I'm introducing a free webcast next week with Accuity on mobile payments.
The focus is on: "When Payments Go Mobile Who's Accountable?" and airs on Wednesday, October 7th at 9:00 EST / 14:00 UK.
Here's the background:
Mobile banking and M-payments are growing in popularity.
These devices are being used for remittances, consumer purchases, banking account management and much, much more.
A number of new participants are entering the financial services space, including telecoms and other non-bank payment processors.
New payment schemes are being developed including mobile POS, P2P transfers and micro-billing.
But who "owns" the customer?
And how do these new schemes leverage existing payment infrastructures?
This session will explore the challenges of administering AML & KYC regulations for M-payments and discuss the issues that are presented when these payments are infused into the traditional clearing and settlement mechanisms.
If you want to attend this free webcast, just register.
I spent all day yesterday with a group of bankers in Portugal.
Why?
Well, it is the annual Infosys customer conference and they were kind enough to invite me over to give a keynote, which I will post here shortly.
It was also run under Chatham House rules ... so here’s who said what.
Actually, I can’t do that ... but what I can do is share with you something that intrigued me.
The theme of the whole day yesterday was innovation in banking.
Now many of you will know that I don’t believe there is much innovation in banking and, where there is any innovation in banking, it is driven by people who believe they can make a buck.
Unfortunately, thanks to the innovations of CDOs, SIVs, MBAs, etc, it can also lose a buck or two ($10 trillion + to be exact), but hey-ho let’s not go there.
During the conference I noted a whole list of observations and comments however on innovation.
These came from bank CEOs representing small, mid and large scale banks from USA, Asia, Middle East, Latin America, Africa and Europe.
In other words, pretty much global coverage.
Here are the notes I made:
The financial crisis was caused by “creative destruction through unregulated innovation”.
“We need to return to good old-fashioned banking.”
“Banking is ‘boring’ ... let’s bring the fun back into banking.” (doesn’t this contradict what was just said by the other speaker?)
“If your house is burning down you won’t be thinking about remodelling the kitchen”, e.g. innovation ain’t where it’s at when you’re going bankrupt.
“The next ten years will be very different to the last ten. The last ten saw leaps and bounds in financial markets innovation with little relationship or reference to the social impact of such innovations. The next ten will see innovation with a social conscience.”
Not sure about that comment as I don’t think the cutting-edge of investment banking has a social conscience. After all, it is survival of the richest and any social conscience would stop the innovation in investment banking that creates arbitrage. However, it does resonate strongly with the words of Stephen Green, Chairman of HSBC, from his speech on September 8th about Good Value in Banking:
“Capitalism generally, and banking specifically, needs to reaffirm its commitment to contributing to social and economic development.”
In fact between these comments and those of Lord Turner of the FSA, who wants to make banks ‘socially useful’, I think the social and sustainable aspects of finance will become critical.
This was echoed by one panellists' comment that he sees the future being a blend of traditional capitalism, focused upon using Islamic banking ideals with an Asian leadership.
In other words, the greed of Western banking Anglo-Saxon business models will be tempered by the non-usury Islamic principles, with China’s banks leading the way.
Mmmm ... so where does the Continental European banking model fit?
"Is it innovate or die, or innovate and die.”
Yea, come on. That’s just an excuse to say why you don’t innovate.
“Regulators are ganging up globally to regulate.”
Oooohhh. Dem regs are in da hood.
Of course the regulators are ganging up globally. That’s the point of the G20 isn’t it?
The issue however was elaborated on...
“Regulatory reform is serious and we have no idea how it will pan out. That’s frightening.”
There’s the rub and it echoes my feelings from SIBOS (the big bank tradeshow) a couple of weeks ago. Banks have no idea how regulated they are going to be. In an industry that has been heavily regulated for decades, the concern right now is how the next decade’s regulations are developed.
Bottom-line: if you aren’t fit for rapid compliance with new regulatory requirements, then get out of this financial kitchen and go and do something else.
Agility is going to be key.
“The key driver of innovation is technology.”
Really?
This is a common view and assumption.
Technology is seen as being the innovative drive because technology is always changing and adapting but, to be honest, the innovative driver is customers isn’t it?
If customers and customer needs change, then that’s the innovative drive, not technology.
Now technology may trigger customer’s needs to change but so can markets. For example, right now, the #1 need for customers is to have someone to talk to and trust in a bank. That’s nothing to do with technology, although the technology can help, but far more to do with having good staff supported by good technology.
“Is it possible to innovate in a highly regulated market?”
Yea, and we don’t innovate because we don’t need to ... because no-one can come in and compete with us ... because they can’t get a banking licence. Nah-nah-neh-nah-nah.
Whoops. Am I sinking into childish baiting again?
Now it got interesting as one banker recounted a recent tale of a new product launch.
The regulator said that the bank could not launch this product without explaining it.
This is the ‘ten-year old test’ in action.
