That said, when it comes to chip there are aspects that payment security adherents are probably not addressing in sufficient clarity otherwise one would think logical thinking people would come around even if they are American.  (I love America by the way)

So what is the issue ?  Why is it so hard to make the coherent case for chip?

US chip card debate heats up

But at a payments conference organised by automated clearing house Nacha in San Diego this week, three of the nation’s largest retailers hit back, arguing that the move to EMV will impose huge costs for a minimal reduction in fraud rates.

There are multiple issues which confuse the technologists seeking that optimum single solution.

• One device;  The Single Solution Problem
• One Law; The Border Problem
• One Customer Preference; The Customer Problem

The Single Solution Problem

Internet is largely to blame for the incoherence of solutions.  Internet creates a natural desire for a common solution and common approach for things, whether banking, shopping, or reading.  However criminals are adept at finding specific attacks for whatever solutions are developed.

The basic chip card concept is rock solid provided you follow the chip card rules.  Stick your card into a secure card reader and boom … you are secure.  However take that same card and buy something in a web page, and the chip security is gone.  The security is based on what you type, and the chip security is irrelevant.

Then when you travel to a non chip country, such as US you must use your chip card by swiping the mag stripe.  Immediately all the benefits of chip are gone.

The Border Problem

When travelling with your secure chip card, that security is compromised by the strategy employed for your card which is the lowest common denominator of security.  That is the mag stripe mentioned above.

The Customer Preference Problem

Finally the card must be designed to accommodate all customer needs.  The card is the centre of the universe and must be dead secure when required, but also flexible when that security is not available.

The real solution

The current chip card is an obvious choice that tries to satisfy all needs yet satisfies none.  I have worked first hand with chip people at my bank and many do not see the obvious.  We need multiple solutions.

1. The chip card ought to be just that;  a chip card with no mag stripe.  This card will only work in ATM’s and card readers that are chip secure.  End of story.
2. Online Solutions;  here we must forget about the credit card metaphor.  Lets design a payment method that fits the online environment.
3. Mag Stripe:  Never put a mag stripe one a chip card.  I have preached this for 10 + years and will never stop.  Mag strip and chip on the same card is just stupid.
4. Travel cards:  Banks must offer separate cards for travel.  Remember Travellers Cheques – when customers travel they will accept the idea of a different card with a different credit limit for travel.  Many people have credit cards with $40K credit limits but that card is not needed for drinks at the resort.

A link to the full report, press release and infographic can be found here.  Its 40 pages and worth the study for anyone in bank channel strategy and management.

Paris, New York – April 23, 2013 –  Within the next six months, ten percent of retail banking customers surveyed globally will likely leave their bank and an additional 41 percent of customers say they are unsure if they will stay or go finds the tenth annual World Retail Banking Report 2013 (WRBR 2013) released today by Capgemini and Efma. To re-build the customer-bank relationship, opportunity exists for banks to become more customer-centric by leveraging vast amounts of customer data and by further developing mobile capabilities to create more personal interactions. The cornerstone of the WRBR 2013 is its extensive customer survey and Customer Experience Index (CEI)[1] which measures perceptions of 18,000 customers in 35 markets about the factors that matter most to them across channels, transactions and products.

The report is an interesting of assessment of banks customer experience around the world, and development of potential solutions.

The is a great definition of the problem banks face in the commoditization of their products.

Banks have historically had difficulty distinguishing
their products from one another, and in recent years the
problem has only intensified. The look and feel of basic
banking products has remained largely the same, with
very little innovation forged in terms of linking products
or developing them outside their traditional silos.
Attempts to differentiate on price too have been curtailed
in recent years due to regulatory and cost pressures that
are keeping rates universally low.

As new channels have become available, the industry has
moved in lockstep to add them, creating an environment
in which most banks have at least a presence in every one.
The sole exception may be mobile, which the industry
is currently in the process of broadly adopting. The
retail delivery ideal has evolved into being able to make
any product available through any channel at any time.
However, banks often bolted on new channels instead of
fully integrating them with existing ones.

It then goes on to  speak about what interests me and the various channels and how banks can improve their customer experience there, versus what many have done and merely bolted on new channels, particularly mobile and merely presenting similar offerrings.

Where the Customer Experience Index (CEI) improved the most, credit is given to improvements in mobile and telephone. (Philippines & Portugal).

Next is the positive correlation between understaning of customer needs and customer experience.

Finally the link is made between knowing the customers needs through data and using that data to support the channels appropriately.

The focus really turns to mobile and rightly so.

The correlation between age and positive experience seen
for branch and internet banking does not hold true in the
case of mobile banking. Because they are less familiar
with the full array of mobile functionality, customers of
all ages have a lower tendency of positive experience with
mobile. In addition, increasing age appears to have little
relation with more positive outcomes in mobile as in the
other channels. In North America, for example, 34% of
older customers have positive experiences with mobile,
compared to 41% of younger ones. As banks continue to
make investments in improving their mobile capabilities,
the overall number of customers with positive experiences
associated with the channel is expected to grow.

There is determined to be a direct correlation between Customer Experience and Product Channel fit.

The report assesses the digital maturity of banks based on their finding that:

The study found that a firm’s level of digital maturity
is strongly correlated to its profitability and efficiency.

Banks rank high with 35% in the upper right quadrant.  Mind you that means 65% are not there.

Interestingly the challenge facing banks is quite similar to that facing FaceBook and Google.  But banks have an important asset that those two do not … customer specific data.

The next frontier for mobility is to use the mobile
platform to enhance marketing and sales. Banks already
are using mobile messages to welcome customers and
inform them of new products.

Finally the report follows through to the logical conclusion

Becoming a Customer-Centric Bank by Leveraging Data

Banks have access to more customer data than ever before and this must be more effectively
utilized for relationship-building to succeed in the future.

• ƒƒBanks today have tremendous amounts of customer data available to them, but are able to
  successfully leverage only a small fraction of it for delivering actionable business insights.
• ƒƒExtraction and cleaning of data is as important as analyzing it to gain customer insights.
• ƒƒBefore technology investments are made, firms need to be more successful at defining business
  objectives and aligning the necessary technology to support those goals.

The remainder of the report provides a useful discussion on the nature of data that Banks’ possess and makes the case for a more rigorous and scientific data driven strategy to support customer experience in the channels, and particularly mobile and online.

A guiding light of clarity that appeared in 2010 was the Reindhart/ Rogoff book entitled ‘This Time is Different”.  The title implied with irony that in fact it is never different, and that it went on to empirically prove that over 800years of data it is proven that countries with excess debt suffer low or negative growth.  I have quoted the book here on numerous occasions after the crisis.

