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Techs and the city

"If you're not doing some things that are crazy, then you're doing the wrong things" says Google co-founder Larry Page.While US cities battle to become Amazon's second US base, Canada's biggest city has just snagged a major Google project.Toronto is not just the biggest city in Canada — it's the fourth-biggest city in North America and the economic hub of Canada, a city rife with innovation that since the 1990s has been undergoing levels of development, including economic and population growth unprecedented in modern North America. Even the Bank of Montreal has its headquarters in Toronto, where it relocated in 1977 — and Montreal as a city and an economy never recovered. In many ways Montreal has suffered the opposite fate to Toronto: indeed, the big five Canadian banks are based in the Financial District in Toronto. It's tempting to think that Canada's cities are battling it out for tech supremacy, but in fact there appears to be a broader strategy to develop the entire country's AI research capabilities.It's worth noting also that to the west, across the border, Baidu, Alibaba and Tencent have all established research labs in Seattle — so it would not be a surprise for Canada to eventually add Vancouver to its AI city grid. Montreal is positioning itself as a global artificial intelligence powerhouse, indeed labelling itself "the Silicon Valley of AI' in an attempt to somewhat reverse the demographic and economic downwards spiral it finds itself in. Montreal boasts four major universities, all engaged in AI research, and Facebook, Google, Microsoft and Samsung also have established AI labs there. The Canadian government gave the Institute of Data Valorization (IVADO) $93 million in 2017, and seven years to make Montreal "an internationally renowned centre for artificial intelligence". RBC announced in late November that its new Borealis AI research institute will open a lab in Montreal. Toronto has a smaller but still significant presence in the AI world. (Our new AI & Robotics in Banking report features Toronto AI business Deep Learning, and its collaboration with Scotiabank.) Scotiabank announced earlier this year a $5 million donation to the Vector Institute, which is focused on the development of artificial intelligence.While AI is showing great promise in banking, its main commercial focus at the moment is driven by the vision of big tech businesses, which includes self-driving cars and a heavily automated future. Larry Page's 'city of the future' may find expression in Sidewalk Toronto, a joint effort by Waterfront Toronto and Alphabet's Sidewalk Labs. Its aim is to combine urban design and digital technology to create people-centered neighbourhoods built around ideas of sustainability, affordability, mobility, and economic opportunity. Google Canada will move its Canadian headquarters from Toronto's Richmond Street to the waterside.The Objectives of 'Sidewalk Toronto' are to:Establish an improved quality of life for a diverse population. Create a destination where innovators can advance solutions to problems, such as energy use, housing affordability, and transportation. Make Toronto the global hub of a rising new industry: urban innovation. Serve as a model for sustainable neighborhoods around the world.New York-based Sidewalk Labs says it will have an "insatiable" appetite for partnerships with other companies, including local tech start-ups, as well as universities. Its chief executive, Dan Doctoroff, acknowledges that they settled on Toronto because of the city's reputation for visionary thinking, its booming tech sector, its free spirit and unfolding redevelopment plans for 800 acres of downtown land.He says his company will embrace new ideas including self-driving buses, taxi bots, a waterfront light-rail line and mass-production modular homes to ease high housing costs, commute times, social inequality and climate change. Robot vehicles will move waste and other goods through underground tunnels.The flow of people will be monitored and adjusted to maximise efficiency by computer sensors constantly analysing data. Doctoroff prioritises the provision of accommodation: "Sidewalk will develop advanced manufacturing technology to lower construction costs. Buildings will have embedded sensors to monitor for negative impacts such as noise or pollution. Sidewalk will also explore new occupancy models to further lower housing costs."Leading urban innovation is a massive potential earner. "Modular housing could create a whole new industry based on our timber industry if we develop the model here and export", says Will Fleissig, Waterfront Toronto's chief executive. "If we could reduce the cost of living by $10,000 to $15,000 per year — if a time-starved parent could save an hour or so per day — if people could get to many more places without a private automobile. If we could become the most climate-friendly place of anywhere in the world, that could be a dream come true." Critics say the main mandate of the Sidewalks project is to act as a testing ground for rolling out modular housing on a widescale basis (thus saving developers and contractors millions in development costs) and to test Alphabet's AI technologies and citizen surveillance. Time will tell however. Having worked in the development industry in Toronto for three years, this writer thinks it is debatable if the project can have a more negative impact than some of the projects that have taken place in the downtown core, and in particular City Place.Also in this month's newsletter:The fintech charterBlockchain good, bitcoin bad. Right?How FICO AI is fighting to reduce fraudAlipay is the vanguard of Chinese payments in GermanyLessons from the CFPB restructuringHow Desjardins is driving global payment acceptance interoperability with nexo standardsOrange is the new bank?No currency for old menThe Credit Card Version 3.0: Interface, instalments — and instantHave bank lobbyists rolled back the opening of EU financial services?Banking on renewable energyKorea campaigns for inActiveX