If you can’t explain it to a ten-year old, then don’t do it.
The regulator said they wanted to meet the bank’s CEO and Chief Risk Officer to discuss the product and the bank pitched in with a presentation and discussion of their idea.
The meeting lasted for four hours apparently and the bank’s CEO and CRO covered all the bases.
But the regulator’s position was not one of saying you cannot innovate or launch new products, but one of saying that you must convince us as regulators that your new product will not bust the bank. Show us the upside and the downside, the opportunity and the risks ...
... after four hours, the bank decided to postpone the product launch and said that this showed how the regulators are there as partners, not as threats to the banking system. The regulator showed the bank the pitfalls of their product and, through this dialogue, the bank has launched a far more robust product.
Interesting.
*
The Finanser is sponsored by VocaLink and Cisco: For details of sponsorship email us.
Finovate 2009 took place this week. Finovate is a great show run by our friends at NetBanker, and showcases the most innovative new providers of financial services solutions. This year's show had a range of innovators demonstrating, including:
"Kasasa creates free
checking and savings accounts that give back to you in totally new
ways. Do you want to be inspired by your account? Do you want real
choices for your money? If you Kasasa you do."
And if you want to read more about Finovate, Techcrunch gives a great summary.
Why is this headline the Quote of the Day? Because I accidentally tweeted that HSBC was relocating their HQ to HK last week when they announced that Michael Geoghegan, their CEO, was moving office from London to Hong Kong. With this additional news, don't be surprised if they do relocate some time in the future. After all, they have said as much a year ago, just before the crisis hit.
The Finanser is sponsored by Vocalink and Cisco: For details of sponsorship email us.
Last week, I blogged about innovations in payments from a consumer's perspective, and followed it up yesterday with an ancillary note.
In this second part, I thought I would take a closer look at what is innovatory in the corporate world of payments.
Many of us would immediately start talking about e-invoicing, supply chains and working capital. Sure, there is some innovation in those areas but the picture is bigger than this.
First, a little clarity of definitions, as per my lingo.
Commercial payments are the domain of the large transaction banks and their multinational and global clients. These are the mega corporations of the world we refer to affectionately as corporates.
It is not exclusively owned by these banks, as there are many national companies with domestic banks providing commercial banking very nicely thank you ... it's just that my mind wanders off into global processors with global clients when I think about commercial payments.
This is because there is a big change taking place here.
Until recently, these corporates had been fairly undemanding of their banks.
They were happy to have the odd lunch with their banker, who would fine dine and ego-boost them for an hour or two every month.
Taking their treasury operations, charging solid fees for transactions and generally making a good mint out of cross-border payments was food and drink to the banker.
This is where the money was to be made without stretching too far or too hard.
In particular, get the corporate to do their dealings through the bank via a proprietary link and you had ‘em for life.
After all, once the corporates general ledgers were hard wired to the bank’s systems, it was all but suicide for the corporate engine to switch to anyone else. This was especially true as the savings made just would not be worth the effort involved. A few cents here and a few pence there, per transaction, goes hardly unnoticed in the global wheels of commerce.
That was until standards arrived.
Standards.
The bug-bear of some, the bane of many and the blessing for the few.
The few who can work out how to leverage scale and exploit standards for volume savings.
This is what SWIFT do well – exploit standards for volume savings – but, until recently, SWIFT’s volume savings were purely gifted to the banking community. The corporate was still waiting for the benefit.
This is the struggle that has been taking place within the SWIFT community for the past decade and, to a lesser extent, still rages today.
How do you give savings to the corporate and how do you allow corporates to exploit standards, when all it does is erode margins for their current payments provider and allows the corporate to become a rate tart with easy switching to any other bank.
Tough.
The days of proprietary lock-ins are over.
SWIFT has recognised this and are ever more embracing of the corporate community for this reason.
Forget payments, transaction and messaging ... SWIFT's future is all around secure information exchange between banks, between businesses and, you never know, but one day in the future maybe even between individuals.
And banks are now scrabbling harder and harder to keep their corporate clients happy and well served for this reason.
Some of us would say, “isn’t that how it’s supposed to be? Shouldn't banks always serve their customer well?” ...
... yeah, but it hasn't been that way in the past because once you got the sucker, they couldn't get away.
But now they can and so let's look at what the banks are doing to serve their corporate clients better.
This was a question posed by Gary Wright, Director for International Payments with Royal Bank of Scotland last week at the Financial Services Club.
The evening focused upon the opportunities and issues with real-time payments and this is the innovation in corporate banking and payments that is taking place today, as we speak.
Real-time.
Real-time money movements intra-corporate and inter-corporate, intra-bank and inter-bank.
Real-time payments across borders and continents.
Real-time trade flows of information and risk.
Real-time.
That’s where the corporate money is at.
For a bank, you see, the old world of reporting as the bank wanted, when the bank wanted, how the bank wanted and what the bank wanted to report, was how it worked.
