (which I assume means AML, CTF and PEP). So… that’s something like £7 billion on compliance and presumably tax evasion is one of the main crimes that it is supposed to be tackling.

How does that compliance spend compare with the tax gap? The what? Well, the difference between what Her Majesties Revenue and Customs (HMRC) thinks it’s owed in theory and what it actually collects is called the ‘tax gap’. The tax gap is currently estimated to be £34 billion in the UK. 

It includes a number of things as well as evasion and avoidance. HMRC estimates that in 2013/14, differences in legal interpretation cost it £4.9 billion; unregistered paid work cost it £6.2 billion; organised criminal attacks cost it £5.1 billion; non-payment cost it £4.1 billion; the failure of people to take reasonable care with their tax returns cost it £3.9 billion; and honest errors cost it £2.6 billion.

[From Tax: evasion and avoidance in the UK - Full Fact]

By far the single biggest contribution to the tax gap is the underreporting of income by SMEs, especially those who take payments in cash. Everyone from your builder to your taxi driver contributes to this, which is why the scale of the evasion is so vast. Here are the HMRC figures broken down by source rather than type.

  • SMEs £16.5 billion.

  • Large businesses £9.5 billion.

  • Criminals £5.1 billion.

  • Individuals £3 billion.

That’s a lot of schools and hospitals. Everyone goes on about big companies like Apple and Facebook engaging in perfectly legal tax avoidance (blame the government not Google) but that’s not the biggest chunk of cash missing from the books. Now, no-one would be so dumb as to imagine that reducing cash would eradicate the tax gap. But it would raise the costs of tax evasion as well as the risks and therefore, I would think, at least reduce it. And given the dominance of SME cash under-reporting (it’s half of the tax gap) that would seem to be low hanging fruit, as they say. Maybe instead of spending all of this money on compliance, we should spend it on migrating away from cash?

net.wars

snippet

Big questions remain for all these guys about security. How much of the data used for verification will be kept? How will the data be protected? To what standard?

[From

net.wars

]

snippet

The Privacy Dangers of a Cashless Society Were Clear Over 40 Years Ago

Some people really can seen into the future. 50 years ago this was already clear

In 1968, Paul Armer of the RAND Corporation testified in front of a U.S. Senate subcommittee about his concerns for privacy in the future.

[From

The Privacy Dangers of a Cashless Society Were Clear Over 40 Years Ago

]

snippet

snippet

The first is that computer technology is introducing order-of-magnitude reductions in the cost of collecting, transmitting, and processing information.

[From 

The Privacy Dangers of a Cashless Society Were Clear Over 40 Years Ago

]

snippet

snippet

Second, centralization of data is usually a concomitant of computer use. The payoff to successful snooping is much greater when all the facts are stored in one place. Though most of the data to complete a dossier on every citizen already exists in the hands of the government today, it is normally so dispersed that the cost of collecting it and assembling it would be very high.

[From 

The Privacy Dangers of a Cashless Society Were Clear Over 40 Years Ago

]

snippet

snippet

The third factor is that computer systems with remote terminals can permit, unless proper safeguards are provided, remote browsing through the data with a great deal of anonymity.

[From 

The Privacy Dangers of a Cashless Society Were Clear Over 40 Years Ago

]

snippet

Computer Scientists Close In On Perfect, Hack-Proof Code | Huffington Post

xxx

The technology that repelled the hackers was a style of software programming known as formal verification.

From Computer Scientists Close In On Perfect, Hack-Proof Code | Huffington Post

xxx

Imagining a Cashless World - The New Yorker

xxx

American money is private. Sweden has embraced cashlessness more readily in part because it finds the value of currency in the transfer and velocity, the social path it follows, the bonds it traces. It’s social: a network conception of wealth.

From Imagining a Cashless World - The New Yorker

xxx

Yes, I know, no cash does not mean no crime

xxx

Last summer brought Sweden’s first Swish mugging, when two thugs beat up a man and forced him to Swish them. The criminals were rapidly identified by their account.

From Imagining a Cashless World - The New Yorker

This has to be a candidate for the most stupid crime of the year. I realise it is up against some pretty stiff competition - I absolutely love Drew Curtis’ Fark and some of the crimes curated there are jaw-dropping but, I mean… come on.

 

xxx

The commission is on its third day of vetting traffic police officers in Mombasa where most have been found with huge M-Pesa transactions.

From Police officer on Sh45,000 salary moves Sh100m via Mpesa - Politics and policy

Who knew a life in public service could be so rewarding? 

xxx

In other cases, rogue officers open mobile money outlets where an alleged offender is given the agent’s number and told to withdraw bribe money from their accounts — instead of sending. One does not need to be anywhere near the agent’s physical location.

At the end of the day, the rogue officers reconcile their dirty proceeds by making entries in the catalogue, including filling fictitious personal details of those who “withdrew” cash. 