Euro, currency, eurozone
No Currency For Old Men

In the old days, when a war was raging across the world, information came from ghost like voices scratching out of the wireless, a weekly newspaper or the Pathe Newsreels that ran at cinemas before the main show. Today, it's not the lack of information, but the overwhelming quantity of it that is the problem. Kids no longer need to be taught to mine for information; they need to learn how to filter it.To follow the progress of the 'War on Cash' the internet will lead you to thousands of articles, blogs, analysis, opinions, predictions, each author juggling balls of whirling statistics, what direction those statistics are spinning depends on the slant of the article. The forces against cash are easy to find: governments, central banks, e-commerce investors, among others. The guys on the other side are not so high-profile. Key in the term 'Cash Lobby' and you need to scroll past a page of Grand Theft Auto links before you come to the groups championing the cause for cash.One such group is the International Currency Association (ICA), an alliance of companies from the banknotes and coins industry, inks, holograms, logistics, those who make and print cash. I asked their spokesperson about the battle for hearts and minds:ICA: "Yes there clearly is a PR battle. And what was an economic debate has shifted into the public space. Yves Mersch, member of the Board of the ECB recently declared "We currently witness frequent lobbying, overt and covert, to abolish cash. I won't dwell today on the plausibility of the justifications proposed, except to note that such lobbying fails to respect the will of the general population: cash remains popular. Recent research for the ECB finds that 80 percent of transactions at point of sale are in cash."Q: What are the main forces working against currency and what do you think motivates those forces?ICA: Let me quote Yves Mersch once again, "Advocates of a cashless society tend to fall into three distinct camps: the alchemists, the law and order camp, the fintech alliance."The 'alchemists' believe that the elimination of cash would enable central banks to introduce negative interest rates without risking a bank run. If money stored on bank account brings a negative return or, in other words, is charged a fee, individuals and businesses will, at some point, start hoarding cash instead. This would nullify the policy goal of making them spend the money. Thus, monetary policy cannot go much below the 'zero bound' of interest rates. The advantage of a cashless society, the argument goes, would be to have no zero bound, thus liberating the full power of monetary policy.The 'law and order' camp claims that anonymity of cash purportedly makes it attractive for illegal activity. Yes, banknotes are used by tax evaders and criminals, just as they are used by billions of people all over the world for perfectly legitimate transactions. The reduction of cash in circulation, or even its elimination, would have no impact on crime and tax evasion. As we have seen recently with the Panama papers, Paradise papers, LuxLeaks, Laundromat, etc, there are numerous ways of laundering money and evading taxes which do not involve cash.Lastly, the 'fintechs' believe they can develop alternatives to cash. But so far, they have simply changed the way we access cash. Many observers and payments experts viewed mopayments as the silver bullet to replace cash. Far from displacing cash, mobile phones are simply changing the way consumers access it. M-Pesa provides a clear illustration. M-Pesa ("pesa" is Swahili for money) was launched in Kenya in 2007 by telecommunications provider Safaricom as a money transfer service, enabling users to send and receive money through their mobile phones. Today M-Pesa is the most developed mobile money system in the world and often recognised as one of the key innovations in payments of the last decade. While numerous features have been added to M-Pesa since its inception, it remains essentially a cash transfer system using a network of over 60,000 agents. According to the World Bank, in 2012, about 21 million Kenyans made 527 million transactions. Between 2007 and 2012, the value of banknotes in circulation increased by 63 percent.Q: Isn't this all about a nostalgic wish to hang on to old traditional values?ICA: The success of cash extends far beyond traditional values. On the contrary, I think that cash has demonstrated a rather extraordinary capability to innovate and to adapt to a changing payments landscape. Take the case of Uber for instance: they gradually saw the benefits of accepting cash payments as they expanded into Asia and Africa. In order to win greater market shares, Uber eventually decided to take cash in Manchester and in Florida. In April, Amazon launched "Amazon Cash" in the US, a service that allows customers to load cash on their online account instead of linking it to a bank card. The service has since been launched in Mexico, the UK and Canada. PayPal followed the trend and launched My Cash, a prepaid cash card which enables users to load