There was no incentive to leverage the information flows the bank had access to, which was a privilege. Banks have access to masses of trade data you see, but where was the incentive to tap into that data?
For many, with customers locked in via proprietary network connections that were hard-wired into back office systems, the incentive just was not there.
But today, with open networking via cloud-based systems that plug and play into SAP and ORACLE Enterprise Resource Planning suites of software, there is a huge incentive for a bank to re-engineer itself back into the corporate value-chain.
And that’s exactly what banks are starting to deliver.
So Gary joined an esteemed panel of industry payments experts, including:
Chris Pickles, Head of Marketing for Financial Markets & Wholesale Banking with BT Global Services;
Jonathan Williams, Strategy Director for Experian Payments;
Martin Wilson, Chief Commercial Officer for VocaLink; and
Tom Buschman, Chairman of TWIST Standards and CEO of EDGE.
It was an interesting debate and Gary, as mentioned, began by posing what do corporates really, really want, a-zig a-zig ah!
Gary answered this with a great slide. Just one slide, but a real goodie.
Here it is:
What this slide shows is the range of drivers that corporates have towards real-time services and improved delivery of services from the payments provider.
The fact is that working capital is the issue.
Without good visibility and transparency of working capital, corporates are stymied into a vacuum of ignorance.
It reminded me of a debate I had about four years ago where we talked about cash pooling and netting. One software firm had created a system that provided a real-time view of every corporate client of the bank’s cash positions globally.
With the click of button, the bank’s risk managers could see which clients were exposed where and when, and manage the situation.
The problem the software vendor had is that no bank wanted their system.
Why would a bank spend millions on a system that told them their clients were possibly exposed in real-time?
Intra-day or end-of-day would do.
That’s why the system wasn’t selling.
But guess what.
Turn that on its head and start talking about real-time cash management for corporate treasury today as an information service and guess what? You’ve got a winner.
The corporate treasurer mindful of his global financial positioning loves the idea of real-time.
And this is what banks are now buying into as a value-add service that differentiates them from the pack.
The more real-time service, the more real-time information, the more real-time movement to decrease fraud and risks, the more real-time capability to see how to improve ROI and decrease losses, the more a corporate client will love ya’.
And that’s what banks want.
Not to be loved ... but to keep their corporate client.
The other guys on the panel reinforced this view, but you have to be a member of the Financial Services Club to find out what they said.
Just to give you a glimpse however, I asked each panellist to see how they saw the future of payments and real-time at the end of the one hour panel discussion and here is what they said:
As you can see, the audience were riveted!
Anyways, the net:net on innovations in transaction services for commercial banking is that if you aren’t enriching your clients with real-time information services about their use of your bank’s services ... then you’re missing a trick because the competition is doing just that.
And by the way, e-invoicing and related innovations in supply chain management play right into that space too.
p.s. Martin Wilson articulated much more detail on this panel about the research VocaLink released at SIBOS on Faster Payments. If you want a copy, just click here.
The Finanser is sponsored by Vocalink and Cisco: For details of sponsorship email us.
Just got a really interesting note about a new MasterCard from Phones4U.
It's called the 'Escape' Card and focuses upon migrant worker remittances.
What's interesting is that it has been launched by the mobile phone shop Phones4U, a completely non-bank non-carrier operation that is just a pure retailer of mobile telephony.
Here's the shortened write-up:
The new Escape MasterCard Prepaid Card will change the way people get money to friends and family abroad.
It’s the cheapest way; in fact it’s completely free.
It’s one of the cheapest pay-as-you-go cards around because there are no usage and monthly fees plus it’s free to load with cash at Phones 4u (a UK mobile phone shop) ...
In 2007, a whopping £3.1 billion left the UK* for friends and family abroad.
Money saved in fees could mean that you are able to add more to the amount your family or friends receive.
The card will save time and money for the 400,000** people who regularly move money abroad to family and friends.
As well as no surplus charges, it can be done over phone, text or the internet 24 hours a day and it only takes 60 seconds for the money to reach the other side (of the world). Compared to the usual 48 hours and £20+ it can take with the Western Union, that’s a lot of time and money saved.
Ethnic minority groups are twice as likely to live on a low income*** which means the benefits of banking facilities aren’t always an option.
*source: Developing Market Associates, 2007
**source: BME Remittance Survey 2006
***source: Joseph Rowntree Foundation, 2008
This proves interesting because we all know that remittances is a key market ripe for the picking ... and what is the most likely place a migrant worker will visit when settling in a new country?
The mobile phone shop?
And just in case the migrant worker hasn't worked that fact out, they even created a little video to explain how to open the card account:
*
Yowsa!
The Finanser is sponsored by Vocalink and Cisco: For details of sponsorship email us.
And now, according to this Wall Street Journal report, everyone is trying to build virtual credits in social worlds:
To be honest, this idea is not new, as it is just an extension of complementary currencies as pioneered by Bernard Lietaer and Margrit Kennedy.
