Digital Money

I had that Dave Birch in the back of my cab once

[Dave Birch] I jumped into a taxi in Singapore and noticed that they now take EZ-Link (the contactless transit e-purse, similar to Oyster) in payment so I couldn't resist asking the driver about payments. This partly because I wanted to confirm my own prejudices about the key role of transit in driving contactless payments and partly because, by coincidence, I happened to be writing something about the use of cards in taxis. Taxis, you may not recall, are a particular area of expertise of mine...

In particular, I'd been looking at the New York taxi case study. Remember how the story of cashlessness went there? The taxi drivers fought tooth and nail to avoid installing POS terminals and eventually they were forced to by the city.

The drivers were initially recalcitrant, and even went on strike. But the City persisted. Now every taxi has a meter and drivers have relented on letting customers pay this way. In my experience relatively few drivers in New York insist that the machine is broken or look like they will break my legs if I whip out plastic. They don't even seem that grumpy.

[From The Effect of Card Acceptance on Sales: The Case of Taxicabs in New York - pymnts.com]

A couple of years ago, when the programme to migrate taxis to e-payments was getting underway, there was already a measurable impact.

The majority of fares are still in cash, with about 13 percent of taxicab revenue now from credit card transactions. Nearly 80 percent of the yellow cabs, or 10,238 of 13,148 cabs, have had credit card machines installed. The rest will get the systems by the fall, Mr. Daus said.

[From Card Readers in Cabs, and the Battle Behind the Scenes - New York Times]

You would expect the share of revenue down to cards to be much higher than the share of transactions, of course, because people would tend to use cards for the higher value fares in the first instance before developing the expectation that all taxis take cards and not bothering to get cash from an ATM before flagging one down. Now that the migration has been complete for a while, we can reflect on the long term impact of the change.

...accepting plastic seems to have increased taxi receipts by about 13 percent in a down economy. According to one taxi trade group representative, "Credit cards helped the New York industry stay stable in a time when the rest of the for-hire industry was in significant decline." People are taking short trips and paying with plastic; before they might have walked or taken the subway.

[From The Effect of Card Acceptance on Sales: The Case of Taxicabs in New York - pymnts.com]

Unfortunately, my UK contactless card didn't work in the New York taxi I was in last week, so I wasn't able to assess how convenient contactless taxi payments are. Anyway, always eager to obtain trends from the coal face, so to speak, I asked my Singaporean taxi driver what his experiences were. He told me that he pays a flat fee of 20 cents for an EZ-Link payment and that he finds it very convenient because it is so fast. When I asked him who used EZ-Link, he told me that it had only been in his taxi for a month, but that generally speaking it was students and young people. Older people used cash (as, indeed, I proved later on). The contactless reader in the taxi also accepted Visa/MC, but the driver said that there is a 10% surcharge for using credit cards and not many people used them. I wanted to try either my EZ-Link card or one of my UK contactless cards in the reader to see if it worked but I realised I'd left my wallet and my phone back at the hotel, thus immediately subverting a standard mobile conference cliche in an instant.

Incidentally, the driver (who may have been a plant by the Monetary Authority of Singapore) also said -- unprompted -- that he supported the idea of moving to cashless economy and thought that coins were a waste of time. He then went on to prove this when it came to bill which came to $5.40, so I gave him $10 and coins and he gave me $5 and coins back, waving away my attempt to leave him with the transaction shrapnel.

Thomas Levenson, MIT

[Dave Birch] Thomas Levenson is an academic, science writer and documentary film-maker. He is currently the Professor of Science Writing and director of the graduate program in science writing at the Massachusetts Institute of Technology. He has written four books: Ice Time: Climate, Science and Life on Earth; Measure for Measure: A Musical History of Science; Einstein in Berlin; and Newton and the Counterfeiter , which is the subject of this podcast.

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

Narrow interests

[Dave Birch] I referred last year to the noted economist John Kay's piece about banking regulation in Prospect magazine, since when the issue of banking regulation has continued to attract attention.