money to their PayPal account. A growing number of fintechs are developing solutions to enable shoppers to pay cash online. PayNearMe, in the US, Barzahlen in Germany or Cashway in France.Following the decline in the number of bank branches, many banks have resorted to innovation to ensure the delivery of cash. In the UK, banks have reached an agreement with the Post Office to offer cash services at the 11,600 branches. Likewise, India's post offices will facilitate access to cash for senior citizens, people living in rural areas and the disabled. In northeastern Nigeria, people have turned to Point of Sale (POS) terminals for cash. Users simply go to a shop with a POS machine, pay the merchant the amount they want to withdraw. Meanwhile, Sberbank, Russia's largest bank, has successfully tested the use of drones for the transportation of cash. In India, Grofers, an e-commerce website has partnered with YES BANK, India's fifth largest private bank and enables customers to have banknotes delivered to their doorstep along with their grocery order for up to Rs. 2,000. In Poland, Ideal bank launched a fleet of BMW i3s fitted with cash-in, cash-out ATMs, which can be ordered by smartphone either on demand or by advanced booking. France's, La Poste, has developed a piggy bank that connects to both the parents' and the children's smartphone and displays the total balance.Q: Ajay Banga, CEO of Mastercard says: 'data is the new oil.' Surely cash can't survive in a world where financial data is so valued?ICA: On the contrary. Cash offers a space of anonymity. And in a society where cybercrime is on the rise, where, social media are transforming consumers' perception of privacy, where big data is leading to the monetisation of consumer information, the anonymity space is becoming smaller and smaller. In this context, cash is the last frontier for anonymous but controlled transactions. A regulated anonymous payment instrument is essential. Firstly, because some degree of anonymity is perfectly legitimate. Secondly, in the absence of a regulated instrument, there is a risk that consumers could opt for unregulated ones. Lastly, the absence of anonymity could lead consumers to abandon some transactions. The brand consultancy Method conducted an experiment to discover what would happen when people's private spending habits become public. The participants were challenged to log every purchase using an Instagram picture. It became clear that there was a significant grey area not covered by the Instagram feed, constituting all the purchases that the customers deemed uncomfortable or inappropriate. The consultants concluded, "Our experiments suggested that even our most mundane financial transactions can provide private information that we don't realize is saying something about us."Q: Will cash weather this storm?ICA: What storm? In the Eurozone, the value of cash in circulation is growing by 4.3 percent. In the US, the figure is six percent and in the UK it is ten percent.Cash isn't dead yetAnd it's not just vested interest groups proclaiming hard currency is still fighting fit. Sriram Natarajan, COO of Quatrro Global Services says there's no need to send the stretcher-bearers out just yet."Cash is doing very well, thank you! Outside the Scandinavian countries and some African countries, cash is still in pole position. Even China; with all its digital innovations is still a heavy cash user. In India, cash is back with a renewed vengeance. As far as the Americans go; the $ 100 bill still remains the favourite of money launderers and drug dealers! In fact, data from the Fed suggests that there is more 100 $ bills outside US than in the US!"Sriram offers wise advice to those making predictions of the currencies future:"I think it is too fastidious to make any projections beyond 2022. We need to watch the growth of IoT and any new disruptive technology that may have the convenience of digital and the anonymity of cash."But that's enough sensible debate; let's get back to the weird and wonderful battleground of the internet. I came across the following warning on a site I'm guessing is not a fan of fintech:"And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads:And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.Here is wisdom. Let him that hath understanding count the number of the beast: for it is the number of a man;And his number is Six hundred threescore and six."Revelation 13:16-18 (KJV)All good war-movies need a hero and a villain but you know it's big budget when they've cast God and the Devil to play the leads.Also in this month's newsletter:The fintech charterBlockchain good, bitcoin bad. Right?How FICO AI is fighting to reduce fraudAlipay is the vanguard of Chinese payments in GermanyLessons from the CFPB restructuringHow Desjardins is driving global payment acceptance interoperability with nexo standardsOrange is the new bank?No currency for old menThe Credit Card Version 3.0: Interface, instalments — and instantHave bank lobbyists rolled back the opening of EU financial services?Banking on renewable energyKorea campaigns for inActiveX