Well, 3 years later some Professors at University of Massachusetts Amherst (Herndon, Ash and Pollin – HAP) managed to acquire the original spreadsheet used by the authors and were the first to do so after much coaxing.  This is potentially as damning in the economist community as the Lance Armstrong debacle was in the cycling community.  The result is devastating, and still the full implications will need to be analyzed and reviewed by experts.

Bottom line they have three conclusions:

1. Spreadsheet coding error;  since acknowledged by Reinhart Rogoff, that certain critical averages (@AVG) missed some cells in their range.  While acknowledged by Rogoff and shrugged off as not meaningful, spreadsheet errors are devastating to credibility.
2. Unconventional weighting of summary statistics;  this one is more subjective and strenuously rebuffed by Rogoff.
3. Selective use of date;  some countries were excluded in certain data sets.  Again and strenuously rebuffed by Rogoff.

Two of the Amherst professors write in the Financial Times today with the heading “Austerity after Reinhart and Rogoff” A main policy plank is riddled with faults, write Robert Pollin and Michael Ash”.

The central issue here is that the countries and defenders and implementers of austerity include IMF, most European Governments at the behest of the IMF, UK, and US Republicans.  This makes for a very awkward moment as politicians from all these groups have relied on “This Time is Different” as a backstop to make the argument for them on austerity.  I am in that same camp finding the book makes the argument that makes sense to me.

We are in for some deep debate as this new paper will be used for political gain, and I look forward to some reasonable debate and clarity about the real true impact of the papers conclusions, the central one being that countries with debt exceeding 90% of GDP will suffer harm to GDP.

FT analysis:

http://blogs.ft.com/ftdata/2013/04/17/the-reinhart-rogoff-response-i/

The original use of QR in Japan by marketers was tied to specific offers and coupons for restaurants and the like.  There was a point.  Meanwhile in North American the codes generally link to a marketing page or a home page. 

Back to the BillTrust idea.  By tying the QR code to a useful function that bypasses clicks will provide much better success.

BillTrust

HAMILTON, NJ – (March 19, 2013) – Billtrust, the leader in Customer Centric Billing, today announced the immediate availability of QR codes for biller statements. The service lets consumers and businesses pay their bills online in a single step, simply by scanning the QR code with a suitably-equipped smartphone.

With this new addition to their suite of payment services, Billtrust can imprint a QR code on any outbound billing document. When the recipient scans the code they are taken to a mobile web page for instant electronic payment. Pertinent billing information is already entered on the page, making payment a streamlined process.   The QR code can also be used to bring a user to an online billing site where enrollment is easily initiated.

This pic is all over Europe this morning.  With the introduction of a tax on deposits in Cyprus the EU opens a new floodgate and introduces a question about deposit insurance.  There are no exempt deposits in this tax, so even a deposit balance of 100 Euros will be 6.75~ euros lighter this morning.

As discussed by Wolfgang Münchau here this introduces the underpinnings of a classic bank run.  Deposit insurance is intended to remove risk of loss of average depositors up to a preset limit.  The 2008 crisis effectively removed that preset limit by guaranteeing everyone.  It was obvious to most that is not affordable in the long run.  Whether it is banks or General Motors we cannot afford to bail our everyone all the time.  We just run out of money eventually.

So now haircut time has begun in Cyprus;  as Wolfgang says:

The country is levying a tax of 6.75 per cent on deposits of up to €100,000, and a tax of 9.9 per cent above that threshold. Legally, this is a wealth tax. Economically, it is a haircut.

It is a slippery slope now to the next country bailout.

Even Richard Branson chipped in saying he would never work from an office.

The two themes that leap out are:

1. technology produces the capability to work from home, and
2. working from home is empowering by allowing employees to operate on their schedule, banishing commuting, and commitment to the schedules of others

I think Mayer has it right.  As compelling as the two points in favour of working from home are, they fail to account for the synergy that arises from working together.  They also fail to consider the unintended consequences of losing workplace synergy and creativity.

That’s not to say that some jobs that are individualist in nature may not be better working remotely.

Arwa Damon the Senior International correspondent who I was watching on CNN tonight spends a lot of time away from the office, but even she is not working alone, with camera and other people along with her.

And the Branson example is laughable.  Does he honestly think the Virgin investment banking crew in New York for example would really create better decisions if they operated apart all the time?

1. Technology provide the capability to work from home

Something the media have missed is that the technology has created a world where work occurs during normal work hours then continues in the evening just because it can.  This is far more disruptive to family life, than working from home capability is good for it.

What work needs is some rules that provides for home/ work balance but still provides the synergy from a properly functional office environment.  Technology has provides a quite dysfunctional, environment for most information workers, and they feel guilty if they don’t verify that last email before a late bedtime.

Sensible rules would provide for smart integration of the work tools that we have gradually integrated into our work life over the last 18 ~ years without due thought to how to properly do that.  From the first laptops in the early 90’s, internet access, Blackberrys in late 90’s and now smart phones the evolution has been (quite) long and gradual.

This means that some adopted quickly, others more slowly, and more others were born into it in the middle of all this mayhem.  Then layer on the adoption of social tools (Facebook etc), information management tools (Evernote etc) and cloud tools (Dropbox, Google Drive etc), and we have enormous sophistication that has evolved from employees emailing work to their personal web mail 10 years ago to literally hundreds of other ways to permit that last minute change to the powerpoint presentation.

All this to say we there are limits to efficiency, effectiveness and value of work.  More is not necessarily better, and technology has provided more for most office workers in large corporates but not necessarily better.

2. Working from home is empowering by allowing employees to operate on their schedule

You wake up early, put on the coffee, and check your email.  Maybe there are school kids, errands, back to email but you are in charge of the schedule.  Perfection.

Meantime the others working from home are working to their schedule.  Each working to their own perfection.

The corporate opposite sees everyone in to work at the same time, and the first meeting at 10am after everyone has the same preparation time having arrived at 8:30am.

I recognise this is overly simplistic, and the dramatic differences weigh heavily towards either corporate or personal priority.

The Yahoo model allowed for people to work from home all or most of the time so Yahoo was heavily weighted towards the personal balance and therefore heavily away from the corporate balance.

Its no wonder Mayer made the change.  for similar reasons Google has reduced the 10% personal work time.

Relevance to Bankwatch:

All this goes to tell us that workplaces have integrated technology as a tool with zero education or intelligence about how we manage that integration.  Many smaller company’s have this right but not large ones.  They just did it because they could, it was cool, and they (rightly) felt they were being left behind.

But large corporations and Banks have have absorbed the technology and new home work practices by assuming the standard stated benefits without thinking it through.  In fact I would argue this explains why large corporations and banks have been so slow to absorb new tools because they know they have not thought it through, and are therefore scared of the implications to brand, information control, and worker efficiency.

