Is the internet splintering? It's a timely question posed by the BBC, and its highly relevant to the world of financial services. With the United States about to deploy sanctions via the mighty dollar, countries such as Russia have been manoeuvring for several years to hive off the Russian internet from the rest of the world. "Indeed, Russia is already exploring a novel approach to creating a digital border wall, and last month it passed two bills that mandate technological and legal steps to isolate the Russian internet," writes Sally Adee. "It is one of a growing number of countries that has had enough of the Western-built, Western-controlled internet backbone. And while Russia's efforts are hardly the first attempt to secure exactly what information can and can't enter a country, its approach is a fundamental departure from past efforts." Readers of Lafferty News will be familiar with the work of Alex Gibney, and the Stuxnet story, as well as our coverage of the emergence of the MIR network — as a consequence of the Ukraine sanctions pushed through (not entirely willingly) by Mastercard and Visa. China, for instance, already has its Great Firewall, and has produced world-conquering digital businesses such as Alipay and Tencent. The real question here: how much can digital businesses rely on a steady stream of data from users, with digital firewalls going up around bits of the net?
The Chinese state has taken control of a bank for the first time in more than twenty years, according to a report in Bloomberg, after using shadow financing to obscure risky borrowings. "While China has been cracking down on such techniques, UBS Group AG analyst Jason Bedford said the country is rife with regional banks that used special-purpose vehicles to circumvent lending restrictions and hide the true state of their bad loans," reports Bloomberg. "Shares of big Chinese lenders may be vulnerable to the fallout on concern they'll be asked to help resolve problems at smaller peers, according to Sanford C. Bernstein. Regulators face a difficult balancing act as they try to clean up risky lending practices without sinking the world's second-largest economy amid a trade war with the U.S."
There's a connection here, of course. Much of the Huawei-using world looked agog as the US government shredded long-developed commercial relationships and cut Chinese challenger Huawei off from Google and Android. Huawei duly pulled a new operating system out of storage. The US fails to realise that much of the rest of the world would happily migrate to non-US products, given the global anxiety and anger over the surveillance capitalism model of Google and Facebook.
How will this all play out in neutral but contested territories such as Hong Kong? Bloomberg Quint has run the rule over the new competitors entering the digital banking challenge, and comes up with some interesting results that suggests digital players won't have a huge advantage over incumbents, because regulators are requiring digital players to follow rules written for traditional banks. "Another issue is that newcomers' cost advantages may be smaller than anticipated. Virtual banks might save money by not having branches, but Hong Kong is setting the same capital requirements for online-only banks as their bricks-and-mortar rivals — something Singapore is likely to replicate. Then there's liquidity. Singapore's DBS Group Holdings Ltd., which started a mobile-only digital bank in India in 2016, claims to be targeting SMEs with data-driven lending. It's unclear if the deposit base required for a meaningful operation can come entirely from online-only customers. In Indonesia, Malaysia, Myanmar, the Philippines, Thailand, Vietnam — in addition to China and India — 46% of consumers flatly refused to move any of their money to a bank without branches, according to the 2017 McKinsey survey."
In the space of a long weekend, UK Prime Minister Theresa May's career is finished, and Nigel Farage's policy-free Brexit Party, with actual swivel-eyed loons in charge, has emerged as the biggest British party in Europe, according to exit polls. Counting in European elections is beginning across Europe this morning, with the Greens and far right parties looking to take seats from centrists. We'll bring the results and our take on it in the morning.
YY Chin, former head of retail banking at OCBC in Singapore has passed away. A former corporate banker with Standard Chartered who used to joke about "having seen the light", he was a great evangelist for retail banking and regularly spoke at Lafferty conferences and training workshops across the world.
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