The credit card version 3.0: Interfaces, installments - and instant

"Money talks, but Credit has an echo." Bob Thaves.The venerable credit card has served the banking industry well for the past forty years; turning in rich profits and superlative RoEs. It has been the primary engine which powered the great consumer spending boom in the US and UK and ensured their world economic dominance. But the success of the credit card hasn't been consistent across the world. Many emerging markets have simply not been able to build a profitable and sizeable credit cards portfolio. Countries such as Taiwan, South Korea, and Brazil have even racked up consumer debt bubbles on credit card receivables.The stupendous growth of debit cards over the last twenty years has also knocked off some of the sheen of credit cards. In fact, the very factors that helped credit cards to grow during its glory days have now turned into constraints limiting growth and impeding profitability. These factors are:Closed loop operating model: All the networks — Visa, MasterCard, Diners, Discover, and Amex — have been closed loop, or only open to financial institutions. This gave an enormous advantage to Issuing banks and card issuers who had a virtual oligopoly on credit cards. But in today's open-sourced payments industry, this very factor is making credit cards look old fashioned and closeted now.Mystique of Revolving credit: Customers were hooked to the magic of unsecured, revolving credit where cardholders had a line of credit to draw upon for retail spending. Access to this revolving credit was limited to customers with good credit scores, and who went through a tedious process of applying for a credit card. Customers were willing to 'revolve' at high rates of interest as credit cards were something to aspire to. Some issuers like Amex emphasized the prestige factor to differentiate their brand from the others.Technology-reliant business: Banks and merchants were highly dependent on their IT teams to run their credit card business and launch new services, and the industry was characterised by long drawn-out IT projects and huge costs. The ability to buy items at the point of sale seamlessly where credit is in your pocket is a huge value to cardholders. But now with most customers carrying smartphones with always-on Internet access, mobile has taken away the aura that payments technology carried earlier.Controlled by banks and financial institutions: Financial institutions have always pulled the strings moving the payments industry. Fintech and Ecommerce companies are now providing all kinds of banking services (including consumer credit), which has resulted in breaking down these embankments that made credit cards so profitable. Multiple payment networks that did not talk to each other. There is virtually no interoperability among the different competing networks even at a national level. However, now with mobile wallets and other disruptors emerging, this siloed approach is not tenable anymore. Ill-informed consumers: Cardholders held on to their credit cards, as they didn't have many options in unsecured credit. Most banks had similar terms for revolving credit, and most cardholders don't even know how interest and fees are calculated. In the 'always online' digital age of today, cardholders and merchants have access to as much information as they want. Hence, the edifice of hazy terms and conditions and opaque operating rules is no longer acceptable to consumers and merchants.Limited options for merchants: The ecosystem of the payments industry has been such that merchants had very few options — apart from good old cash. However, now with the growth of In-app payments (Uber), P2P payments, digital wallets (WalmartPay), same day RTGS/ACH — the halo around plastic is wearing off. As a result, even credit cards are losing their aura due to the 'cookie cutter' model that is offered to merchants.The new reality of the digital age:It now clearly appears that the world of payments is rebooted for good and will rise on the following pillars:Open source platforms: More and more networks and processors are opening up to non-financial entities. Institutions are gearing towards open source IT architecture. As a consequence, even credit is now offered to consumers on the fly (on websites, while browsing through online catalogues, for example) and innovations like virtual credit cards with only a digital key and no plastic are taking off in a big way.The power of API: Payment networks and institutions are now publishing their APIs so vendors and partners to connect with them. The new PSD2 regulations rolled out by the ECB are a game changer that is making the rest of the world to sit up and notice. Now Fintech companies and other disruptors can offer instant online credit to shoppers by tying up with consumer lenders and P2P marketplaces.Ready access to credit across channels: Institutions and networks in the payment industry are patching up omni-channel access for their customers. Anywhere and anytime payments are the order of the day. Cross channel interface across various dimensions, including credit, is now a reality. Consumers are also open to accessing credit cards and other banking products from non-banking or non-financial companies.Mobile is the leader: The phenomenal growth in mobile as a payment channel has completely transformed the working model of the payments industry. As smartphones become ubiquitous, the old fashioned plastic credit card is becoming a retro item. Consumers can not only choose their credit provider but also negotiate in real time through mobile apps to get the best deals on credit cards.Flexibility for merchants and customers to initiate and complete a payment transaction. The spread of online commerce has completely changed the transaction flow of the payment transaction. Credit cards now stand demystified and digital payments are now a part of everyday life. Credit is now more democratic as open platforms on the Internet enable anyone to participate. The payment industry is becoming increasingly democratic and very willing to embrace new disruptive technology like Blockchain, Internet of Things, Digital Wallets, etc. All these innovations provide a multitude of options to consumers — like opting for simple instalment credit on equated payments rather than complex revolving credit — and connecting the cardholder with the merchant as never before.The power of social media: The global reach of social media is placing the greatest amount of information in the hands of the greatest number of people. As social media tools are easy to use, and mimic human interactions, they are putting enormous pressure on the payments industry to simplify payments ecosystem too. As a result, access to credit is also entering the social media zone: simple and seamless. The credit card too has to reinvent itself to measure up to the ease of social media channels.In conclusion, the plastic based revolving credit card is now looking to be anachronistic and in many ways geriatric. Credit cards now have to reinvent themselves in a new avatar that blends them seamlessly into the hectic world of digital commerce. The key operative word in 'Credit Card' is Credit — not card! Access to credit will always be coveted by consumers and honoured by merchants the world over. A brand new makeover is needed for the traditional credit card to thrive in the twenty-first century.Sriram Natarajan is President and COO of Quatrro. He is a regular contributor to Lafferty News. Also in this month's newsletter:The fintech charterBlockchain good, bitcoin bad. Right?How FICO AI is fighting to reduce fraudAlipay is the vanguard of Chinese payments in GermanyLessons from the CFPB restructuringHow Desjardins is driving global payment acceptance interoperability with nexo standardsOrange is the new bank?No currency for old menThe Credit Card Version 3.0: Interface, instalments — and instantHave bank lobbyists rolled back the opening of EU financial services?Banking on renewable energyKorea campaigns for inActiveX