Today we are probably in an evolutionary stage of technology integration rather than the revolutionary stages of the last few years.  Its time for all large corporations and Banks to step back and consider what is their right balance of technology tools and work practices.

Listen to Marissa Mayer.

____________________

Yahoo Memo (courtesy of allthingsd.com)

YAHOO! PROPRIETARY AND CONFIDENTIAL INFORMATION — DO NOT FORWARD

Yahoos,

Over the past few months, we have introduced a number of great benefits and tools to make us more productive, efficient and fun. With the introduction of initiatives like FYI, Goals and PB&J, we want everyone to participate in our culture and contribute to the positive momentum. From Sunnyvale to Santa Monica, Bangalore to Beijing — I think we can all feel the energy and buzz in our offices.

To become the absolute best place to work, communication and collaboration will be important, so we need to be working side-by-side. That is why it is critical that we are all present in our offices. Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. Speed and quality are often sacrificed when we work from home. We need to be one Yahoo!, and that starts with physically being together.

Beginning in June, we’re asking all employees with work-from-home arrangements to work in Yahoo! offices. If this impacts you, your management has already been in touch with next steps. And, for the rest of us who occasionally have to stay home for the cable guy, please use your best judgment in the spirit of collaboration. Being a Yahoo isn’t just about your day-to-day job, it is about the interactions and experiences that are only possible in our offices.

Thanks to all of you, we’ve already made remarkable progress as a company — and the best is yet to come.

Jackie

- See more at: http://allthingsd.com/20130222/physically-together-heres-the-internal-yahoo-no-work-from-home-memo-which-extends-beyond-remote-workers/#sthash.aYZ1zelW.dpuf

Rate-fixing scandal shakes three continents | ft.com

The fallout from the interest rate manipulation scandal hit three continents on Wednesday as Royal Bank of Scotland paid £390m ($612m) and admitted criminal price-fixing charges over Libor-rigging. A series of lurid emails cited in the settlement laid bare a culture where employees would readily alter rates in exchange for steak dinners.

So far LIBOR fines have been relatively small (amounts are approximate as we add up sterling and dollar fines):

• RBS                     $   612 million
• Lloyds                $   450 million
• UBS                    $ 1,800 bn

but are expected to become quite large once financial authorities complete their investigations

• More to come       $22,000 bn (Morgan Stanley estimate)

This practice has been changing of late, and the driver is internet.  While other countries such as UK and US have rate aggregator sites, Canada has been a stubborn holdout in not having such sites.  This has been driven by the banks oligopoly refusal to advertise in such sites.

Banks Try More Up-front Pricing

Moreover, the advent of rate comparison sites are making consumers increasingly jaded towards lenders who post 3.99% when the real market is at 2.99%. You have to be either gullible or weakly qualified to pay 3.99%, and seemingly everyone knows it. Promoting inflated rates therefore hurts bank credibility and creates a needlessly adversarial mindset in consumers.

What has changed?  Two shifts have occurred.

1. The advent of mortgage broker consolidation into several with national presence has allowed for greater influence over lenders to produce better rates and make them more accessible, and
2. The advent of powerful monoline mortgage lenders fuelled by high net worth investors and corporations with excess cash seeking interest yields that are not available in traditional bonds.

Sites such as ratebub.ca and ratesupermarket.ca are the vehicles that are finally changing the face of lending in Canada by bringing true interest rate transparency to the masses.

Disclaimer:  I am active in the mortgage broker market with www.truenorthmortgage.ca

The broad theme of the report is that determining the future specific risks and making bets on the most likely is a mugs game.  The better approach is to build for resiliency and moving away from recent traditional approach of risk management.

In conclusion, trust is the prerequisite for everything CEOs hope to achieve as they move from risk management to resilience. Businesses’ efforts to target the right opportunities, increase customer demand and loyalty and improve operational effectiveness are only as effective as their ability to build trustworthy relationships with all their stakeholders.

Resiliency is defined by PwC as

This combines an ability to ride out the immediate impact of shocks with a long-term capacity to adapt to constantly changing conditions.

With most customers used to going straight to bill payment or transfers it is only natural that the PFM tab will get less use.  Regions bank have introduced charts from their PFM offering that appear on the OLB home page.

Regions Bank to Tie New PFM Tools to Online Banking

To draw attention to the Insights tab, Regions provides online banking customers with pie charts of their transactions on their online banking home page, teasing to the Insights section to encourage the customer to click on it.

This has increased interest, but it seems to me that integration throughout OLB would be the real answer.  That presents an infinite number of technology problems for banks unless they are prepared to modernise their OLB architecture to accommodate these new offerrings which are built with new technologies.

The other challenge which is an even greater hurdle is that the definition of PFM is far too broad and frankly irrelevant to the average consumer.  This was evidenced by the original uptake of Quicken software which flatlined at something like 14% +/1.  The idea that in effect taking a ‘Quicken’ type all inclusive offerring and making it a tab within inline banking and expecting it to have immediate uptake is of course absurd.

First Look: PFM Defies Definition

I, for one, could care less about pie charts or categories showcasing the ways in which I spend. I refuse such intimacy with my transactions. All I want to know is: am I spending more than I’m saving? In other words, let me have my Jameson indulgences if I’m prudent with my overall credit card spend. Categorizing my spending choices hinders my lifestyle choice. And yet, I’ll log into my digital banking a few times a week to ensure I haven’t lost my credit card mind. To me, logging into online banking is PFM. And it’s enough for now

Its just one journalists view in this other AB article but it makes the PFM discussion real.  People trust and use their online banking, particularly using mobile now.  Somehow PFM software needs to be able to make OLB come alive for clients without being PFM.  It should just be OLB with PFM capability seamlessly integrated.

Prosecutor as bully 

Since his arrest in January, 2011, I have known more about the events that began this spiral than I have wanted to know. Aaron consulted me as a friend and lawyer. He shared with me what went down and why, and I worked with him to get help. When my obligations to Harvard created a conflict that made it impossible for me to continue as a lawyer, I continued as a friend. Not a good enough friend, no doubt, but nothing was going to draw that friendship into doubt.

I can only write about what I know.

People like Aaron are a result of the life we created over the last 20+ years.  I feel responsible for Aaron because we created this cool, safe, plastic environment where people can be anything they want to be.

That is the internet.  But that is not real life unfortunately. 

I am kind of at a loss for words on this.  The promise of internet creates a belief and pressure that is all consuming.  What can I say.  He was born in 1986, about the time I got my first PC and email address.  He was a genuine product of the internet generation, and he was a believer.  He was a believer in internet and the freedom that the network demands.

RIP Aaron.

Take this latest one in Canada.  Poseidon promised “Poseidon has established a unique service offering”. 

