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Techmeme headlines capture the Bitcoin issue and why Bernanke’s letter was at best, ill timed

After my post earlier today, I checked my daily tech goto site Techmeme, and here was the top story.  The complexity and ideological competition between the four headlines are visceral.


Written by Colin Henderson

November 18, 2013 at 19:47

Posted in Uncategorized

What can of worms has the US Fed opened in appearing to support Bitcoin?

Bitcoin is something I have been sceptical about.  I appreciate the mathematical and security wizardry involved but it still feels like a solution seeking a problem at this point. 

Today Bitcoin received, from of all places, support from Bernanke and potentially from the US Senate with specific mention of Bitcoin as a future method of money transfer.  What?

I cannot for the life of me think why they would even hint at such support for Bitcoin when they cannot even agree on something as mundane as converting to chip cards.  I makes one wonder if there is not some serious and expensive lobbying going on somewhere in Washington.

Bitcoin leaps ahead of Senate boost |

A US Senate hearing on the “risks, threats and promises” of virtual currencies sparked a new leg up in the price of Bitcoin, the experimental currency which has risen by more than 4,700 per cent in value this year.

An intervention by Ben Bernanke, chairman of the Federal Reserve, enabled Bitcoin enthusiasts to put the spotlight where they believe its potential value lies: as a cheaper alternative to the current system for transferring money around the world.

Mr Bernanke, in a letter to the Homeland Security committee, pointed out the Fed’s longstanding view that while virtual currencies pose money laundering and other risks, “there are also areas where they may hold long-term promise”.

Now the article goes on to note the concerns of law enforcement following the revelations of Bitcoin as a currency on the anonymous marketplace, Silk Road, to purchase drugs and other highly illegal activities that I won’t even mention here for fear of tarnishing my poor little blog for in the search engines.  But thsi background makes the above comments from the Fed all the odder.

The Department of Homeland Security took a tougher line, saying in a letter dated November 12 that the ease with which criminal organisations could exploit virtual currencies made its “aggressive posture” necessary

Don’t get me wrong – I am all in favour of break-out thinking in the payments world and it needs that.  I spend a fair bit of time thinking and writing about trends there.  However the timing of this on the heels of the Silk Road revelations along with the known speculation which Bitcoin attracts just feels odd. 

I spent some time with a P2P Startup in Canada and our largest hurdle was to convince the Securities regulator that investing in properly adjudicated retail loans with diversified risk was a reasonable investment.  We failed.  The regulator would never allow anyone who was not an Accredited Investor to participate. 

Now compare that experience to Bitcoin.  Are people purchasing a virtual currency or a speculative investment?  I would love to be fly on the wall overhearing that debate in the SEC boardrooms.

This will be an interesting theme to follow.  i am curious what others may think.

Written by Colin Henderson

November 18, 2013 at 17:07

Posted in Uncategorized

Finally someone in the community acknowledges Blockchain challenge for Banks

I have done a fair bit of research on Blockchain technologies as an alternative to SWIFT and that is really what we are talking about when it comes to international payments. This story caught my attention.

NEW YORK (Reuters) – Banks are unlikely to use distributed ledgers to process cross-border payments for now because of scalability and privacy issues, according to Ripple, one of the most prominent startups developing the technology

If we look at SWIFT it is no more than a messaging system that is accepted by banks to trust each other a payment has been made and to go ahead and debit/ credit each other using their nostro/ vostro accounts. No money changes hands with SWIFT. That clearing is old school using basically bank accounts that each bank hold with each other amongst the community of Banks who have together agreed to trust each other. Don’t get me wrong, SWIFT handles it well, but it is a messaging system.

What is Blockchain in this context then: it is a messaging system. It is the ability to provide a shared online record of messages that would disintermediate SWIFT. Always good to have competition and propose new more efficient or cheaper alternatives.

Blockchain is currently:

  1. Heavy and resource dependent
  2. Slow
  3. Lacks any method to provide financial clearing

On the third point, Ripple are giving it the old college try and more than anyone else. Other Blockchain applications are dependent on moving your money into bitcoin and moving that coin through a vendors bank account. Yes international transfers still need money to move, and archaic as banking is this is a truism. Show me the money in my account.

There is something there with Blockchain but to me it remains a solution looking for a problem, particularly in a Banking context.