The modern financial services industry is a casino attached to a utility. The utility is the payment system, which enables individuals and companies to manage their daily affairs... Modest levels of speculative activity may improve the operation of the utility

[From Essays: 'Making banks boring again' by John Kay | Prospect Magazine January 2009 issue 154]

Now that the UK has a coalition government committed to revising banking regulation something will happen, although it looks as if part of the compromise between the Conservatives and the Liberal Democrats will be kicking the idea of a UK Glass-Steagall into the long grass for the time being.

George Osborne is to chair a new cabinet committee on banking, expected to thrash out the conflicting policies of the Tory and Liberal Democrat coalition partners on issues such as selling off the nationalised lenders.

The chancellor will have ultimate responsibility for policy on regulating and supervising the banks, while Vince Cable, the business secretary, will lead on bank lending to business and consumer credit, government insiders said.

[From FT.com / UK / Politics & policy - Osborne to chair banking committee]

Nevertheless, there will be changes to banking regulation, whether from Westminster or from Brussels. It occurs to me that just as there is growing regulatory pressure for some form of "narrow banking", perhaps there ought to be pressure for “narrower” banking that does not include payments. The business of banking could focus more on its core of lending and borrowing while payments would become more of a low-margin, high-volume commodity service. There is no reason to expect that banks will be the best placed providers of the infrastructure for this (most of it is outsourced already and organisations such as Equens, Vocalink, First Data and PayPal seem to do a reasonable job).

The Payment Services Directive (PSD) has already introduced the regulatory category of the "Payment Institution", or PI, as just as we discussed last year, and interesting range of organisations have already stepped up to obtain PI licences (eg, PayPal). Now, I am the first to note that PSD has its problems, but it does contain the seeds of change.

The conclusion of the research is that European member states are implementing the Payment Services Directive (PSD) in a completely inconsistent manner which threatens to derail the progress of the Single Euro Payments Area (SEPA). Certain member states were particularly cited as at issue more than others, with Germany and Italy seen to be actively blocking progress whilst France and Spain are viewed as delaying the process

[From European Payments: A Land Of Confusion]

Tb be fair thought, the Logica report does note that there are seeds of change planted.

participants do expect new payments institutions to gain market share, particularly money transfer service providers, and that these changes have motivated many banks to look for more innovative services for their clients, particularly around corporate information services, e-payments, m-payments and e-invoicing.

[From European Payments: A Land Of Confusion]

Why am I pushing this perspective? Well, in the Philippines, where the G-Cash and Smart mobile money transfer (MMT) services are well-established, I understand that around a sixth of the MMT customers have given up their bank accounts, thus demonstrating (to my mind) that a reasonable fraction of the population want "payment accounts", not bank accounts. The banks don't seem to care that much, because these customers are expensive to maintain and they don't buy profitable products anyway. So everyone is better off. Separating banks into the banking bit and the payments bit makes a lot of sense, and makes for a more practical approach to solving the problem of financial inclusion.

I declare

[Dave Birch] I just filled out my US customs form, sitting on a plane heading into JFK. I ticked the box that said I had less than $10,000 in cash or in monetary instruments (I'm not sure what those are, but I didn't have any). But I did have a splendid new pre-paid card that I was planning to test in US terminals as part of a project that we are involved in. Is a pre-paid card a "monetary instrument"? And in a world where you can load a pre-paid card via the web or mobile phone, what would it matter if you had $10,000 on it or not? My pre-paid card has $100 on it, but of course I could have gone on the web and loaded $5,000 on to it the moment I touched down.

I'm really looking forward to catching up with the latest in the pre-paid space at Prepaid 2010 in London on June 14th-16th. I'll be chairing the session on Innovation in Mobile Payments on June 16th in the morning. Some people are not so happy with the march of pre-paid technology though, and do not regard the pre-paid card as the unalloyed benefit to society that many delegates to Prepaid 2010 do!