Poseidon’s meltdown continues after ‘significant’ writedown warning

The stunning meltdown of Poseidon Concepts Corp. continued on Thursday after the company warned it could take “significant” writedowns as it struggles to collect payments from customers.

Poseidon also shook up its leadership and suspended its dividend. The announcements point to a company in disarray, analysts said, and one that grew too quickly for its overwhelmed management team to handle. The stock plunged 55%.

That promise on the company’s website ought to be enough to create suspicion.  The word ‘unique’ in itself means nothing.  Nothing is unique anymore. 

Here is the key latest information:

Everything changed on Nov. 14, when Poseidon shocked investors by reporting extremely weak earnings and writing off $9.5-million of accounts receivables that it failed to collect. Accounts receivable were $125.5-million at the end of Q3, far ahead of the actual revenue total of $41.1-million.

When your write offs account for 25% of last revenue booked, there is a problem.  My only point here is that securities regulators are run by lawyers and with little sense of business metrics.  This one should have been foreseen.

BMO Bank of Montreal and Monitise to Partner on Mobile Money Solutions for BMO Customers

MONTREAL and LONDON–(Marketwire – Dec 19, 2012) – BMO Bank of Montreal and Monitise plc (LSE: MONI) today announced they have entered an alliance to develop new Mobile Money services, using Monitise’s market-leading technology platform that encompasses mobile banking, payment and commerce services.

The alliance will allow BMO Bank of Montreal to offer customers intuitive and advanced Mobile Money services. The collaboration builds on an agreement formed in 2010 with Clairmail, the U.S.-based mobile banking and payments provider acquired by Monitise in 2012.

The Rothschild investment in Zopa the other day now makes sense!

Peer-to-peer lending welcomes endorsement | ft.com

Vince Cable will pledge £55m of the £100m earmarked for small business finance topeer-to-peer lenders, splitting the money between the providers Funding Circle, Zopa, Boost and Credit Asset Management.

It begs the obvious question.  What happens when inflation goes over 2.5% and unemployment remains over 6.5%.  The inflation target says increase interest rates, but that is confounded by the requirement of the unemployment rate to retain low interest rates.

Fed links rates to US unemployment | ft.com

The US Federal Reserve will keep interest rates at close to zero until unemployment falls below 6.5 per cent in a historic change to monetary policy.

It is the first time a large central bank has ever tied its interest rate policy directly to the state of the economy. The Fed said it will continue to forecast low rates provided its inflation expectations do not rise above 2.5 per cent.

Congrats to Giles and the entire Zopa team!

Rothschild buys into peer-to-peer lending | FT.com

RIT Capital Partners, Lord Rothschild’s London-listed investment trust, bought into Zopa in the expectation that it will eat into a business traditionally dominated by banks.

Some people however feel differently.  They see online as a fresh frontier for actually controlling your own information and managing how it is used.  Sounds like a pipedream, and of course traditional marketers are resisting.  However some new leaders, and some traditional companies see ways to harness the power of the web, and use it to improve online commerce for consumers.

A Vault for Taking Charge of Your Online Life | NY Times

While governmental efforts inch along, companies like Reputation.com are forging ahead with new services that promise consumers more insight into the data collected about them. This month, for example, the direct-to-consumer division of Equifax, the credit information services company, plans to begin offering its customers a separate personal data report from Reputation.com in addition to their credit report. Some Equifax customers will also be offered the option to have Reputation.com delete personal details, like home addresses and phone numbers, from certain information broker databases.

“We see broadening consumers’ understanding of what’s out there about them online as a very natural extension of what we do today,” said Trey Loughran, the president of Equifax Personal Information Solutions.

Next spring, TransUnion Interactive, the consumer division of the TransUnion credit information company, plans to offer its customers similar services from Reputation.com.

Vendor Relationship Management (VRM) for consumers remains largely a theory.  However these initiatives might be the germ of the first at scale implementation of something like VRM.

The war on noise | Scobleizer

1. Marketers suck. Including me. Look at my big tech company list over on Facebook. Do you actually learn much?  A little, but marketers push themselves too much, and say too little.
2. No one is focused on what you want. Including me. I have a list of tech industry investors. Rich people. I want to hear from them about when they talk about investing, the economy, starting companies, trends, that kind of stuff. But do they stay focused? No. They talk about movies. Their vacations. Their kids. And more.

Scoble himself topped out on technology hardware to solve it.  No.  The one thing that does not change is the human  capacity to absorb, and the amount of time available in the day to absorb it.

Back in the day, when we all began speculating about where this internet thing would take us, the one piece that always intrigued me and that never showed up is the idea of Intelligent Agents.

These Agents would be constantly roaming the internets on your behalf giving out just enough information to get answers, and gathering what you want, when you want it. This could be a financial product I need, a coat I need, or a new bike.  The Agent needs to know when I need it, and not to bother me when I don’t.

We see glimpses that try to work around it such as Quora where the intelligence comes from Social interaction and sharing.

But this goes right back to the problem that Scoble articulates.  Its just more noise and not direct to address what he wants and when he wants it.  Despite Scobles comments I always find Twitter quite interesting, but that’s because I deleted everyone a long time ago, then reselected a few sources in the spaces I was interested. (very few).

The Vendor Relationship Management (VRM) concept describes much of what I want at least for commercial purposes, but not built yet.

The challenge cries out for a standard that everyone buys into.  Unlikely.  Analysts of Twitter thought that feed would provide the answer, but with majority of tweets being retweets and not original, I am not sure that’s the answer. 

As a company, FaceBook has as much chance as anyone to solve this challenge, but they are still falling into the trap of advertisement placement.  I see Twitter is doing that now too.  Annoying.

Where are my Intelligent Agents!

There is another lesson here when attempts are made to hide behind newly created terms.  This reminds be of Groupon and their attempts to bypass accounting profit and loss realities using new terms thatexcluded marketing from their expenses.

The result is a damning ruling against Standard & Poors, as well as ABN Amro. Federal Court of Australia.

Here Felix Salmon of Reuters has taken the time to digest the ruling and summarise the outcome.

Hero of the day, CPDO edition

Put it all together, and you get a very shocking view of S&P. Here’s the list:

• S&P used the wrong model input for starting spread.
• S&P used the wrong model input for volatilty.
• S&P used the wrong model input for average spread.
• S&P completely ignored ratings migration.

If S&P had just got any one of these things right, the CPDO would never have gotten that triple-A rating. If it had got them all right, the CPDO would almost certainly not even have been investment grade, let alone triple-A.