Written by Colin Henderson

June 14, 2018 at 19:13

Posted in Uncategorized

Tomorrows Transactions – final thoughts – #TTTU2015

@dgwbirch @debgamble1

Some personal and final payments takeaways from todays unconference in Toronto:

  • Canada is Canadian – conservative and sees the status quo as a barrier to change
  • Common agreement that what is needed is real time and cheap payments (P2P, P2B, B2B)
    • How and why this should happen gets fuzzy for most
  • Canada has the potential to be world leading edge in payments given:
    • shared national infrastructure (CPA, Interac, national P2P system)
    • the postive has the corollary of a shared infrastructure owned by those with least to gain from change (big 5 banks)
    • postitive regulatory environment looking for a greater pro-consumer approach from financial services; note a member of the Government Privacy Department (PPIDA) was present with a mandate to understand whats holding us back
    • old infrastructure (in payments)
  • banking and payments are emotional in nature (@heathervescent)
  • Bitcoin and blockchain is about technology but it brings out a certain mindset and set of beliefs in transparency and enablement
  • No real sense that there is a burning platform for big 5 banks to change anything without some intervention

@dgwbirch @debgamble1 #TTTU2015

Written by Colin Henderson

September 8, 2015 at 17:59

Posted in Uncategorized

Tomorrows Transactions – blockchain #TTTU2015

Dave discussed potential uses of blockchain. There are 5 examples, and only 4 have potential. I will leave you to debate/ figure out 🙂

It was equally fascinating to listen to Dave and also to be dumbfounded with the initial lack of audience interest.

Once we got into discussion that changed. It turns out there is interest but lack of knoweldge about the potential in separation of blockchain from bitcoin. Bitcoin is crowding out the discussion apparently.

Anyhow enjoy.

Written by Colin Henderson

September 8, 2015 at 15:53

Posted in Uncategorized

DEC_TECH panel discussion

Bitcoin and Beyond – panel discussion at DEC_TECH

William Mougayar inroduces the panel, and some concepts.

  • bitcoin is a protcol;  a standard – blockchain
  • exhanges
  • wallets
  • trading platforms

Discussing ‘be your own bank’.  Jeff (Kryptokit) is highlighting the idea of deconstructing the math part from banks.  Kryptokit do not hold your bitcoins … their wallet abstracts the holding of the coins from the security around them.  <need to study this more>

Amber (Chief AML Ninja) discussing consumer protection and ensuring their verification methods are valid.  There are no proposals that provide goverance over Bitcoin fiduciaries, i.e. exchanges holding your coins similar to that which apply to Banks.

Adam Nanjee points out that based on his travels, Toronto is a major centre in the world.

Bankers;  when asked there are only 6 out of 350 people from Banks in the audience.  Interesting. 

William asks when the tipping point for banks is going to come.  Adam thinks it is here.

Written by Colin Henderson

March 17, 2015 at 18:07

Posted in Uncategorized

Initial speakers at DEC_TECH

Anthony Di lorio introduces the DEC_TECH event.  

Gerald Cotten CEO of Quadriga, largest Bitcoin exchange in Canada.  They traded $25M last year.  They are going public in April 2015;  actual date not set.

He mentioned their exchange eliminates coin value fluctuation.

Next, Henry Chan from Deloitte – one of the sponsors tonight.

Mat Cybula of Cryptic.  

Amber Scott discussing the legal background in Canada.  I am hearing Fintrac a lot.  AML and KYC front and centre.

Written by Colin Henderson

March 17, 2015 at 17:49

Posted in Uncategorized

The MintChip experiment appears to be over and is being sold off

About 18 months ago I attended the introduction of Mintchip by the Royal Canadian Mint.

Royal Canadian Mint takes on digital cash

Mintchip is a project of the Royal Canadian Mint designed to provide an infrastructure for payments that would replace cash.

But now in a dramatic change of strategy, they are intending to divest Mintchip to the private sector.  This is disappointing.  In the article it is clear progress was being made, and alliances arranged with security and terminal vendors.  It is unclear what the future will hold for MintChip now.

It is especially disappointing because government involvement was one of the attractive aspects because it made the concept trustable and a suitable replacement for cash.  For me it set up a perfect real world comparison to Bitcoin and I discussed that here along several levels such as Government or not, P2P or not, unique ‘coins’ or not, new currency vs new transmission of existing currency.

I wonder (speculation here) if industry lobbyists got involved here, is it just to experimental for the Government, or did someone decide it is not the role of government to develop money transmission methods.