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Tuesday 5th December @ 12:37pm

"The Orange Bank? Ah, I had trouble combining the two words. It's not a bank... frankly it's a mono-player on mobiles that does nothing more than what we offer." Philippe Brassac, chief executive of Crédit Agricole in an interview with the Financial Times.In France, Orange Bank wants to challenge the traditionnelles by seducing its 30 million existing French customers with a free hybrid model that consists of online mobile services and 140 Orange stores. The...MORE

Monday 4th December @ 3:35pm

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Monday 4th December @ 2:52pm

Mobile payments are not the most popular method of payment in Germany — despite not embracing cashless technology; however, usage of Chinese payment platform Alipay by tourists over the last 12 months is revealing a lot of interesting insights about how much potential there is in the country on this front.Lafferty Group interviewed Marcus W. Mosen, CEO of Concardis, the payment service provider implementing Alipay at select locations in Germany, to discuss what developments had been...MORE

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Monday 4th December @ 11:23am

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Monday 4th December @ 10:57am

It was set up with the goal of ensuring that the US financial system would not condemn itself to relive past mistakes. With Richard Cordray out, and Donald Trump appointee Mick Mulvaney in, (for the moment at least), we ask if the Consumer Financial Protection Bureau (CFPB) will itself be forgotten.The idea for the CFPB was first floated by Senator Elizabeth Warren in 2007, and came into being after the passing of the 2010 Dodd-Frank financial reform act. The CFPB is intended to inform...MORE

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Monday 4th December @ 9:44am

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