Basically S&P did little or no diligence of their own, accepted ABN Amro assumptions willy nilly, and the result was a meaningless AAA rating.  Some aspects of the instrument that S&P rated are ponzi in nature.  They developed a concept called roll-down benefit or RDB, which somehow involved rolling in benefit of 7% from periodic shift in the investment.  As Felix explains:

Every six months, the CPDO would exit its existing positions, and buy new positions in the index maturing six months later. In general, bonds which mature later have higher yields, so S&P assumed that on average, the new index would yield 7bp more than the old index. And that was an utterly crucial assumption. Never mind the triple-A rating: without the RDB, the CPDO couldn’t even get an investment-grade rating. It wouldn’t even be triple-B.

This ruling will have ramifications for courts in US and UK, but more importantly it has ramifications for common sense in investment evaluation.

Osaifu-Keitai literally means Wallet – mobile in Japan.  It is fast becoming the de-facto standard there  for making small payments.  The key is integration with the NFC enabled phone.

It is offerred by NTT-Docomo. 

Here is the description from the 2012 World Payments Report.

Osaifu-Keitai (‘Wallet Mobile’), developed by NTT DoCoMo, is now the de facto standard m-payment system; lets consumers use phones as substitute for cash/cards at vending machines and merchant POS. Offers range of payment services, including e- money, identity card, loyalty card, public transport ticketing (railways, buses, air travel), and credit card.

Here is a link to the mobile site.

We are used to seeing events unfold in Japan as the forerunner to what we will see.  However its less clear that the development of NFC enabled phones as payments hardware and mobile wallets is a slam dunk.

This from idownload bog notes Apples work with their own protocol for which they just received a patent last month.  The blog quotes Apple executive Schiller that its not clear NFC is a solution to a current problem.

Certainly at the MintChip event last week in Toronto, there was no talk of NFC and the creative developers who participated in the MintChip challenge had other ways to access the system including QR codes.  FlashCash bypasses the card terminal altogether.  The smartphone reads the QR code on the receipt, and automatically debits the customers MintChip and credits the restaurants MintChip.

Mini Checkout goes further, and the phone scans the barcode in a grocery store and similarly credits the store.

QR codes would require some code changes in but bar codes are prevalent today.  Either way the changes are much simpler than merchant terminals.

The other thing at play here is the use of the payments networks, interchange and the merchant fees paid to the networks and banks.  We see new technology here that eliminates all that and uses a Wifi connection. 

Relevance to Bankwatch:

This all leads me to re-consider the card terminal and the payment interchange networks.  The merchant terminal is a paradigm that requires enormous infrastructure and costs to the merchant.  But more importantly it protects the banks’ revenue and hold over the payments business. 

A future with multiple terminals is a mess.  What if we can develop a future without merchant terminals?  MintChip offers a glimpse of how that might work, but more importantly could be a catalyst to new payments paradigm that delivers payments in a different way that disrupts current models. 

Certainly solutions such as MintChip will still require some implementation work.  This is an opportunity for providers of services to the financial services industry.  There has to be opportunity here (random examples) for the Fiserv’s, D+H, or Interac of the world, or perish the thought, banks’ themselves.

Going back to the Japanese NFC example, it would run over traditional networks, and that approach is vulnerable.

Bottom line, I believe the current payments network infrastructure is vulnerable to competition, to dis-intermediation producing loss of future transaction volume.

All kinds of stories going on, and we won’t know till tomorrow what the entire picture looks like.  Here are three from the last 30 minutes. 

1.5 million without power in NY State

Nuclear alert

NYSE denies earlier rumours of a 1 metre flood inside

Mintchip is a project of the Royal Canadian Mint designed to provide an infrastructure for payments that would replace cash.  The CEO, Ian Bennett of the Royal Canadian Mint attended and spoke.  The RCM CFO is the project sponsor I learned tonight.  This impressed me.

Bennett otherwise known as the “Master of the Mint” spoke about the Mint handling coins for 72 countries.  He brought along a 100Kg gold loonie with a face value of $1 million but worth something like $ 6 million.  This explained the armed guards.

Its an impressive coin, with “5 9’s”  purity.  His point was that the Mint was innovative in developing its own refinery and producing such pure gold.  Now the next innovation is digital cash.

This is an interesting project and the more so that it’s the Mint behind it.  Intuitively it makes sense to have a government sponsor for something like this.  They are in a position to provide the guarantee and security that we get from traditional cash.

It becomes trickier when we get into the production implementation and Government are not know for getting that right.

I spoke with one of the leaders of the project, and he believes an eco-system will develop to provide the production capability for Dickson (see below) and the other winners to tap into. That eco-system will be driven by the value driven by the capabilities of the system. I hope he is right. There is some tough entrenched competition from the existing providers who are mainly banks or associated with banks.  There is a space here to be filled.

Lets not forget the developers.  Here are the winners and something about each on the Mintchip site.

I spent some time speaking with Dickson who won best micropayment category.  He is ready to launch but there is no production capability yet.  This I see as the large challenge. 

Facebook Fought SEC to Keep Mobile Risks Hidden Before IPO | Bloomberg

The incident was part of a two-and-a-half-month volley of messages among SEC officials, Ebersman and Facebook’s law firm Fenwick & West LLP. A dozen letters, published a month after the May 17 IPO on the SEC’s website, depict a management team hesitant to disclose information and still guessing at even rudimentary aspects of its business just weeks before the company held the largest-ever technology initial public offering. Many of the issues raised by the SEC and now unnerving investors were foreshadowed in the then-private correspondence between the SEC and Facebook.

The letters and phone calls paint a much uglier picture than we believed at the time.  We knew there were deep rooted doubts about:

1. ability to lever mobile advertising
2. risk of loss of revenue from Zynga
3. accuracy of user count

However the correspondence here suggests was living in the dream of having 3/4 billion users and will make money somehow, as opposed to the required diligence involving a public offerring.  There is a real desire to ignore risks, rather than accept them and provide mitigation rationale.

There are some amusing things in here too.  Because all blackberry traffic gets routed through Canadian servers in Waterloo, the count of Canadian users is completely inaccurate.

CONSULTATION PAPER: ADDENDUM TO THE CODE OF CONDUCT FOR THE CREDIT AND DEBIT CARD INDUSTRY IN CANADA TO ADDRESS MOBILE PAYMENTS | Department of Finance Canada

The Code of Conduct for the Credit and Debit Card Industry in Canada (the Code) came into effect in August 2010 and covers several methods for making payments, including point-of-sale, internet and telephone. The Code does not explicitly address mobile payments transactions.

One situation in particular is dealt with in Element 8 but also seems to apply broadly throughout, requires that debit and credit cannot reside on the same card.  The addendum recognises this makes no sense for smart phones with a debit app and a credit app on the same device, albeit separate apps.  Protection is provided in the addendum to ensure consumers are still able to make choices about what they accept and what they pay for, notwithstanding the apps are on the same device.