This has gained traction recently as communities try to encourage more local trade through currencies such as the Totnes and Lewes pound.
But the big deal is that social networks, with billions of users, can now take these concepts to new heights as money migrates to credits across social networks.
So the future looks like one where, as the WSJ video calls it, the world is built on sand.
Sand?
Sure, the world is full of rocks, pebbles and sand:
rocks are the core currencies of nation states – the dollar, euro and renminbi;
pebbles are corporate currencies, such as store credit cards; and
sand are the little grains of value exchange made person-to-person, peer-to-peer, P2P.
The future built on sand?
Sure.
Sand makes glass and the gazillions of grains make up the coasts of all nations.
So why not build a world on sand ...
... oh yes, the house falls down on sand. We need rocks for foundations as well.
Newsweek has picked out some killer quotes that they thought tracked the financial crisis. Here are a few of them, with my own interpretation ...
*
February 23rd 2004
“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.” Alan Greenspan at a Credit Union Conference in Washington
The Finanser’s view: “Get out there and sell cheapo mortgages to those poor folks who can’t afford them.”
September 17th ~2004
“It has the potential to be an epidemic. We think we can prevent a problem that could have as much impact as the S&L crisis.” Assistant FBI Director Chris Swecker on the sharp increase in US mortgage fraud
The Finanser’s view: “Access to cheap money has made the criminals work out how to get it.”
February 2005
“I believe that in years to come, historians will see the beginning of the 21st century as the ‘golden age’ of real estate.” National Association of Realtors’ Chief Economist David Lereah, in his book Are You Missing the Real Estate Boom?
The Finanser’s view:“I am Spartacus.”
February 20th 2005
“... the economy is weaker than it appears. Using GDP growth and unemployment, the US economy is healthy. But the level of debt (both consumer and government), the real estate boom that seems based on leverage and loose credit ... and the poor employment situation (especially the low level of participation) indicate an unhealthy economy. I believe this recovery is being built on a marshland of debt.” The Calculated Risk Blog
The Finanser’s view:“I am Nostradamus.”
October 24th 2006
“Despite sluggish growth, largely due to declining residential investment and auto production in the second half of this year, we are optimistic about a rebound in 2007.” Doug Duncan, the Mortgage Bankers Association’s Chief Economist
The Finanser’s view:“Dude, this reefer is way strong.”
March 28th 2007
“[The impact of] problems in the subprime market seems likely to be contained.” Federal Reserve Chairman Ben Bernanke in congressional testimony on Capitol Hill
The Finanser’s view: “Life is like a box of chocolates. You just never know which one you’re gonna get.”
August 26th 2007
“... capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich.” James Grant of Grant’s Interest rate Observer, referring to banks’ responsibility for the subprime crisis in a New York Times editorial
The Finanser’s view:“Who’s too big to fail?”
February 14th 2008
“At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year ...” Federal Reserve Chairman Ben Bernanke in congressional testimony on Capitol Hill
The Finanser’s view:“Who ate my chocolates?”
May 7th 2008
“I do believe that the worst is likely to be behind us.” Treasury Secretary Henry Paulson in a Wall Street Journal interview
The Finanser’s view:“I’m forever blowing bubbles.”
September 15th 2008
“I’ve been on Wall Street for many years and I’ve never seen a weekend like this one. We are unwinding what has been years of silliness in the financial markets, and the silliness is being vaporised as we speak, unfortunately with the stock price of a number of companies involved in it.” Michael Holland, Chairman and Founder of Holland & Co, in an interview with Bloomberg
The Finanser’s view:“Wall Street R.I.P.”
September 25th 2008
“If money isn’t loosened up, this sucker could go down.” President George W. Bush
The Finanser’s view:“Wall Street R.I.P.”
September 14th 2009
“I want everybody here to hear my words. We will not go back to the days of reckless behaviour and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses. Thos on Wall Street cannot resume taking risks without regard for consequences and expect that next time, American taxpayers will be there to break their fall.” President Barack Obama
The Finanser’s view:“Wall Street R.I.P.”
*
The Finanser is sponsored by VocaLink and Cisco: For details of sponsorship email us.
Review of Michael Moore's new film 'Capitalism: A Love Story'in USA Today: "This is quintessential Moore, with a clear-cut agenda: Capitalism has
superseded democracy, encouraged corruption and greed, and failed our
nation."
This is your final chance to participate in the Financial Services Club's Cloud Computing Survey.
So far, over 200 finance professionals have completed the survey and the results show that payments and retail and commercial banking are the sweet spots for cloud computing. The barrier into the banking markets being firmly based around security concerns and the nature of cloud computing being off-premise.
Do you agree? Do you disagree?
Make your opinion count before we close this important survey this Friday, 3rd October.
