Quixotic quartet unlikely to breach Apple Pay's hardware citadel - When empires fall, those of the Habsburgs or Romanovs, for example, it is often in everyday places far from the seat of power — a side street in Sarajevo, a coffeehouse in Zürich — that the decisive encounter is taking place. The Soviet Union's days were numbered once shipbuilders in Gdansk, 1500 kilometres from the Kremlin, resolved to strike over the issue of a mistreated colleague. In the case of the current battle between Big Tech and Big Banks over consumer spending at the POS, the most interesting clash is emerging in Australia, not an insignificant market, but far removed from Silicon Valley, the City of London or Wall Street. There are three camps: in the first, Apple; in the second, the Australian government, like its European and American counterparts in a bit of a quandary over the rise of the digital players (long given an easy ride, their appetite is now voracious, their power staggering); and, in the third, three of the country's Big Four banks: Commonwealth Bank, National Australia Bank and Westpac. In tandem with the smaller Bendigo and Adelaide Bank, they are determined to collectively bargain with Apple to gain direct access to NFC hardware on the iPhone, for use by their own app or apps. One would expect, the world being the way it is, that the government would be quite happy to let Australian banks cooperate for the purposes of resisting an American megacorporation's onward march, but, in fact, that country's Four Pillars policy makes it difficult: the authorities are committed to keeping their largest banks separate and any moves towards mergers or alignment of core interests is taboo. The signs indeed are not good for the banks in their stand. Even interim authorisation has not been forthcoming from the competition regulator in Canberra. Apple, for its part, has accused the banks of being obstructionist: "the applicant banks are primarily focused on erecting barriers for Apple Pay, and other third-party wallet providers, becoming available to Australian consumers." Secure the Citadel Another, perhaps more compelling, argument, is that access to the Secure Element in Apple's phones is not something that can or should be shared with third parties. As the tech giant's own documentation says: "During a transaction, the terminal communicates directly with the Secure Element through the Near Field Communication (NFC) controller on [the iPhone] over...dedicated hardware." Apple hardware is something that no third party (even law enforcement, as the FBI discovered) gets access to, and that is why consumers feel they can trust the products so completely. "Apple hold a significant share of the smartphone market and their customers are on average more affluent than Android users," noted David Hickey, Head of Lafferty Global Research. "Banks can therefore only offer mobile NFC payments to a subset of their customer base. With this in mind, it is no surprise that banks are reluctant to grant Apple access to their cardholders, and Apple demanding a slice of the interchange fee makes the prospect even more unsavoury." This battle reminds some of the browser wars of yore, when Microsoft argued (unsuccessfully) that it was necessary, when using a Windows operating system, to also use a Windows browser to access the internet: both consumers and regulators called this bluff. The Australian banks are hoping that the same logic (proprietary methods turning out to be monopolistic) can apply in the Apple Pay case, but there are cardinal differences that cannot be ignored between the two situations. Microsoft Windows ran on any PC and was not the tightly integrated hardware/software amalgam that Apple has built its empire upon. And, as we all know (or at least should know), any of the main browsers currently available will see you safely onto the internet: you do not need to use the one foisted on you by the makers of your computer's operating system, no more than you need a particular kind of television to watch Game of Thrones . "Ultimately," says David Hickey, "if regulators chose not to intervene, market forces will dictate; whoever starts to lose customers due to the impasse, will be forced to concede. This places Apple in a strong position as their customers are noted for their brand loyalty — something few banks can match." One of the foundational texts of this digital revolution, ranking alongside Satoshi Nakamoto's paper that first set out bitcoin and blockchain innovations, is Marc Andreessen's opinion piece for the Wall Street Journal just over five years ago. In it he wrote that the "battles between incumbents and software-powered insurgents will be epic": we are seeing but a flashpoint of this epochal conflict in Australia right now, but the banks seem headed for a strategic loss that will confirm a trend worldwide.