However the original intent to keep debit and credit separate is unclear.  The original code of conduct, Element 8 states (emphasis mine);

8.  Payment card network rules will ensure that debit and credit card functions shall not co-reside on the same payment card.

Debit and credit cards have very distinct characteristics, such as providing access to a deposit account or a credit card account.  These accounts have specific provisions and fees attached to them.  Given the specific features associated with debit and credit cards, and their corresponding accounts, such cards shall be issued as separate payment cards.  Consumer confusion would be minimized by not allowing debit and credit card functions to co-reside on the same payment card.

The government in their well intentioned regulation seem to have decided that consumer confusion could never be eliminated by innovation, and therefore have eliminated the opportunity for that innovation by insisting on separate cards.

Fast forward to Sept 2012 and the addendum says its ok for debit and credit to co-exist on a smart phone provided they are separate apps.

I say what is the difference between a smart phone and a smart card?  In theory there is no difference when we remove the constraints of current design.  The chip on a smart card is pretty dumb but that is todays design and given the current rules no-one has been allowed to consider alternatives either on the card or on the acquirer device that would mitigate confusion.  This is a slippery regulatory slope.

Relevance to Bankwatch:

While this addendum is released with the best of intentions, it strikes me as being mightily detailed in describing apps that broadly do not yet exist.  In fact by trying to address a problem in the original code it further confounds the confusion by layering on more regulation, ie, “in the case of smart phones …”.  As it turns out this might be an improvement but for all the wrong reasons.

One of the problems with regulation, especially since 2008 and monstrous tomes such as Dodd-Frank is that they are so detailed and specific to address known problems that by their very nature they are bound to miss the next problem that has not been yet experienced.

I have written much about regulation and what I believe to be appropriate here.  Regulation should be designed to control the design and actions of bank organisations who provide basic banking services.  Regulation should not be so low level as essentially providing product design, and I fear these well intentioned payments regulations are dangerously close to being just that, and this addendum designed to address mobile proves that regulation needs to get back to its roots and out of product design.

Bank ATMs stop sucking in cash after RBI direction | Financial Express India

New Delhi : Next time you go to an ATM to withdraw cash, don’t worry about the banknotes getting sucked back by the machine if not collected immediately, as RBI has asked all banks to immobilise the ‘cash retraction facility’.

…

The typical modus operandi has been to hold on to a few pieces of notes in ATM machines that have cash retraction system, while allowing one or two pieces of notes to be retracted and then claiming non-receipt of cash. Since retracted transactions are credited back to the customer’s account, the balance in the fraudster’s account remains unaffected even after collecting bulk of the delivered cash.

However a new type of fraud occurred where people would take a few bills, then allow the rest to be retracted.  These fraudsters would then claim they never got any money and it was impossible for the bank to tell how much money was retracted for any individual transaction.

Its interesting how a new initiative can have unexpected unintended consequences.  

PIIGS In America: Is Illinois Preparing To Request A Federal Bailout? | ZeroHedge

ILLINOIS TEACHERS’ PENSION FUND CUTS RATE OF RETURN TO 8% FROM 8.5%

It’s amusing because these are the same teachers who were demanding, and received, higher pay – 17% higher over four years in fact – following a several day strike. It is even more amusing considering that in a fiscal year in which we saw QE2, Operation Twist 1 and 2, and LTRO 1 and 2, the nation’s largest pension fund, Calpers, managed to eek out a measly 1% gain (and this is including the end of June surge following the then announced European bailout which turned out to be yet another dud). It is, however sadly, most amusing, because it may be a harbinger of something truly sad: the advent of the "PIIG bailout" to America, when a US state demands a Federal bailout. We have seen how eager Europe has been to bailout its insolvent nations. We are next about to see just how "united" the US is when its own solidarity is tested as state after state repeat the European bailout experience. But hey: at least we have the dollar so all should be well.

Relevance to Bankwatch:

ZeroHedge has his own colourful way of describing things, but the bottom line is that you can’t have costs increasing by a substantial amount and not expect some effect on funding costs,  He is going further and saying that this approach will result in default and a request for bailout from the Federal Government.  Now that gets interesting and something the Washington politicians do not want to see.

First courtesy of my favourite site for what it all means – ZeroHedge

Putting it all together, the Fed’s balance sheet will increase from just over $2.8 trillion currently, to $4 trillion on December 25, 2013. A total increase of $1.17 trillion.

And this is from somewhere less than 1 trillion right before the banking crisis.  Currently US GDP runs at $15 trillion, so the Fed balance sheet will hold treasuries and other mortgage debt of about 25% of GDP.

Yield on mortgage securities hits new low | ft.com

The $40bn compares with average monthly issuance of agency securities of $130bn, according to Barclays figures. Adding in reinvested principal, the Fed will be buying an average $3.5bn of mortgage-backed securities every day.

Fed Action Spurs Broad Rally; S.&P. Rises 1.6% | NY Times

The Fed pushed out its window for lower interest rates and set out a new program to buy $40 billion of mortgage-backed bonds each month until the economy improved. The open-ended move was more than many investors had anticipated and helped spur a broad rally that strengthened as the day went on.

Relevance to Bankwatch:

Todays announcement does not impact bank balance sheets directly but it does begin go down the road of institutionalising mortgage risk into the hands of the government. 

EU banks face ringfence on trading assets | ft.com

With a month to go until the Liikanen review is due to be completed, people close to the project said a clear majority was emerging in favour of a combination of the US and UK approach to structural reform of banks – taking elements of both the Volcker and Vickers rules.

And the outcome might look like …

The central tenet of the US Volcker rule is a ban on so-called proprietary trading – activity that involves betting the bank’s own money. Britain’s Vickers commission concluded that retail banking activities should be ringfenced from universal banks’ investment banking operations.

Banks will hate this, but rest assured bankers will not.  Bankers seek a return to basic banking.  Investment banking can carry on doing what it does well.  However it is not fair that investment banking have access to cheap (free) capital from retail banking that it can turn around and earn risk based fees without that capital bearing some requisite cost.

I have been involved in startups for the last 6 years and the concept of obtaining zero % financing is unthinkable.  Risk weighted cost is the order of the day, and investment bankers understand that better than anyone.  They just don’t like it but that’s no reason to not do it.

I have written before about why I strongly support the ringfence concept despite objections from some stellar industry types who basically fall into the defense of impracticality or unfairness.  Either argument fails when you consider the average savings account of your mother, who is getting practically no interest today anyway, yet bearing all the risk of investment bankers using her money.  In short there is no defense.

I like this new anticipated approach because the identification of self traded assets is relatively simple despite the inevitable arguments otherwise. 