Its features include a legal loophole that allows money launderers to get around the requirement that cash or “monetary instruments” (share certificates, travellers’ cheques, money orders etc.) in excess of $10,000 must be declared on entering or leaving the United States. It is, however, perfectly legal to carry, say, $50,000 embedded in the magnetic stripes of so-called pre-paid stored-value cards.

[From Drugs, terrorism and shadow banking | Analysis & Opinion | Reuters]

Is this an unfounded concern? Surely no smugglers would bother loading pre-paid cards with cash and then smuggling them in to the US?

According to a government indictment that stemmed from a DEA sting operation, drug dealers using pre-paid cards issued by Virtual Money, a company based in Texas, withdrew $7.1 million from automatic teller machines (ATMs) in the Colombian city of Medellin in 2006.

[From Drugs, terrorism and shadow banking | Analysis & Opinion | Reuters]

Well, that's not quite the same thing, is it. For one thing, it involves getting cash out of the US, not in to it, and it does not involve smuggling loaded pre-paid cards into Mexico, but loading the cards in the US and withdrawing the money in Mexico (which I would have thought made the criminals much easier to cash). Anyway, meeting about with pre-paid cards is, of course, peanuts compared to the gold old fashioned technique of stuffing cash in the trunk of the car and driving over the border.

Despite the concern over more sophisticated methods of moving ill-gotten gains, carting cash across borders has not gone out of fashion. In 2009, government agents along the border with Mexico seized $39.2 million in currency, according to official figures. That compares with around $10 million in 2008 and is due to more frequent checks of southbound traffic for cash and guns.

Nearly $40 million in confiscated cash sounds a lot. But it is less than pocket change, in the grand scheme of things. The U.S. Justice Department estimates that drug cartels smuggle $24 billion a year into Mexico, $40 million amounts to 0.16 percent of the estimated total. What about the rest?

[From Drugs, terrorism and shadow banking | Analysis & Opinion | Reuters]

Actually, getting a pre-paid card in the US is already more costly, inconvenient and unattractive than it should be because of the requirements for identification that already exist to inconvenience honest members of the public.

Federal law requires us to obtain, verify and record information that identifies you when you open up a Walmart MoneyCard. We will use your name, address, date of birth and other information (including Social Security Number for U.S. citizens or government-issued ID for non-U.S. citizens) for this purpose. Please see the Cardholder Agreement on this site for additional details.

[From Products]

I advocated raising the "anonymity bar" to €500 euros, thereby making it simple and inexpensive to provide cards for kids and students, but also with the goal of providing a simple and inexpensive platform for financial inclusion. But a prepaid card with €0 or €500 on it still weighs more than a €500 note, so why would money launderers carry suitcases full of prepaid cards instead of suitcases full of euros, dollars or pounds?

The hole in the wall

[Dave Birch] I've been thinking about ATMs this morning because of the news that

the man credited with being the inventor of the world's first hole-in-the-wall cash dispenser has died in hospital following a short illness. John Shepherd-Barron... died at Inverness's Raigmore Hospital on Saturday, at the age of 84.

[From BBC News - Inventor of cash machine, John Shepherd-Barron, dies]

It's astonishing, really, how quickly the ATM permeated society. Today it is taken for granted. But will it be around for long? There are some signs that the days of the ATM are waning.

SIGNS are emerging that Australia is moving towards a cashless society, with the number of consumers making ATM cash withdrawals dropping to the lowest point in more than six years.

[From Cash transactions on their way out | The Australian]

I shouldn't think the ATM manufacturers are throwing themselves off of buildings just yet. So long as people continue to use cash, the ATM is here to stay, and despite the best efforts of e-payment fanatics such as yours truly, they're going to be here for some time. But that wasn't what I was thinking about, because I'm in the middle of doing some work on trends in security technology for one of our UK customers, so what I was thinking was that ATMs will remain a focus for attack: the bad guys know that there is where the money is too.