The news is full of inter-related stories about moving to a cash-free society, helicopter money, and the diminishing effectiveness of QE and negative interest rates. We asked ourselves: Who is really pushing for the cash-free society? Who benefits? And how will we follow the money if it's not really there anymore? RONAN LYNCH: Over the next few months we're going to see a global effort to push the cashless or at least cash-lite society. We've already noted subtle moves in this direction in our news (1p and 2p coins are gone from circulation in the last year, and the 500 euro note will no longer be produced — ie a squeeze from both ends). Witness the moves by the likes of Larry Summers etc, and now Ken Rogoff with his new book from Princeton University Press The Curse of Cash. Sample quote: "The big problem with paper currency is that a large part of it is used to facilitate tax evasion and a huge spectrum of criminal activities, including drugs, corruption, human trafficking." This, I believe, is highly disingenuous nonsense...! I think the new effort will be driven by a panic about the ineffectiveness of low and negative interest rates meaning it's not doing enough to stimulate the economy, and the arrival of permanent low interest rates requires a move away from cash which people will otherwise stockpile at home. FIN KEEGAN: From an individual liberty standpoint, I hear you, Rónán, but the large notes really are used by the black market in the main (at least it would seem so, looked at coldly) and the smaller coins are a downright nuisance so I cannot see the harm there. In any case, with DNA id advancing so fast, it is possible one day that every piece of money will record the parties to any transaction on the blockchain anyway! (I am going SciFi I know.) DAVID HICKEY: Unfortunately anonymity works for everyone — if people want privacy then they have to accept more crime and corruption. There is no doubt that cash encourages crime and facilitates the black market. 78 percent of the value of USD in circulation is in $100 notes. Most merchants refuse to accept $100 notes so what are they actually used for? The same is true for higher denomination notes in other currencies. You can carry €1m in a laptop bag thanks to the €500 note. If that's too heavy for you, the Swiss issue a 1000-franc note. I believe they should get rid of every denomination above 50 in the major currencies as a starting point. Tax evasion is another issue. If someone demands to be paid in cash, there is a very good chance they are evading tax. Some people argue that the black/grey economy fuels the real economy. Ireland would probable fall apart overnight if there was no cash as the system is designed to be (a little bit) crooked. Sweden would be fine. Personally, I would choose to never use cash if it was practical as I find it inconvenient but I know many people feel the opposite. PATRICK HOULIHAN: This whole so-called 'war on cash', is because the authorities are losing control. People are beginning to hoard cash as deflation sets in. In Cyprus and in Greece in recent years the authorities have implemented partial capital controls (at least in part) to avoid a run on the banks. But this is nonsense — the banking system went bust in 2008 and is completely insolvent. The argument that the use of cash facilitates drug smuggling/abuse etc. rings hollow when HSBC was caught red handed laundering drug money in 2012. (This would be on top of all the other criminal activities banks have engaged in, such as rigging LIBOR etc etc. Is this not criminal activity?) The argument that the use of cash facilitates tax evasion rings hollow when we see the news in Ireland recently about Apple! Is there tax evasion involving cash? Of course. But in the link above we have what might be termed 'state-sponsored' tax evasion. Of course this involved digital money, so maybe tax evasion involving digital money doesn't count. Whenever I hear ivory tower economisseds such as Ken Rogoff pontificating to the masses, all I can do is either laugh or cry. Eliminate cash