This from FRED (Federal Reserve of St Louis) tells a very clear story about the fate of manufacturing in the US since 1970.  The percentage of US employment associated with manufacturing has been on a consistent trend dropping from 28% to 10% over that41 year period.  While there were blips during recessions (grey bars) the trend is not associated with any Republican or Democratic government, or the more recent introduction of Apple iPhone, nor the 2008 crisis.

Unfortunately the FRED database does not contain data on China but this from the BLS database shows the US and China to be similar in terms of % of employment associated with manufacturing.  “This article has demonstrated that manufacturing employment in China increased during the 1980s and early 1990s, peaked in about 1995–96, declined during the late 1990s until 2000–01, and increased again in 2002.”

The other difference lies in the rest of the economy.  The Chinese alternative is to remain in agriculture which pays less.  The US alternative is to join services. 

When it comes to solving unemployment in the US this suggests they need to concentrate on the 88% that is not manufacturing, rather than blame China.

Here from FRED is the trend lines for the other Western and Japan economies.  Virtually identical to US.  The role of manufacturing in the West was lost long ago.

Japan

Canada

UK

Germany

Raghuram Rajan presented his paper “Has Financial Development Made the World Riskier?" which was derided by Larry Summers and many others for its criticism of outgoing Fed Chairman, Alan Greenspan.

In the paper he speaks of the difference in incentive compensation  between investment managers and bank managers.  He also notes the dramatic shift in the industry that attempted to shift risk off balance sheet, but actually had the opposite effect by shifting assets off balance sheet but retaining the risk. 

Fast forward to 2007, a mere 2 years later, and it was ominously clear he was right.  Then in September 2008 when markets completely froze and no bank would trust any other bank, Rajan was part of history.

Here are two key quotes, but if you really want to understand the difference between a bank manager and an investment manager, read the paper.

   PDF

What about banks themselves? While banks can now sell much of the risk associated with the “plain-vanilla” transactions they originate, such as mortgages, off their balance sheets, they have to retain a portion, typically the first losses. Moreover, they now focus far more on transactions where they have a comparative advantage, typically transactions where explicit contracts are hard to specify or where the consequences need to be hedged by trading in the market. In short, as the “plain vanilla” transaction becomes more liquid and amenable to being transacted in the market, banks are moving on to more illiquid transactions. Competition forces them to flirt continuously with the limits of illiquidity.

And this – emphasis mine.

Will banks add to this behavior or restrain it? The compensation of bank managers, while not so tightly tied to returns, has not remained uninfluenced by competitive pressures. Banks make returns both by originating risks and by bearing them. As plain vanilla risks can be moved off bank balance sheets into the balance sheets of investment managers, banks have an incentive to originate more of them. Thus they will tend to feed rather than restrain the appetite for risk. Banks cannot, however, sell all risks. They often have to bear the most complicated and volatile portion of the risks they originate, so even though some risk has been moved off bank balance sheets, balance sheets have been reloaded with fresh, more complicated, risks. In fact, the data suggest that despite a deepening of financial markets, banks may not be any safer than in the past. Moreover, the risk they now bear is a small (though perhaps the most volatile) tip of an iceberg of risk they have created.

Scotiabank Reaches Agreement to Acquire ING Bank of Canada and Announces Common Share Offering

- Preserves ING Bank of Canada’s (ING DIRECT) unique and successful model that offers specific value for self-directed customers as a distinct, wholly-owned subsidiary

- Provides continuity for more than 1,100 employees and 1.8 million customers backed by Scotiabank, a strong, stable Canadian shareholder

- ING DIRECT customers will have the same experience online, through the award-winning contact centres, and on their mobile devices, using the same account numbers and passwords, served by the same familiar team

- Purchase price of $3.1 billion in cash which is expected to result in a net investment by Scotiabank of approximately $1.9 billion after deducting the current excess capital at ING DIRECT

Update:
StockHouse with a longer release and more detail.  Lots of talk about preserving the culture at ING.

http://thenextweb.com/in/2012/08/25/indian-isp-blocks-wordpress/?utm_source=newsletter&utm_medium=email&utm_campaign=daily

I will separately contact subscribers, but one way to ensure content from this small blog reaches you is to subscribe via email. 

I hope those in charge of this ridiculous decision see the light and rescind asap.

If you can add any local colour or up to date information, please add to the comments.

However this article at Mark’s Musings blog is refreshingly different and talks about culture and people.  My experience with ING people reflects a dramatically different culture than we see at other Canadian banks.  ING actually include concepts such as fairness and responsible lending into their product design.  They have been slow to introduce new products in their brief 15 year history in Canada, but there is a reason, and they want to do it right. 

The cultural point is interesting and in the context of acquisitions or mergers drives the bean counters nuts.  This is hardly something you can easily factor with a discount rate for customer drop off.  When 100% of the customers at the likes of ING are customers there for a reason that is directly associated with 15 years of brand promise and execution, the challenge of acquisition is hard.

The bean counter approach would say take the assets and liabilities into the mother ship, and assume elimination of 100% of the ING salary sand technology costs.  This model would assume assimilation of the new assets and liabilities within the banks business model.  This is easy in a spreadsheet but tough in reality.  The customers would react and no doubt PC Financial would gain market share as the bank with the closest similarity to ING.

A smart purchaser would look at ING as a catalyst to jump start some aspect of strategy but that would still leave the challenge of integrating 1,000 employees yet retaining their expense ratio.

This will be a fascinating transaction to watch.

When the Network Effect goes into reverse | NYT

James Stewart covers Facebook, as well as Yelp, Groupon, LivingSocial and Linkedin.  The title is somewhat provocative and the article notes that the network effect has not yet reversed.  But he makes two main points that are possibly related:

1. Revenue growth is not as rapid as user growth
2. Mobile usage is the most rapid growth, yet traditional advertising on mobile is not clear given the small screen size

He also speaks about the FaceBook employee shares coming up for sale in November and notes others comments that this is a red herring relative to the share price decline.

I believe that FaceBook stock decline is a business model and management issue, and goes to the core of my beliefs about internet and marketing.

Lets look deeper.

Relevance to Bankwatch:

I have always been bearish on internet as an advertising medium, and especially social media for advertising and continue to to believe that.  This comment is in the NYT piece comments, and sums it up for me:

Stu’s Law: Over time, most of the value created by network effects will be captured by the users of the network, not by the builder of the network.

Brilliant.

Everyone I know is active on FaceBook.  They use it to both observe their family and friends activities and to stay in touch.  For that use it is brilliant and fills a voice that letters and even emails cannot.  With pictures, stories and comments people can asynchronously and conveniently follow each other.  When we layer on the advent of apps smart phones with location and photo capabilities, that convenience factor grows exponentially.

