Digital Money Forum

Because that's where the money is

[Dave Birch] The electronification, virtualising and dematerialising of money means the electronification, virtualising and dematerialising of crime, because (naturally) criminals go where the money is.

FBI officials say a mix of banking Trojans and phishing attacks has plagued victims - mainly public institutions and small and midsize businesses - to the tune of $100 million in attempted losses as of October.

[From FBI: Online Banking Attacks Reach $100 Million Mark]

Note, by way of comparison, that about $60m was stolen in physical bank robberies throughout the USA in the whole of 2008. How stupid do you have to be to walk into a bank with a gun when you could just stay at home and send out some e-mails? We must find a way to accelerate the transition to e-payments and at the same time make e-money more crime-resistant than cash.

Janine Firpo, IFC

[Dave Birch] Janine Firpo is President of Sevak Solutions, a nonprofit company that she co-founded to promote inclusive systems for the delivery of financial services to the world’s 1.7 billion urban and rural poor. Janine is based in Jakarta, Indonesia, where she is working with International Finance Corporation (IFC), a member of the World Bank Group, helping regional advisory teams to accelerate the development and large-scale roll-out of mobile money solutions. In this podcast, she talks about mobile money in developing markets and the practicalities of managing and regulating agent networks.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

Viking expedition

[Dave Birch] I was in Copenhagen recently, so naturally I went along to the national museum to see their notes and coins exhibition (galleries 141 to 146, if you're interested). It was really good, and I particularly enjoyed the display of Swedish copper money from the 17th century. Sweden had lots of copper, so that's what it used for coins. But copper isn't worth very much, so the coins were huge -- the one thaler "coin" was a block of copper weighing a couple of kilograms.

While pottering around between the 10th century Islamic coins found in Viking treasure hoards, the short-lived Norwegian privately-issued banknotes that preceeded Denmark's first paper currency and the English gold nobles from the time of Henry II, I happened across some other long-forgotten artefacts from the story of the evolution of the means of exchange in the world's oldest kingdom...

Danmont cards! I have to admit to a moment of melancholy while gazing at the cards, notes and coins. Some of them were ugly, some of them were beautiful, and all of them tell a story. Such as, for example, you've been cheated.

A one euro coin has turned up in Spain bearing the face of cartoon couch potato Homer Simpson instead of that of the country's king

[From Spanish shopkeeper finds Homer Simpson euro | U.S. | Reuters]

So when cash disappears, and there are no more portraits of heroic characters or Latin inscriptions, what will take over the narrative? Facebook, I suppose. But wiping away the tears, I remembered that there are a great many people around the world who can't wait to replace coins with mobile phones. The truth is, coins today are as much hassle as the Swedish copper currency from the days of the Carl Gustav wars.

Mr. Zhang of Shenyang carried two bags of coins to a bank outlet in the city, having accumulated 37,000 coins, more than 600 yuan, over the past decade. According to the rules of the bank, there is a one-yuan service fee for counting every 50 coins. If he were to hand the money over to the bank, the service fee would amount to more than the total value of his 37,000 coins... Shenzhen, Shanghai and Beijing banks have charged counting fees since 2005... the most affected were bus companies. In order to save counting fees, the Shenyang Bus Company handed out change to its employees as their wages.

[From China sees change scarcity -- china.org.cn]

Enough is enough.

Jeff Slawsky, Slawsky & Associates

[Dave Birch] Jeff Slawsky has spent thirty years in the US financial services industry and wrote the book on developing and managing a successful payment cards business. Literally: it's called "Developing and Managing a Successful Payment Cards Business" and he wrote it with Forum friend Samee Zafar back in 2005. In this podcast, Jeff reflects on the seismic shifts in the US payment card business and speculates about the longer-term impact on regulatory, social and business changes in the American market.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

For all you utter bankers

[Dave Birch] Wow, that was excellent fun. Nothing really to do with electronic payments, but I've been playing a fantastic new card game called "Crunch: The Game for Utter Bankers" with the kids and some friends.

Crunch is a satirical card game for 2 to 4 players that places you at the head of the boardroom as a CEO of a global bank juggling the conflicting demands of your ailing bank and your future retirement fund. An average game sees you bribing your way out of government investigations, fending off aggressive takeovers and forcing debt onto the unsuspecting public. Meanwhile, reward your hard work by taking inappropriate bonuses and - when no one's looking - brazenly embezzling your bank's own funds and hiding them about your person.

[From Crunch - the game for utter bankers | BoardGameGeek | BoardGameGeek]

The game served a dual purpose, both of which left me delighted with it. First of all, it was fun to play. Basically, you build up your bank's lending against assets (ranging from shares in listed companies to Nazi gold) and then when a crunch comes you trade in trust for government bailouts. It didn't take long to learn, and both the kids and adults enjoyed it. It had an unexpected second purpose, though. I bought it for fun, but in playing it the kids asked a lot of questions about the credit crunch, about the relationship between assets and debt, and about the idea of deliberately growing your workforce and assets to become too big to fail (adding "workforce" cards also gains you "trust" cards).

Run, don't walk, to your nearest games shop -- I got mine from Playin' Games in Museum Street opposite the British Museum -- and pick up a copy of this super game.

Federal Trade Commission disclosure. I have no affiliation with Terrorbull Games, the creators of "Crunch", and have received no payments nor any other form of remuneration related to this endorsement. No animals were harmed during the writing of this blog post.