An eternal discussion

[Dave Birch] Remember when Michael Mainelli of Z/Yen invited me along to the Long Finance Institute event. I have to say first of all that it was a thoroughly enjoyable event. As I said, the conversation, discussion and debate caused me to think about a number of the innovation-related discussions that I'm involved in. New thinking is always welcome. I was particularly interested in the "eternal coin". An eternal coin? Here's the schtick. Would it be possible to design a coin that never loses it value? Could such a thing exist? If it could exist, what would it be made of? Thought provoking. I subsequently recorded a podcast with the Eternal Coin's historian, Malcolm Cooper.

The Eternal Coin in the iconic project for Long Finance and in this podcast Malcolm discusses the Eternal Coin and the long history of value.

[From Digital Money: Malcolm Cooper]

This may seem esoteric, but I've already been approach by groups who are trying to get funding for systems to store value in renewable energy or local currencies. There's something going on here, and I'm a long way from understanding it, which is why I welcome discussion and debate around the topic.

Conny Dorestijn, Clear2Pay

[Dave Birch] Conny Dorrestijn has worked for over 20 years in marketing roles in the international financial services field, starting in London as marketing director for a large financial services technology firm, ACT Financial Systems (now Misys). In addition to other non-executive roles, she is a member of the Board of Advisors of a number of (financial) technology companies (Clear2Pay; Inspektor Research). Conny also chairs quarterly lunch sessions and conferences on a variety of financial topics for the Benelux publication Banking & Finance. In this podcast she reflects on Clear2Pay's pan-European perspective as a supplier to the payments industry to discuss some trends and futures.

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I guess you didn't read tomorrow's papers, the elf gets fireballed this afternoon

[Dave Birch] Last week's British newspaper headlines about a top snooker player offering to throw frames for large amounts of Eastern European cash is only the latest in a long and increasingly frequent series of sports betting scandals. You may, for example, have been following an interesting story coming from Asia concerning corrupt practices, illegal gambling rackets and other malfeasance in a major sport. No, not cricket's Indian Premier League (IPL)...

Sports officials suspended the founding commissioner of a popular cricket league in India on Monday and asked him to respond to claims that he had rigged team auctions and improperly structured a broadcasting deal... The suspension is the latest development in what many analysts have described as the biggest scandal in Indian cricket since at least 2000, when several prominent players were accused of fixing matches.

[From Indian Premier League’s Chief Is Suspended in Cricket Scandal - NYTimes.com]

I'm not talking about the real world (as usual) but the virtual one. In Korea, there is a scandal just as big as the IPL one going on but it stems from people with broadband rather than balls.

The largest scandal in e-sports history is currently unfolding in Korea, with revelations that a number of current pro gamers are involved with match set-ups and illegal betting... the story is said to touch many A-list StarCraft celebrities – including sAviOr, Ja Mae Yoon – one of the best-known and most successful players of all time... At this stage, we hear that various pro gamers have been found intentionally losing matches, as well as leaking their team’s replay files to illegal gambling groups.

[From StarCraft cheating scandal rocks Korea « GamePron]

For those of you not familiar with the genre, Starcraft is a computer game from Blizzard (the same people behind World of Warcraft), but the players are spaceship pilots instead of wizards.

After its release, StarCraft rapidly grew in popularity in South Korea, establishing a successful pro-gaming scene. Professional gamers in South Korea are media celebrities, and StarCraft games are broadcast over three television channels dedicated to the professional gaming scene. Professional gamers in South Korea have gained television contracts, sponsorships, and tournament prizes, allowing one of the most famous players, Lim Yo-Hwan,to gain a fan club of over half a million people. One player, Lee Yun-Yeol, reported earnings in 2005 of US$200,000.

[From StarCraft - Wikipedia, the free encyclopedia]

Just to reiterate: there are three TV channels dedicated to this game! It must happen here too as the broadband penetration rises toward Korean levels, and while I can't imagine turning on the TV to watch someone else playing World of Warcraft, I can at least see that it would be more interesting than the BBC's Reithian triumph, "Hole in the Wall".