From M-Pesa the bribe, and other tricks traffic police use - Daily Nation

xxx

xxx

Junior officers in the police force were being used by senior police officers to get bribes from the public and send the money through specific M-Pesa accounts. It emerged during the vetting process that the senior officers had set a target for their juniors which they were supposed to meet daily.

From M-Pesa Transactions Led To The Sacking of The 63 Police Officers ▷ Tuko.co.ke

xxx

Imagining a Cashless World - The New Yorker

xxx

Swish, a peer-to-peer service like Venmo, launched in December, 2012. Less than four years later, it is used by half the Swedish population and by ninety per cent of adults under thirty.

From Imagining a Cashless World - The New Yorker

xxx

Music Fans Start to Rock Japan's Cash-Loving Economy - Bloomberg

xxx

Credit and debit cards and e-money make up only 17 percent of the Japan’s retail consumption, versus 85 percent in Korea, 56 percent in Singapore and 35 percent in India, according to a 2015 report by the credit association. Usage in the U.S., which includes data only for credit and debit cards, exceeds 40 percent.

From Music Fans Start to Rock Japan's Cash-Loving Economy - Bloomberg

I thought about a couple of things on reading this. First, it’s interesting how Japan (like Germany) is very cash dependent. The second is that the US doesn’t have e-money.

Friday, 7 October 2016

Cash on principle

While I was behind enemy lines at Security Printers 2016, I picked a copy of a report from Guillame Lepecq’s Cash Essentials.

Fullsizeoutput 2907

One section of the report talks about the European Commission’s 2010 recommendation on Legal Tender, which I’ve written about before.

A bank person mentioned to me that they think the European Commission’s recommendation on legal tender (22nd March 2010) is, as he put it, “strange and undesirable”.

From Tender moments | Consult Hyperion

After I’d taken the time to read and reflect on the recommendation, I posted a more sober and balanced perspective, explaining why the recommendations are wrong.

the European commission published a bonkers recommendation concerning the legal tender status of the euro

From Electronic legal tender | Consult Hyperion

One of the main reasons that I thought that the recommendations were bonkers is because they have no strategic context and no economic purpose. They are wholly political.

As Norbert Bielefeld of the European Central bank noted in his excellent article “Dare to be bold: electronic legal tender is an option” in the EPC newsletter back in May 2011, the recommendation flatly contradicts the European Union’s strategic objective to switch to electronic payment methods in order to reduce the total social cost of payments across the member states

From Electronic legal tender | Consult Hyperion

So, as you can imagine, after reading Cash Essentials I thought I just had to blog something about these recommendations again! The Cash Essentials report sets out the “guiding principles” of the recommendation. Here are the first four, all of which are, in my opinion, wrong.

  1. Legal tender: mandatory acceptance of banknotes and coins, for full face value with the power to discharge debts. This is wrong because no-one should be forced to accept payment in anything. Legal tender, in English Law at least, does not mean what people think it means. It does not mean that shops have to accept cash: it means that if you incur a debt, you can settle it with central bank cash and have the debt discharged. If a shop wants to accept cowrie shells, Bitcoins and Avois that is up to them: you don’t have to do business with them and they don’t have to accommodate your fivers.

  2. Can can only be refused for “good faith” reasons (e.g., retailer has no change).This is wrong because even if the mandatory acceptance of principal one exists, there is no way to determine what “good faith” means.

  3. The acceptance of high denomination banknotes should be “the rule”. This is wrong because of principle two. Just as “good faith” is meaningless, so “the rule” is meaningless. And that’s is not even taking into account that it is wrong for society to have these high denomination notes in circulation.

  4. No surcharges on cash payments.This is wrong because retailers should be allowed to surcharge for whatever they want. If the Commission wants to single out the payment that has the lower total social cost and make that the benchmark, then it is PIN debit. The rule should be no surcharging for PIN debit but allow surcharging for everything else.

I won’t go on. Except to talk about the later recommendation about coins for a moment. Coins? Yes, the recommendation goes on to insist that retailers accept the 1- and 2-euro cent coins and that governments do not allow “rounding". To understand why anyone would make such a baffling recommendation, you have to understand that the euro is for some people (e.g., the Commission) a political project. To retailers, and to most other people, the small coins are pointless and a waste of time and effort. But the to Commission they represent an aspect of the European family and to refuse them is a slap in the face to political union. There are people out there who think that producing the smallest denomination coins is a ridiculous affectation and it may be time to stop: if there are none of these coins in circulation then retailers won’t have to accept them so the Commission’s principle is redundant.

Mark Carney, the Governor of the Bank of England, has suggested that the 1,200-year-old British penny could be scrapped.

From After 1,200 years, could it really be time for the penny to be dropped?

Actually, I’ve suggested it more than once and even tried to get a No. 10 petition about it going, but just because he’s the Governor of the Bank of England his plagiarised proposal gets all the attention. Meanwhile, across the Irish Sea, the Commission’s recommendation appears to have fallen on deaf ears.