And remember, for one lucky winner there will be a free membership to the Club for a year and, for three runners up, a copy of one of our books of your choice.
Director magazine has a fantastic case study all about First Direct. First Direct is regularly voted the UK's #1 bank and many people have no idea why. Here's why ...
Just noticed that the Federal Deposit Insurance Corporation (FDIC) closed down their 93rd and 94th banks
in the USA this weekend. Who will be the 99th we wonder?
I was asked to write about innovation in payments last week,
and so here’s the first of three parts. The first part will focus upon
retail payments innovation; the second, corporate payments; and the
third, trade settlement.
I've noticed that the new ads for mobile telephone firm O2 have started for their new Visa cards, “Powered by NatWest”. Nice ads and I wonder where this could lead.
I was asked to comment on Lord Turner’s speech today, which he made at the Mansion House last night. Reading
through the transcript of the speech, it is clear that he is announcing
the new regulatory drive in anticipation of the agreements to be
announced this week by the G20. The speech can be summarised as follows ...
NO. I was going to leave it at that but ok, I guess I better explain.
The G20 is here.
No more G7 or G8.
Twenty of them now. All huddled together working out what to do with the banking system. What to do, what to do. Well, here's what happened.
Who would have thought that the desperate times we live in could create
imaginative new art forms ... but that’s exactly what the crisis did
for one PR person in New York.
The big EU players, America, the BRIC economies, Japan.
You’ve got Argentina, Oz, Canada in there.
Indonesia gets a nod, as does Saudi Arabia and South Africa.
Not forgetting Turkey of course.
Twenty of them.
All huddled together working out what to do with the banking system.
France and Germany shout bankers should be hanged and bonuses eradicated.
America and Britain tell them to get lost as the banks would leave America and Britain if they did that.
The Chinese just sit and smile, sit and smile.
Russia got a headache and swigs a little more vodka, whilst the rest look confused.
What to do, what to do.
“Well there’s two big issues at work here”, pipes up someone from the back in a heavy Scottish brogue. “Clean up the banking system so this never happens again and sort out the economy.”
“And ‘ow are we going to do zat?” asks the short Frenchman.
“Well, we’ve all agreed the banks need sorting out and we now have a plan, don’t we Mr. President?” says the Scotsman.
“You talking to me?” the United States of America’s First Black President splutters.
“First, we are going to slap the banks around their cheeky little chops with new regulations that will stop them taking excessive risks,” says the tartan leader.
“Vot do you mean?” asks a stout German lady called Miss Marple.
“Well, we are going to say that if they are taking risks they have to be ‘socially useful’. This means they must be able to explain, in words a ten-year old could understand, what it is they are investing in, why, how much is involved and the possible losses if it all goes wrong.”
“Vot if it goes wrong?” Miss Marple asks again.
“Well”, says Braveheart. “We throw them in jail. This is what we think the bankers want as - and I quote from Mr. Stephen Green, Chairman of HSBC and the British Banker’s Association - when I say that ‘banks have chased short term profits by introducing complex products of no real use to humanity’ and it is clearly a ‘basic failure of corporate governance’. So we are going to make it clear that they can’t do that any more.”
“How are you going to do zat?” asks Inspector Clouseau the short Frenchman.
“Obvious isn’t it Mr. President?” the kilted wonder turns to the United States of America’s First Black President.
“You talking to me?”
The haggis chomper ignores this and continues: “what we are going to do is to tell these banks they have to reserve lots of money to pay for and cover any risks they take in the future.”
“How much?” asks Miss Marple.
“Well, we don’t know. It depends on the size of the risk they are taking,” responds the heather misty eyed Scot.
“And what about ze bonuses?” asks Inspector Clouseau.
“Well, we don’t want to go there, do we now?”
At this point, the Chinese delegate raises a finger and a scurry of activity takes place to translate something.
After five minutes, the interpreter breathlessly says: “President of the People’s Republic kindly asks how Britain and America will repay the $5.8 trillion of money they invented in the last year.”
The bottom-line of the G20 summit this time around is that yes, they will regulate for bank risks in the future, and ensure that the more risk taken, the more money is placed in reserve. The challenge with this policy is obviously:
how do you measure the risks taken,
how much needs to be placed in reserve, and
how does this impact lending when banks are already being asked to place more capital in reserves than ever before.
But they will work something out.
For me, the key point is the old ten-year old test.
If a banker cannot explain their product in words a ten-year old can comprehend, then they shouldn’t be investing in that product.
Going back through this crisis we have had all sorts of instruments - CDO-Squared, SIVs, MBAs, CDS and more three-letter acronyms than we’ve ever seen before – which even the cleverest banker has found hard to digest, absorb and explain. If they cannot digest, absorb and explain their own products then they shouldn’t be selling or investing in them.
That’s the rule for the future.
But there’s a more fundamental question.
Has Quantitative Easing worked?
Has the Toxic Asset Relief Program solved the issues?
Have the economies stabilised?