SOCA it to them

[Dave Birch] Thanks to everyone who e-mailed with links to the story about how the British have "banned" the 500 euro note. The note -- generally referred to as the Osama, because everyone knows they exist but honest citizens have never seen one -- is a particular thorn in the side of the forces of law and order.

UK wholesalers agreed to stop selling the distinctive pink and purple note last month after SOCA investigators found nine out of ten were used for illegal activities. The move is likely to heap pressure on the European Central Bank to withdraw the note from circulation entirely. It remains legal tender in the UK and there are fears British criminals will now simply source their 500 euro notes on the continent, or turn to the smaller value 200 euro note which is worth £170.

[From Britain axes 500 euro note over organised crime fears | Mail Online]

SOCA is the Serious Organised Crime Agency, the British version of the FBI I suppose. They must be pleased that we have done away with the dreaded Osama, musn't they? Perhaps this is the action that David Lewis, Head of Anti-Money Laundering in the Financial Crime Unit at Her Majesty's Treasury, was referring to a few weeks ago when I was whining on about high-value banknotes at a seminar.

But hold on. As the stories make clear, the British haven't banned the Osama at all. In fact, I'm sure that stopping the wholesale distribution will have absolutely zero impact on the circulation of the notes in the UK, since criminals will just buy them down the pub instead of in banks. But it's the thought that counts, isn't it

Interestingly, this move once again puts Britain at odds with it's neighbours. The European Commission's draft statement on legal tender (I'd never heard of this before today, so thanks twitterverse for the pointers) contains fullsome support for the Osama.

According to a commission recommendation issued on Monday (22 March), retailers should not be allowed to put up signs banning the use of high-value banknotes. Refusal to accept these bills is fine from time to time if a shopowner is out of change at a given moment, but this should not be a permanent rule, the commission has said.

[From EUobserver / Commission frowns on shop signs that say: '€500 notes not accepted']

Now, some might find the Commission's support for notes that the British police say have "no credible legitimate use" rather puzzling. After all, the Commission ought to want to support member states in cracking down on tax evasion, money laundering, drug smuggling, people trafficking and avoiding Spanish property taxes (which, as I understand, are the principal uses of the Osamas). And from the e-payments world, the Commission's astonishing support for the least efficient payment mechanism, cash, is frankly bizarre.

Finding the tiny one- and two-cent coins more trouble than they are worth, Finland and the Netherlands have adopted rules rounding up prices to the nearest five cents, but Brussels says states should refrain from further such rules and stressed the right to use one- and two-cent coins.

[From EUobserver / Commission frowns on shop signs that say: '€500 notes not accepted']

This is all very odd. If the Commission is serious about "Digital Europe" then a more efficient payment system that is based on a level playing field -- between cash and e-payments -- should be at the heart of it.

Seymour Fortescue, Migrant Remittances Taskforce

[Dave Birch] Seymour Fortescue spent 26 years working for Barclays Bank, where he was Head of Marketing, Chief Executive of Barclaycard and Director, Personal Sector. He was a Director of Visa International, Mercantile Credit and BACS. Since leaving Barclays in 1991, he has worked in the voluntary sector as Director of Finance and Fundraising at Imperial Cancer Research Fund and in the public sector as Chief Executive of the prevention arm of the NHS, the Health Education Authority. In 1999, he became the Banking Code Standards Board’s first Chief Executive. He retired in September 2006. He has an MA in Economics at Cambridge University, an MSc in Business Studies at the London Business School and is an Associate of the Chartered Institute of Bankers.

He has been a Council Member of London University, a member of the Court of the Grocers Company and Chairman of the charity BookPower. He is also Chairman of the Portman Group, the social responsibility arm of the UK alcohol industry and is just ending his time as Chairman of the Private Sector UK Migrant Remittances Task Force set up by the Department for International Development, the subject of this podcast.

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