Too bad.

Written by Colin Henderson

April 7, 2014 at 12:29

Posted in Uncategorized

Millennials see banks as irrelevant | Scratch

I think its time to revisit the relevance of demographic shift in terms of technology adoption.  What got me thinking about this was this report from Scratch/ Viacom on the Millennial generation, and their thoughts on banks.  The report is not talking about the usual shift to electronic channels.

The report indicates millennials see banks as irrelevant. 

The Millennial Disruption index

The three-year study from Scratch, an in-house unit of Viacom that consults with brands, found that a third of millennials believed they’ll be able to live a bank-free existence in the future. In the age of Simple, Square, and Bitcoin, these millennials, defined as those born between 1981 and 2000, overwhelmingly believed that the way they access money and pay for things will be completely different in five years.

This makes perfect sense.  Traditional bankers saw electronic channels, once they accepted them, as cheaper delivery models.  A bank benefit.  Meantime a broader shift was taking place which I often spoke of here, as online then mobile became an experience choice.  You will (7 years ago) be defined by your online banking and it should come first in driving technology change in the bank, was my firm belief.  Trust was shifting to brands that old people were just encountering, but millennials only knew having grown up with only them.


Suddenly these powerhouses are the basis of the stockmarkets.

There is a new factor in generational shifts.  There is no more gradual change.  We have several changes within generations brought on by internet and technology that brings big change in periods of 5 to 7 years or less.

Ever since the 50’s failure of the Jetsons and the like to see an actual future, most don’t trust predictions and remain entrenched in what they understand: which is the present.  This doubt about future predictions alongside the significantly more rapid change brings skepticism.  So its our job to stay ahead of the curve. 

At SXSW this week its all about the Internet of Things.  There is major focus on the smart house with heating, art, music all adapting to the person that is there.  (We can already see eyes glazing over.)  But banking will be involved in the internet of things.  Not banks, banking.

Where am I going with this.  Online banking adoption.  It’s a complicated topic.  On the one hand I do not know anyone who doesn’t bank online with exception of a couple of relatives in the age 80+ range who don’t have computers.  On the other hand I know many households where one person does the online banking and the other does not.  These data anomalies make national online banking adoption survey percentages hard to read and understand.  Could we have 100% online banking adoption, yet survey might show it as 50%?

We are currently at about 61% in Canada and yet I know of no-one who doesn’t bank online.  The US is at a similar percentage.  My walking around assumption is that a very high percentage of households are online.

It is hard to read my own words from 2007 without cringing, yet it reflects the then mindset.  Banking online had an 35% – 40% adoption rate, and Cathy predicted it would get to 76% and I supported that.  Others were uncharacteristically doubtful.  That was still a period of internet adoption.  Thankfully we are over that now, and virtually everyone is online is some fashion.

But, hats off to Jim for correctly reading that online banking growth is not a straight linear pattern but does in fact move in steps that reflect the underlying demographics.  Another factor behind that is that rapid change is not always so rapid with years of work in places like silicon valley or NCR in Dundee.

However we are fast reaching a new tipping point that goes beyond the most recent fad of last few years, social internet, (which I still believe to be an aberration, but later for that).  Machine to machine (M2M) internet takes social to a whole new level that means you can interact with not just people but other internet devices such as your house, your fridge or your art on the wall.  This is the internet of things that they highlight at SXSW.

This is not a shift for millennials.  This is expected by them.  So of course banks look archaic to them.  They get annoyed at a bank when the person behind the counter, no matter how friendly they are, has to type an interminable number of key strokes to look up a balance or perform a transaction.  That same experience talking to their telco who types and waits as the technology takes forever.  At a minimum if they must walk into a bank they would expect the bank to know they have arrived.  If Yelp and FaceBook know why can’t the bank? 

They look at their own experience with cloud storage, social media, web mail and expect better, faster and different.

Back to the survey.  Its obvious millennials have experience with banks in order to form the conclusion that they see no difference amongst banks.  The subtlety of bank marketing differentiation matters not.  They only care about the experience and that is driven by online experience through mobile, tablet and laptop, in that order.

Most interesting is that they do not believe banks can reinvent themselves. 

“They believe innovation will come from outside the industry.”

Relevance to Bankwatch:

This turned out to be a longer post than I expected.  The catalyst was the millennial belief in irrelevance of banks.  This is not to be ignored or ignored at your banks peril. 