Is the future bright or even Orange?
These questions remain to be resolved and my personal view is that we’ll flatline for at least another two years.
Royal Bank of Scotland needs more capital as do many other banks – where are they going to get it from? The USA and China are on the brink of a trade war whilst Europe sees a rocky road of challenges for the foreseeable, with even the most successful economy (Germany) admitting this will be tough for years to come.
We’re not out of this mess yet.
Yes, there are green shoots ... but are they growing vibrantly or struggling in rocky soil?
Right now, the latter.
So the soil still needs tending, nurturing and watering and the USA and Britain has little rain to sprinkle on these shoots left.
We’ve already bet our children and grandchildren’s tax burden on getting through the last year ... what happens if it doesn’t work?
Now I’m an optimist, which is why I’m saying we will get through this after two years of flat lining ...
... but Marc Faber who produces the Gloom Boom Doom Report and often gets these things right, came out this week on Bloomberg and said that the US Government will fail within the next decade on the back-end of this crisis.
Switch US for the UK Government if you believe his words, as the two economies are intimately tied.
All in all, the G20 has challenges and can treat the easy bits – how to regulate banks – but the hard bit is how to detox the global economies to regain stable future growth. And you don’t get that by printing more money to feed the addict.
The Finanser is sponsored by Vocalink and Cisco: For details of sponsorship email us.
Who would have thought that the desperate times we live in could create imaginative new art forms ... but that’s exactly what the crisis did for one PR person in New York.
Geoffrey Raymond was languishing in the backrooms of lobbying the media world when, seeing the Lehmans and capital markets implosions, he was inspired to go out and paint the evil bankers.
But not in the usual way but in an unusual way by painting their portraits and then allowing the public to write their views directly onto the canvas about said individual.
So far, he’s painted Alan Greenspan, Tim Geithner, Lloyd Bankfein, Ben Bernanke, Eliot Spitzer, Hank Greenberg and many other beloved icons of the financial meltdown.
In his latest outing, Richard Fuld and Hank Paulson managed to create quite a strong outpouring of public emotion as illustrated by this short clip:
Apparently, folks are encouraged to write “I am Spartacus” if they can’t think of anything themselves – no, I am Spartacus! – and it’s interesting to see that the ‘Blue Paulson’ receives far less commentary than the ‘Re-examined Fuld’:
Notable quotes include:
“What’s your plan ... again?” “OK, so you messed up. Now what?” “A-hole, liar, thief ... did I miss anything?” “I thought writing on paintings was vandalism”
“May you get what you deserve” “Should we all have to pay for other’s mistakes” “Greed is sin” “Greed is good”
Anyone would think the masses were angry.
For those working in a bank however, you can purchase an original Raymond artwork for less than a day’s bonus. Each piece is valued at $35,000 for an original artwork, but you can get a signed print for just $250 from Wall Street Cheat.
Mr Raymond’s full portfolio can be seen at his Picasa page.
The world’s stock and derivatives exchanges on Tuesday warned the Group
of 20 leaders that the continued “proper functioning” of their markets
could not be taken for granted because of a proliferation of
alternative trading venues such as “dark pools”.
I was asked to comment on Lord Turner’s speech today, which he made at the Mansion House last night.
Lord Turner is the Chairman of the Financial Services Authority (FSA), having taken over a year ago from Callum McCarthy, just as the crisis reached boiling point.
Reading through the transcript of the speech, it is clear that he is announcing the new regulatory drive in anticipation of the agreements to be announced this week by the G20 (he did the same in March, just before 1st April G20 meeting).
The speech can be summarised as follows:
People think I’m a heretic because I said parts of banking are ‘socially useless’ but I should know what I’m talking about as I was on the Boards of Standard Chartered and Merrill Lynch.
And look, Stephen Green who heads up HSBC and the British Bankers’ Association agreed with me, as he also said that ‘in recent years, banks have chased short-term profits by introducing complex products of no real use to humanity’.
But then both Stephen and I trained and worked at McKinsey together, and that shows we know what we’re talking about.
So when some City oik says he's not happy - in fact he's ‘appalled, disgusted and ashamed’ at my comments about the system being socially useless - I think about the victims of this crisis.
Don’t they have the right to be ‘appalled, disgusted and ashamed’ with you? (applause)
What this means in the future is that I want banking to be socially useful.
How are we going to do that?
By ensuring banks are:
More risk averse;
If they take bigger risks, they reserve more money to cover them; and
We’re going to be breathing down their necks to make sure they do.
The reality is that banks must avoid over-complex products that have no direct value to society so, if they can’t explain what they’re doing in words a ten-year old can comprehend, then we’re going to shut down those risky products.
The question I ask is how does a regulator work out what is more risky and then how do they calculate how much a bank has to reserve against those more risky products?