and you have the following situation: Every single payment transaction is tracked by some bank or another (that may or may not be working with Mexican drug cartels to import Cocaine into the US) Every single payment transaction is being tracked by some American spy agency or other (I would advise you to have a read some evening of what Edward Snowdon has revealed) With all payments being tracked, all human activity is tracked. Yet we are (ahem) "free", and, it would appear, getting even more free by the month. SRIRAM NATARAJAN: Quite frankly, I think I tend to agree with all of you. The question of cash has to be viewed differently for each country — with its unique cultural and economic issues in mind. I agree with Ronan that removing cash is not going to sound the death knell for launderers. I think Bitcoin is much more efficient for that purpose. The bottom line is about the COST of handling cash. India's banking system for e.g. spends around $ 135 Billion every year in cash management. 12 percent of GDP wasted in moving paper. Like every other nation, it costs more than the face value of a coin (of any denomination) to print and distribute. On top of that, there is a huge racket in India where coins are smuggled to Bangladesh and melted to be sold in the black market and the metal is used for other purposes! So, bottom line, I think if a country is inefficient in cash management, there is a case to advance the move to digital money. In fact, I see the BoE actively promoting issuing blockchain based digital currency. And do read this book by John Kay: Other People's Money. PATRICK HOULIHAN: Another anti-cash article in the MSM today, this time from Bloomberg. SRIRAM NATARAJAN: Here is a nice take on the cashless/less cash topic with an Indian perspective. I think this view can be extended to all emerging markets. PATRICK HOULIHAN: Rather hilariously, this article from Bloomberg is authored by a former president of one of the Federal Reserve regional banks. This is the same Fed that bailed-out insolvent banks using trillions of Dollars, and which still hasn't stopped patting itself on the bank for wasting huge sums of treasure on insolvent institutions. This has constituted the largest transfer of wealth from the poor to the rich in the history of mankind. This isn't just my view — see for example the Wall Street Journal. I would like to highlight one part of the Bloomberg article: "The right answer is to abolish currency and move completely to electronic cash, an idea suggested at various times by Marvin Goodfriend of Carnegie-Mellon University, Miles Kimball of the University of Colorado and Andrew Haldane of the Bank of England. Because electronic cash can have any yield, interest rates would be able go as far into negative territory as the market required." (As an aside, the author clearly has no idea what either cash or currency is). Eliminate cash (Sriram, this, I suppose, is more relevant in DMs rather than EMs), and the authorities can force rates as low as they want. Depositors are then taxed to hold money in a bank account. No cash means that depositors have no choice but to spend money as soon as they receive it, or else they will lose some of it (which in their view, will encourage inflation/consumption, as if deflation were a bad thing). QE and the rest isn't just an enormous mistake, it is a crime. But Central Bankers aren't able to admit this, so they are doubling down. They have now doubled down several times, and they will do so another several times. At some point in the future, the banking system will implode and the consequences will be far-reaching. SRIRAM NATARAJAN: Patrick, your comments are bang on target. The agenda to eliminate cash is backed by rather nefarious designs in developed markets. In emerging markets, eliminating cash or at least ensuring new wealth creation is not dependent on cash, is a basic economic necessity because it makes sense. How Ghana is using mobile money to go cashless Also this group Better Than Cash is focused on underbanked/unbanked in Asia / Latam and Africa.