But then what.  As the user base enjoy that convenience and new found access to their friends and family the network owner is increasingly pushed into the background and the winners are the users.  The idea that their convenience would be interrupted by intrusions such as ads flashing across the screen is considered ridiculous.

By the same token the network owner finds it ridiculous they must spend all this money developing the network with no benefit.

So we have a stand off, and meantime the stock is dropping and P/E ratios are brought in to question and stock prices will align with traditional media unless some creative thinking is brought to bear.  That would price FaceBook stock at $6 +/- just to put the problem in perspective.  But that speculation is for other blogs.  My concern is business model related.

Lack of creative thinking:

Online advertising has grown little since the original banner ads in the ‘90’s.  There is a host of sophistication in the back end designed to place the right ad for you based on your implied preferences, implied location, and implied demographic but at the end of the day its just a banner ad that intrudes on your time and screen space.

Is a banner ad really the only way to get attention from people?  This is is old thinking that comes from newspaper, radio, billboard and television.  I would have thought that by 2012 and 20 years after the first graphic internet web page, that someone would come up with new models.  In fact with the user base and smart people, why has FaceBook not accomplished that, instead falling back on the ancient advertisement interruptus model.

I do not even pretend to know the answer, but it has to have its roots on some co-operative model that engages users as part of the process.  The ubiquitous “Like” and “G+” buttons go some way but not very far.  The outcome will still be a banner ad, an email or some notification.  Where is the sophistication that takes the Likes and engages users without interrupting them.

Is internet even the appropriate place for advertising as we know it?  I have always been chastened by the idea that internet was designated ‘media’.  Somehow the marketers took over web site management in the 90’s, something I was not happy about but that’s another story.  Internet is a tool that provides utility.  I do not expect to see an ad on my hammer.

That’s why I believe this is a problem that will not be solved by marketers.  Sorry folks to all my marketing friends.   The tools and training just do not allow for a solution, and that’s why Groupon, and Facebook fail at advertising.  the more people they drive ads to the larger the ad supply and the prices drop.  What happens when ad prices drop to zero FaceBook.  That day is coming.

No, this is a technology problem that involves, algorithms, big data, site design, page design, different user engagement and more.  There are some clues in Vendor Relationship Management (VRM) which is a concept I believe in but has yet to manifest itself successfully.  The idea is that you, the user, control your advertisers (Vendors).  This is the correct line of thinking.  While as extreme as traditional advertising is on the other end of the scale, it should drive a better line of thinking that will allow for a model that produces revenue for network builders, and satisfaction for users.  VRM says that users decide if, when and how they will interact with merchants.  I can hear aghast marketers crying foul, and they will lose their 0.001% penetration rates.  Really?  How do you know you would not get better and more meaningful penetration?

Business model considers all alternatives for revenue, including subscriptions, freemium charges, and others.  Being stuck on advertising and advertising as currently structured is a losing proposition.

Meantime FaceBook is a short sell, and it is not because of all those employee shares coming on the market in November.  This is a business model problem, just as was Groupon.

Enjoy.

http://youtu.be/XnHkHL9ICSo

Mobile innovators Square and Starbucks team up | finextra

To bolster its commitment, Starbucks is investing $25 million in Square as part of a series d financing round widely tipped to value Dorsey’s firm at $3.25 billion. Starbucks chairman, president and CEO Howard Schultz will join Square’s board.

Some reasons this is a game changer:

1. Scale:  the fractured nature of new payments initiatives have been small, local and full of the payments industry preferences of one method over another.  There is still a bit of a beta/ vhs debate in payments going on.  Square have cut through all that by combining a simple platform (Apple ipad/iphone) with a very simple hardware accessory and managing the rest behind the scenes in software.  By aligning with Starbucks this technology can eventually be used anywhere, although I must note today the US Starbucks card does not work in Japan Starbucks for example.  So this could be a US only initiative.
2. Disruptive:  The current models of credit and debit cards are well known and the next step was assumed to be chip card enabled digital wallets of some type.  Dave Birch asked somewhere if this is the swan song for NFC.
3. Simple:  I looked over the should of a developer recently as he tested swipe hardware on an ipad.  The ease with which he could read drivers license, credit cards, debit cards etc., removes all the mystery.  The ipad hardware platform makes it all so easy, portable and visible.  After this its all about smart software and alliances with the right partners.
4. Access:  Square blows through all the wires and terminals on the merchant counter and replaces them with one portable device.  Its only a matter of time before we see a Square chip card reader.

Relevance to Bankwatch:

The current credit and debit models assume a moneris/ chase/ paymentech type infrastructure as access to the payment network.  Square blows through all that and puts the payment network in your hands wherever you are holding a smart phone or tablet.  Picture the mess of terminals and acquiring gizmos on the merchant counter in Asia as our good fiend Dave Birch seeks the ultimate payment access and replace all that with something this simple.

For now its only for mag stripe so this is not threatening debit /credit yet outside of the US.  But the combination of Square and iphone/ipad is powerful.

This is the challenge for banks and digital wallets.  Square does not threaten banks, yet.  Banks still get the traffic from Square, and the bank with the Square merchant account is quite happy. 

The bigger picture for Banks remains how to bring a highly complex technology that is named a digital wallet, into such simple terms and availability as Square.  There is a long road to go there, but meantime expect to see Square and others in US stores soon.

Libor: Three Scandals in One | Foreign Affairs  [emphasis mine]

The fundamental principle underlying floating rates is to allow the market to determine borrowing costs. Customers who borrow on a floating-rate basis, if they are sensible, and institutions that loan money on a floating-rate basis, if they are ethical, therefore expect two things from a benchmark interest rate. First, the benchmark should reflect actual conditions in the financial markets. That means no random fluctuations — money costs what it is worth.

Former Citigroup CEO Weill Says Banks Should Be Broken Up | Bloomberg

“What we should probably do is go and split up investment banking from banking,” Weill, 79, said yesterday in a CNBC interview. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”

He goes on to say

“We can have size and scale but it doesn’t have to be connected to a deposit-taking institution,” Weill said in the interview. “Have banks be deposit-takers, have banks make commercial loans and real estate loans.”

The promise that this could have the effect of keeping risky banking activity such as sub prime mortgage ABCP away from ‘regular’ deposit taking institutions.

However its worth noting that when Glass-Steagall was implemented in 1933 financial services were much simpler than today.  Re-implementing Glass-Steagall sounds appealing but in and of itself it would not be enough to eliminate the potential for bank bailouts in the event of another 2008. 

In order to protect banks and ordinary peoples deposits, a very clear line would need to be laid down to ensure that the big risks that were taken prior to 2008 and that resulted in the bailouts, were not available to those ‘regular’ banks.

I have to admit I noted the original idea here in 2009, but naively assumed they knew what they were doing. What was I thinking?