I also loved the FT’s Alphaville review of the speech, which mentioned that a mystery man gave out leaflets detailing the FSA’s own bonus culture during his speech. Apparently, the FSA paid out £19.7 million in bonuses in 2008 — or about 15% of its staff costs.
No wonder Lord Turner is saying that, as long as a bank can prove it has reserved the right levels of capital, then whatever bonuses they want to pay staff is up to them.
I was asked to write about innovation in payments last week, and so here’s the first of three parts. The first part will focus upon retail payments innovation; the second, corporate payments; and the third, trade settlement.
A weekly non-exhaustive update so to speak.
First, what is innovation?
Let’s define it again (yes, I’ve blogged about this stuff before but, just in case) and, like most of us these days, I turn to Wikipedia as my starting point:
The term innovation refers to a new way of doing something. It may refer to incremental and emergent or radical and revolutionary changes in thinking, products, processes, or organizations. Following Schumpeter (1934), contributors to the scholarly literature on innovation typically distinguish between invention, an idea made manifest, and innovation, ideas applied successfully in practice. In many fields, something new must be substantially different to be innovative, not an insignificant change, e.g., in the arts, economics, business and government policy. In economics the change must increase value, customer value, or producer value. The goal of innovation is positive change, to make someone or something better. Innovation leading to increased productivity is the fundamental source of increasing wealth in an economy.
That’s pretty comprehensive actually, but I don’t like half-page elevator statements so my definition goes more like:
Innovation: the method of creating compelling new ways of doing things that open up new markets or radically disrupt existing markets.
Innovation does not have to be positive, increase value etc, as innovation could just as easily destroy things and eradicate value. The internet has destroyed the value of newspapers and television. It’s turned news and views into free access for all, as well as connecting individuals to individuals. It is not positive for the incumbents and may be positive for the customer, although some may say not. For example, how many of us would see the destruction of the BBC, CNN and NBC as being good? Can the blogosphere and YouTuber replace the value of good news reporting and media production?
These are questions we have yet to answer, so I’m on the fence a little about whether innovation has to be positive and create value.
What innovation really needs to do is to show something compelling.
Compelling means that people use it.
The reason YouTube works is that I can send my stuff there and share it.
The blogosphere has created news reporting in real-time from a potential 3.5 billion news reporters.
The access to news is more global and comprehensive than it has ever been ...
... but is the news believable?
The fact that Wikipedia has a small amount of misreporting is not a good thing is it? And when websites report celebrities as being dead when it’s blatantly untrue, you sit in a mass of confusion rather than truth.
Anyways, that’s a precursor to a debate about defining innovation and the value of the new web worlds, rather than innovation in payments. Nevertheless, it is important to get the definition right, so I come back to my definition of innovation as being a method of creating compelling new ways of doing things that open up new markets or radically disrupt existing markets, before discussing payments innovations.
So what compelling new payments markets are being created or disrupted in the retail payments world?
Certainly, mobile payments and prepaid, which were the focus of last week’s discussions, are innovating retail payments. They are opening up new markets for electronic services that displace cash. That is why they are good for the producers, the banks, as any cash displacement makes finance more efficient because it’s getting rid of paper. And paper accounts for six out of seven transactions today.
But mobile and prepaid have been trying to disrupt this space for half a decade. I first started talking about mobile as a payments mechanism back in 2004 when NTT DoCoMo started showing us the way.
Therefore, the fact that mobile is now mainstream is no longer innovative. The innovation has happened. A bit like online payments with PayPal happened. And prepaid is an innovation – creating new compelling markets based upon existing technologies – but it’s also happened.
These things are here.
That’s why I don’t call them innovations, as innovation is what I look for before it happens.
When you see Web 2.0, it’s too late.
When you see Facebook and wonder whether to compete with it, it’s too late. It's already dominating.
When you see everyone talking about mobile payments, it’s too late. They've taken off.
When you hear everyone discussing prepaid cards, it’s too late. Everyone's got one.
The fact is that most banks are fast followers so they do wait until it’s too late. Then they launch their mobile and prepaid services. And they succeed. They succeed because a bank never finds it too late due to the protection of their markets from new entrants and the inertia of their customers to change provider.
That does not mean that banks should not innovate however.
So what is innovative today?
Wireless payments.
This is contactless, but it’s more than that.
It’s wireless, free-form payments built into objects, clothing, watches ... anything.
Wirelessly communicating electronic payment tools for consumers.
What this film demonstrates is the notion of wireless communication by placing the receiver and emitter in near-field communication. The receiver or emitter can be in any form of device. A phone, a card or a watch or ear-ring. Anything that can take an RFID chip (today) or some form of wireless chip (tomorrow).
The chips are really small, minute, tiny. So tiny that you won't be able to see them with the human eye in some instances.
As a result, the chips can be weaved into cloth, placed in a tooth filling or embedded in bricks and tarmac.
Everything communicates.
Everything knows where everything else is.
So we think that's scary?
Well who thought the internet was scary when it started to take off?