Some 126 million coins have been taken out of circulation since a scheme was introduced to round shoppers' bills up or down.

From 126 million coins taken out of circulation

Ireland can do it, why can’t we? Minting one penny and two penny, one cent and one euro cent coins is insane. The European Commission might stand against rounding, but even in that last redoubt of currency conservatism, the United States, the writing is on the wall and rounding is taking root. For one thing, they are a waste of time.

According to a study undertaken by the National Association of Convenience Stores and Walgreens, handling pennies adds 2 to 2.5 seconds to each cash transaction.

[From The Fight Against the Penny | News | Oakland, Berkeley, Bay Area & California | East Bay Express]

Who can blame retailers..

[Ken Martin decided] to stop using the coins in his eleven Bay Area stores in June 2011… Although Mike's Bikes and Cheeseboard Pizzeria still accept pennies as payment, neither store hands them out in change. Instead, both stores round transactions down in the customer's favor to the nearest nickel. Although the stores lose a little from the rounding, Adams said it's ultimately worth it: "For us, it's a net savings. It's more convenient, and the time it takes to roll the pennies and deal with them makes it worth it."

[From The Fight Against the Penny | News | Oakland, Berkeley, Bay Area & California | East Bay Express]

It is clear that, even to those who want to promote the use of cash over electronic alternatives, that the small coins have to go. It is impossible to understand why any most is wasted on their development and manufacture.

The Swedish central bank’s recent release of a new line of bills and coins struck her as foolish. “It’s trying to be more like the E.U.—two-kronor coins and things like that,” she said. “But it’s, like, why? What’s the point? No one uses it anymore.”

From Imagining a Cashless World - The New Yorker

Whatever the European Commission might think,  I don’t think retailers should be forced to accept cash at all, but if they are, there’s no reason why they should accommodate the extremes: the 1- and 2- cent coins, the €200 and €500 notes. Let them wither or, better still, just get rid of them altogether.

Top 10 technology forces that will shape financial services in 2020

The accountants PwC have published a report that lists the ten most important technology-driven forces that will shape competition in the financial services industry by 2020 for financial institutions. They say that these are:

  • FinTech will drive the new business model
  • The sharing economy will be embedded in every part of the financial system bringing together those who have excess capital with those that need financing, leading to the disintermediation of traditional lending models
  • Blockchain will shake things up
  • Digital becomes mainstream
  • 'Customer intelligence' will be the most important predictor of revenue growth and profitability
  • Advances in robotics and Artificial Intelligence (AI) will start a wave of 're-shoring' and localisation
  • The public cloud will become the dominant infrastructure model
  • Cyber-security will be one of the top risks facing financial institutions
  • Asia will emerge as a key centre of technology-drive innovation
  • Regulators will turn to technology.

From Top 10 technology forces that will shape financial services in 2020

I really don’t think that blockchain will shake things up by 2020, but that’s just an opinion. Anyway, I want to pick on three of the PwC forces to open up some more discussion.

AI and reshoring. XXX. Many years ago I wrote a piece for a financial services client saying that I thought that call centres and other support services in India would, because of voice recognition and voice authentication, eventually be replaced by a rack in a data centre, not by cheaper call centres in Vietnam of wherever.

Public cloud. XXX.

Regtech. XXX.

Saturday, 1 October 2016

FCA pledges to act as catalyst for ‘regtech’ - FTAdviser.com

xxx

he Financial Conduct Authority has promised to play an active role in the development of regulatory technology after an “outstanding response” to a consultation on the issue.

From FCA pledges to act as catalyst for ‘regtech’ - FTAdviser.com

xxx

Computer Scientists Close In On Perfect, Hack-Proof Code | Huffington Post

xxx

The technology that repelled the hackers was a style of software programming known as formal verification.

From Computer Scientists Close In On Perfect, Hack-Proof Code | Huffington Post

Have the Department of Defence only just heard about this? My colleagues at Consult Hyperion were using this 30 years ago to my certain knowledge and we used 20 years for Mondex.

Kenya : Kenyans transact Sh100b daily through Central Bank’s RTGS - The Standard

xxx

Mr Stephen Mwaura, CBK’s Assistant Director National Payments System informed a plenary at the exhibition that up to Sh100 billion is transacted daily through Real Time Gross Settlement (RTGS)-the continuous (real-time) settlement of funds individually on order basis.

The amount transacted through RTGS far outstrips about Sh15 billion that is transacted daily on the M-Pesa platform.

From Kenya : Kenyans transact Sh100b daily through Central Bank’s RTGS - The Standard

This is an astonishing statistic. The retail payment network run by the telco carries 15% of the value of the central bank’s RTGS! When you consider the average transaction sizes (the RTGS carries interbank payments, remember) this means that a very high proportion of the economic activity in the Kenyan economy is going through mobile phones.