The price of everything

[Dave Birch] I've just read a couple of pieces about pricing: the Chicago Fed's Letter 266a (September 2009) "Payments Pricing: Who Bears the Cost?" and the SPEED piece by the Deputy Governor of the Bank of Finland, Pentii Hakkarainen, "The future of retail banking: more competition needed". Pentii says that one challenge (to retail banks) is the "dependence of banks on cross-subsidisation, especially of payment services". I agree and I'm not sure that the magnitude of the cross-subsidy from efficient e-payment methods that (because of SEPA) are going to deliver less margin to the least efficient paper and metal methods is appreciated. So the regulators are pushing down the amount of money available for subsidy but will (of course) go beserk if any attempt is made to remove the subsidy.

One way in which they are reducing the amount available to subsidise cash is by pushing interchange fees down. Setting aside whether that's a good thing or a bad thing, it's certainly a thing. Earlier in the year, there was a Federal Reserve Board report "Interchange Fees and Payment Card Networks: Economics, Industry Developments and Policy Issues" that looked at the situation (in the US at least) in some detail. Amongst other observations, it noted that with respect to interchange fees:

1. In general, an efficient interchange fee is not solely dependent on the cost of producing a card-based transaction nor is it equal to zero.
2. An efficient interchange fee may yield prices for card services to each side of the market that are “unbalanced” in the sense that one side pays a higher price than the other.
3. The efficient interchange fee for a particular card network is difficult to determine empirically.

I think the last point is worth emphasising. There doesn't seem to be any reason to suspect that regulators should inherently know what the correct level of interchange should be. It follows, I think, that if the regulators believe that interchange is too high (for whatever reason) then the appropriate path to correction is increased competition.

Karin Huber, Mobilkom

[Dave Birch] Karin Huber is a Senior Product Manager at Mobilkom Austria and is responsible for marketing mobile payments. Vienna is one of the very few places in the world where real customers are walking into real shops and buying real NFC handsets, which makes Karin's experience almost unique. In this podcast, she explains some of Mobilkoms thinking -- in particular, why they decided to obtain their own banking licence rather than partner with a retail bank -- and some of their very innovative products.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.

Bear market

[Dave Birch] Russia is looking like a pretty interesting market for e-payments. The management consultants keep telling us to focus on the BRIC (Brazil, Russia, India and China) for our next growth markets, but it's important to understand that their mass, retail, e-payment markets are just not going to be like ours, partly because of industry structures, partly because of government direction and partly because of the technology starting point.

Russian central authorities are reportedly considering plans to set up an electronic payments network... The main objective of the prospective electronic payment system would be to challenge the dominance of established brands such as MasterCard and Visa, which currently hold around 85 percent of the Russian cards market. The plans for a Russian-operated electronic payment network come after in June 2008, Russia’s two largest banks – Sberbank and VTB Group – have teamed up to create the United Russian Payment System (URPS).

[From The Paypers. Insights in payments.]

What might the Russian "third scheme" look like, compared to a European "third scheme" (eg, PayFair)? Well, one reasonable prediction might be that the lack of infrastructure in Russia (Russia is a very big place) means that their third scheme might well jump ahead of the European third scheme in terms of its technology platform. Indeed, there are already strong indications that mobile and contactless technologies will be moving ahead quite quickly in that environment.

The head of Russia's largest bank briefed the country's President Dmitry Medvedev on the concept of mobile contactless payments last week — and explained that he is looking to launch a non-contact mobile payments system by 2011/12.

[From Russia looks to introduce mobile contactless in two to three years • Near Field Communications World]

A national contactless purse (perhaps a bit like NETS in Singapore or Touch n'Go in Malaysia) in a country the size of Russia would be a really interesting development. Singapore has shown that some judicious government steering can help to migrate to a contactless environment that is convenient for consumers who will...

...now have two payment cards to choose from to use on buses and trains, to pay for road tolls and carparks, and to make purchases from stores, eateries and entertainment outlets. On Friday, Nets (the Network For Electronic Transfers) launched its long-awaited multi-purpose contactless card... EZ-Link launched a similar contactless multi-purpose card in January.

[From Nets, more uses than one]

Transit is the vanguard, as always, but the point here is that competition to provide interoperable e-purses is at least a good step forwards.

Faster faster

[Dave Birch] At the Intellect Financial Services group meeting, Paul Smee, the Chief Executive from the Payments Council, gave an excellent summary of Council's goals and objectives as well as making some suggestions for better co-operation between the technology industry and the financial sector, such as creating some kind of vendor forum. He said in passing that much of his focus over the last couple of years has been the Faster Payments Service (FPS). FPS is a little bit of a success story for the UK payments industry, so it's worth talking about.

Dominique Buysschaert, PayFair

[Dave Birch] Dominique Buysschaert is the man behind PayFair, a candidate for the proposed "third scheme" in European debit and co-founder and CEO of European Payment Solutions, the company set up to deliver it. He was a member of the Brussels bar for 20 years (1978 – 1998), as partner in different major law firms, and then became General Counsel for Carrefour Belgium (1998 – 2006), secretary of the board of directors and member of the management committee. He represented Carrefour at FEDIS, the Belgian federation of large retailers. In this podcast he explains how PayFair works and why retailers might be attracted to it.

Listen here in either [Podcast MPEG4] or [Sound-only MP3] format.