Who rebutted mobile telephony as pure yuppiedom?
Things take off faster than you think and, by the time you see them, they are mainstream and it's too late.
So, the near future is wireless communications enabling wireless payments ... and a lot more. And it will all be based upon geo-location and proximity.
Knowing that you are walking past the shoe shop, you get an advert for your favourite Geo shoes.
Knowing that you are near the O2 stadium, you get a promotion for tonight's concert as tickets are still available (must be a rubbish act).
And knowing that you need to sort out your overdraft, you get a request to visit with the bank manager as you near the branch (oh no!).
All of this is likely in the very near term.
How near?
Well, here's a picture from my Hong Kong cab last week:
Notice anything?
Sure, it's a poor quality picture, but second from left under the screen is a note saying: "GPS Based Advertising".
As the cab drives around Hong Kong, you get adverts tailored to the vicinity you are in.
Come and shop at Harbour City! Visit Honeychurch Antiques in Central now! Dive into the Computer Centre in Mongkok for very good deals!
As the taxi moves, everything changes ... advert by advert.
Now imagine this in the payments context.
You see the ad for Armani and wave at the screen ... the suit is in the post.
You walk past a billboard for Geo and bish, bash, bosh ... the shoes arrive tomorrow.
You get the promo for tonight's concert at the O2 and ding! the RFID code for your ticket entry is delivered to your phone.
This is not the future.
It is right here, right now.
And that's what I call innovation, along with a few other things that will come into the blog in the next two weeks.
p.s. if you want to see more about the Hong Kong cab experience, go to the website http://www.motionpower.com.hk/ for more.
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On return from Hong Kong, some of us switched on the major Mancunian derby of United versus City. Like most policymakers, the referee made up new rules at the end of the game to let United win but hey, get over it.
In the half-time drizzle, I did note however that Sky Sports ran a new advert for O2 Money (covered in the blog last July):
Here’s the voice over of the ad:
“Transfer spending money from your bank account onto your new Cash Manager Card. Spend it on the things you like the most. Get real-time balance alerts. And never spend more than what’s on your card. The new Cash Manager Card from O2 money. If you want to keep on top of your spending, it’s now in your hands.”
At the end a little sign comes up saying “Powered by NatWest”:
... so you can trust your money will move accurately, I guess.
Interesting.
I then found they had another ad.
This one goes:
“Load cash onto your new Load and Go Card. Spend it anywhere you like. Even online. Get real time balance alerts, then reload it with cash. The new Load and Go Card from O2 Money. With more freedom to spend, your money is in your hands.”
It is primarily targeted at teens, but could also be useful for the unbanked and underbanked as it’s a reloadable cash card. Great for kids, but also for anyone who wants to do stuff online without needed to use or open a bank account.
After that I found that O2, the UK division of the Telefonica Group, have a whole website and video channel talking about O2 Money, their new financial services division.
This includes a bunch of FAQs, such as: What are O2 Money Cash Manager and Load & Go cards?
They're cards that give you more control over how much you spend. You just load money onto the card, and then you can use it almost anywhere that takes Visa - including shops, ATM cash machines and online.
Every time you add, spend or take out money, you can get a text showing your new available balance. So you'll always know exactly how much you've got left.
With both O2 Money cards, you can add money online using a UK debit card. On Load & Go, you can also load cash onto the card at O2 shops, any independent retailer or petrol station that show either the PayPoint or e-pay signs.
What's the difference between Cash Manager and Load & Go cards?
With a Cash Manager card, you can load up to £10,000 (once we've verified your details) or £1,800 if we have not verified your personal details. The most you can put on a Load & Go card is £1,800.
You can load money onto a Cash Manager card online using a UK debit card. With Load & Go, you can load money online, or you can put cash onto your card at O2 shops, any independent retailer or petrol station that show either the PayPoint or e-pay signs or anywhere you see a PayPoint or e-pay sign.
Why would I want an O2 Money card?
O2 Money cards help you keep track of how much you spend. Every time you add, spend or withdraw money, you'll get a mobile update right away showing how much money you've got left. You can use our online budgeting calculator to work out what amount you want to load onto your card.
Because you can never spend more than you've loaded onto your card, you won't run up debt.
It's also a good way to introduce your son or daughter to banking and money management. It lets them use their own money to buy on the high street or online, without the risk of over spending because they can't spend more than they've loaded onto the card.
We advise any cardholder under 18 years of age to read through the terms and conditions with a parent or guardian for your peace of mind and information.
And lots more interesting stuff in there.
This is the first major mobile financial services launch of a card that I’ve seen, and appears to be more than just an affinity program as it's also the first time I’ve seen a bank, NatWest, openly trying to be just a payments processor for a non-bank. A kind of "Intel Inside for payments".
That "Intel Inside for payments" is definitely something to watch, as that's also the vision of the European Commission when we talk about payments institutions.
This could get interesting ...
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