I'm working on a new Lafferty research report at the moment on banking and social media and one issue that has come up time and again is that passwords for accessing social media accounts tend to be weaker than passwords for online banking. But during my research I came across a company called Veridu, which turns that thinking on its head. It uses a person's social media footprint to establish if a person is who they say they are. Trust and identity are key to digital transactions and there are also other companies that are starting to use an individual's social media profile to help make decisions about them. Credit scoring is one area that has started to analyse social footprints: US credit scoring company FICO is using it, as is online small business lender Kabbage, also in America. But Veridu is harnessing the social media footprint in a different way. By using algorithms and social media profiles, Veridu is able to score how trustworthy the identity of a person is. With the user's consent, the information is then shared with the company who has asked to establish trust in their identity. Founded in 2012 in Copenhagen, Veridu is now headquartered in London. The company is getting attention and Worldpay has invested in the company and is an advisor to the board. Lafferty News spoke to Veridu's chief sales officer, Ian Green. "If you go back to traditional PII (public identity information) data and look at, for example, your mother's maiden name or your home address and your date of birth, a lot of that information has already been compromised in the marketplace. It doesn't really necessarily require consent because it's already out there," commented Ian. "Whereas, if you look at your social footprint, obviously there's a huge amount of hours that have been invested [in a] social profile. What you're effectively doing is building that profile up. It's very unique to you because you're demonstrating your social life in connection to your real life. There's a lot of individual characteristics that have been built up over a time period that are totally unique, unlike more static data, like an address. Our core competence is mining into that — with consumer consent — to provide insight and a combination of credibility scores and attribute scores around the individual, that effectively says how 'fakeable' is your profile. [By 'fakeable I mean] how recent is the profile, how many hours you've invested into it or the comments — so we build up a confidence score based on whether or not we think the profile is good and whether the events behind the profile are being performed in a characteristic way." The low cost of the technology is a major factor in its appeal and the company sees itself as often being used in conjunction with other checks in the fields of anti-money laundering and Know your Customer, as well as onboarding or in processing more vulnerable transactions, such as Card Not Present transactions (CNP). "With the traditional approach to CNP transactions, a lot of merchants are using a processor and they're normally using a fraud engine around velocity for example (suddenly making multiple transaction on the card). Your behaviour in the transaction flow might be different from the prior week — because you're travelling, or suddenly it's a key shopping day — and the whole buying behaviour is skewed within a certain period. A lot of the traditional risk engines struggle with that process, [when a person is] transacting slightly more erratically than previously. What we've done is to create a proposition that allows us to challenge the identity — providing the ability for the end user to re-verify themselves, during a transaction decline." Ian gives the example of Veridu's co-founder, Rasmus Groth, a Dane who travels a lot to London and other places and whose card is frequently being declined. Veridu technology would provide Rasmus with the possibility of revalidating himself with his social footprint on LinkedIn, Twitter or Facebook. And Ian makes the point that, while a lot the fraud teams in the merchant space are already effectively using social data for their fraud decision, the difference is they tend to do it manually. Veridu also sees itself as a flag raiser at the front end of the transaction before a company decides to do the heavier duty due diligence. "For example, if you're being considered for a job, there might be a lot of due diligence to do, like rights to work within a specific market. We would augment that flow, we wouldn't necessarily displace it, but we equally see ourselves right in the front end of that process. It makes sense to use a low cost verification process before you do the heavy due diligence work." Its site has a feature that lets you trial the technology. (Go to the website by clicking on this link here and hit the 'Try It' button). Since I'm a grumpy member of Generation X who hates Facebook and who doesn't understand the appeal of sharing mundane events with my friends, I thought I'd compare my social footprint with our millennial digital marketing executive. And yes the results were as expected, in terms of Facebook usage. He has clocked up nearly 3,000 hours on Facebook, even though he was barely able to read and write when Facebook was set up in 2004 and only set up his account in 2010. Meanwhile, my recorded hours were at the very other end of the scale: extremely low. Those recorded hours measure a number of elements including time spent on Facebook, as well as posts, comments and interactions, plus specific scoring attributes like name, gender, location, date of birth. Which could mean my social footprint might raise some flags — I might need further investigation, whereas my colleague could not fake nearly 3,000 hours on Facebook!