Outfits such as Moven and Simple are having difficulty getting off the ground.  There are others in Europe that are in fact doing particularly well.  The common ground they share is in producing a dramatically better experience for the client.  This is the future that millennials expect.

Written by Colin Henderson

March 8, 2014 at 23:10

Posted in Uncategorized

EMV decisions on mag stripe in Canada in 2005 come back to haunt customers

Finally Target confirm the obvious, that the recent hack of 40 million debit and credit cards also obtained the PIN numbers.  Target have also told CNN that they do not store the encryption key.  This is suspect at best.  It may not be stored but it exists somewhere otherwise they could not have encrypted the PIN’s.  I would go further and question why Target store the PIN at all.  The EMV protocols require the PIN for interaction between the Card, POS and the Bank.  The PIN is of no value to Target.

Target confirms encrypted PINs were stolen in recent breach

(Reuters) – Target Corp (TGT.N) on Friday confirmed that “strongly encrypted PIN data” was stolen as part of the massive data breach at the third-largest U.S. retailer during the first three weeks of the holiday season.

Back to the mag stripe storyline.

Background from Krebs:

If there was ever a driving case to eliminate mag stripes this is it.  My wife used her credit card in NY State recently and innocently noted to me they never asked for her pin.  Yes dear, that’s because your super secure chip card is using the porous mag stripe in the US.

If you really want to get paranoid about this, then read Krebs on Security here.  He has identified the Ukrainian man responsible.  I have viewed some of the sites mentioned and it is at once alarming and also disarming how easy it was to identify this man.  This would be a much better use of the NSA abilities.

Stolen cards are divided into a ‘base’ that reflects the stolen source and any other special characteristics.  In this case individual bases included zip and postal codes (yes Canadian cards are involved, including Bank of Nova Scotia in one sample posted online).  Two bases being mentioned in one site, that has since disappeared since Krebs post are called Tortuga and Barbarossa.  The advantage of zip/postal codes is to design the attacks within the cardholders home region, thus increasing the time before Issuers fraud alerts kick in.  Its obviously more of a fraud alert if your card that is used daily in Niagara Falls Canada, shows up in a transaction in Hong Kong or Singapore and to purchase electronic goods.

The cards are purchased as follows (from Krebs)

A quick search on the card shop for the bank’s BINs revealed nearly 100 of its customers’s cards for sale, a mix of MasterCard dumps ranging in price from $26.60 to $44.80 apiece. As one can imagine, this store doesn’t let customers pay for purchases with credit cards; rather, customers can “add money” to their accounts using a variety of irreversible payment mechanisms, including virtual currencies like Bitcoin, Litecoin, WebMoney and PerfectMoney, as well as the more traditional wire transfers via Western Union and MoneyGram.

Some others:

According to the "base" name, this "Dumps" shop sells only cards stolen in the Target breach.

To be clear, what is for sale is the card number, expiry date, name, address, and CVC.

Relevance to Bankwatch:

if ever there was a case to get serious about not just EMV but mag stripe then this is it.

The sophistication level is such that simple encryption of stored data is not enough.  The transmission of the data has to be considered.  If the data (card number, pin, etc) are ever in the clear (i.e. unencrypted) during the process then they probably exist unencrypted somewhere such as in RAM and these guys have tools to search that RAM.

I have long been a proponent of the two card approach.  Give me a chip card for my day to day use.  In 2005 during the initial requirements sessions for Chip Cards I disagreed with the retention of the mag stripe.  The well intentioned purpose was to make it a smoother transition for clients who a) travelled abroad, and b) who used merchants that hadn’t converted.  I always believed those two points were over-stated and unfortunately this has been borne out in Canada.  Merchants swarmed to the new technology, egged on by a fairly non diverse and aggregated group of POS providers. And foreign travel – give me a different card.

That initial decision to maintain the mag stripe was driven by Visa and MasterCard, but we could have made in Bank decisions to not follow that decision, and still remain within the terms of the agreements in my view.

So my wifes shopping trips in the US are unnecessarily at risk due to a poorly conceived decision by technologists in 2005.  And that unnecessary inconvenience includes all the banks and card issues fraud departments who spend all day cancelling and re-issuing cards.  This is a dirty secret of banks and the scale of that re-issuance is overwhelming.

Written by Colin Henderson

December 27, 2013 at 14:02

Posted in Uncategorized

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