The big US banks should prepare themselves for downsizing if they can't cope with new rules designed to test their ability to withstand major shocks to the financial system, according to Daniel Tarullo, the lead bank regulator at the Federal Reserve. Speaking at Yale University, Mr Tarullo said that the outcome would be the need for the big eight US banks to hold more capital — echoing similar plans floated last week by European regulators. The new rules, according to the Financial......MORE
Is Apple about to launch an $85,000 Macbook McLaren laptop that transforms into a self-driving electric supercar at the touch of a button? Maybe not yet — but Apple is coming in for an awful lot of ridicule these days, as illustrated by Robert Shrimsley's latest column in the FT mocking the company as it turns its attention to "Car". Reuters reports that Caixabank sold shares worth €1.32 billion ......MORE
Speculation is rife over the future of Wells Fargo CEO John Stumpf, who maintained a calm facade as US Senators on the Banking, Housing and Urban affairs committee eviscerated the bank's cross-selling culture. Stumpf tried to shift blame first to frontline staff and then the board, and his failure to accept responsibility puts his job on the line. Culture, as Stumpf himself admitted, begins at the top or centre of the business. http://www.laffertyreports.......MORE
Perhaps you've found yourself being asked online "Are you a robot?" and having to prove your humanity by deciphering the number on a door in a photograph. Ironically, it's a robot asking you this. Or more precisely, a bot. A bot, as we're all coming to discover, is a relatively new phenomenon. How is a bot different from a robot? Well, unlike a robot — which might spend its days screwing bolts on to cars on an assembly line, or greeting startled customers......MORE
Quixotic quartet unlikely to breach Apple Pay's hardware citadel - When empires fall, those of the Habsburgs or Romanovs, for example, it is often in everyday places far from the seat of power — a side street in Sarajevo, a coffeehouse in Zürich — that the decisive encounter is taking place. The Soviet Union's days were numbered once shipbuilders in Gdansk, 1500 kilometres from the Kremlin, resolved to strike over the issue of a mistreated colleague. In the......MORE
The news is full of inter-related stories about moving to a cash-free society, helicopter money, and the diminishing effectiveness of QE and negative interest rates. We asked ourselves: Who is really pushing for the cash-free society? Who benefits? And how will we follow the money if it's not really there anymore? RONAN LYNCH: Over the next few months we're going to see a global effort to push the cashless or at least cash-lite society. We've already noted subtle moves in......MORE
I'm working on a new Lafferty research report at the moment on banking and social media and one issue that has come up time and again is that passwords for accessing social media accounts tend to be weaker than passwords for online banking. But during my research I came across a company called Veridu, which turns that thinking on its head. It uses a person's social media footprint to establish if a person is who they say they are. Trust and identity are key to digital transactions and......MORE
The Unified Payments Interface (UPI) was launched in India on 24 August 2016. UPI has been the buzzword for the payments industry in India since February 2016, when the National Payments Corporation of India (NPCI) announced its launch. Not only is it seen as groundbreaking technology, but also as ushering in an era of convenience for consumers when paying for goods and services. In a flash, India seems to have made a galactic leap towards a cashless economy, where consumers can make a digital......MORE
One of the most important trends in the cards and payments industry over the last number of years has been the significant and sustained growth in e-commerce. This is now a part of the everyday life of many consumers, and it seems like only a matter of time before card-not-present (CNP) acquired billed volume will overtake the more traditional card-present acquired billed volume in many developed markets. Bearing that in mind, the Australian Payments Clearing Association (APCA) has, for the......MORE
Nordic banks, as perfect vehicles for passing on negative rates, run the risk of a boom, but we will not see much stimulus in Germany, whose banks will have to absorb the costs of the policy. Negative central bank interest rates are going to have vastly different effects, depending on the characteristics of the banks in the region imposing them. To predict the effects, we dip into the findings of our study of some 200 banks, completed under the Lafferty Bank Quality Ratings banner. While......MORE
Craig Bond is head of retail and business banking at Barclays Africa, steeped in the best traditions of retail banking — which includes an openness and excitement about new developments. Here he speaks to Michael Lafferty. The video is password protected: Please enter "LaffertyMember" when......MORE
Banks have become expert at measuring all kinds of key performance indicators, but they have yet to learn how to successfully measure their social impact. It's now time for banks to start including social metrics in their annual reports. The methodology of the inaugural report of the Lafferty Bank Quality Ratings (LBQR) journal distils extracts, information, and insights from 100 bank annual reports into an overall measure of quality. The measure highlights those dimensions of......MORE