Last year, we performed a major survey in anticipation of the implementation of the PSD and SEPA Direct Debits, to see how the world viewed these areas.
The research received over 350 responses from financial professionals worldwide, and found a general cynicism about the effectiveness of the PSD in particular, due to inconsistencies in interpretation due to legal options and opt-outs.
The survey for 2010 is now live and looks at the world after PSD and SEPA:
Are they a success or failure?
What innovations have these changes introduced?
Who are the new competitors in payments processing?
Has anything changed?
We would love to have your participation in this year’s survey. Click here to take surveyBy taking the survey – it’s just over 20 multiple choice questions and should take no more than 10 minutes to complete – you get the chance to WIN a free one year membership of the Financial Services Club.
You also will get a copy of the full results of the survey, which are due for release in early October, so please join in.
Following on from yesterday's number - UK Bank Stats: a fascinating portrait of
life -I was sent another report today from TheCityUK, the trade body that promotes the interests of the City of London.There’s loads of numbers in this document that are useful, which I will post in a few separate blog entries starting with the payments and retail banking figures.
According to the latest figures:
95%+of adults in Britain have at least one bank account
98% of people live in a household where someone has an account.
These are among the highest levels in Europe largely due to the ‘basic bank accounts’ launched in 2003, which allow people who do not want a conventional bank account to receive money, pay bills and withdraw cash through post offices.
There are 10,500 bank branches and 64,000 ATMs – more per million people than in France, Germany and Italy.
Bank customers increasingly use their accounts without visiting a branch:
59 million people live in Britain, of which 46.9 million are over 16 years of age
46 million customers have registered for telephone banking
33 million for online banking
4 out of 10 adults used remote banking to make payments in 2008
Method of payment (2008) Transactions (millions) Transaction value (£ billion) Cash 22,569 267 Cheque 1,343 1,421 Debit card 5,384 241 Credit card 2,041 142 Direct debit 3,077 935
In 2008, 94% of adults had at least one of the 169 million cards issued by banks and building societies, which included:
76 million debit cards,
66 million credit cards, and
6.4 million charge cards.
Cards have helped the growth of internet retailing, with more than 32 million adults buying £41 billion of goods and services over the internet in 2008.
Cards have also made international travel easier by allowing holders to spend £19 billion outside the UK in that year and to withdraw £7.9 billion in cash.
More than three and a half million small businesses in the UK have bank accounts, depositing over £50 billion with their banks and credit facilities worth a similar amount.
For some time now, I’ve been meaning to blog about the big issue bubbling away over SWIFT, and the access to SWIFT records demanded by the US authorities.
I remember having lunch with some executives at SWIFT back in the summer of 2006, when the news first broke about this. Back then, the New York Times had just broken the previously secretive story that SWIFT was sharing bank data with the US authorities, after having been subpoenaed to share such data. The aim was to track terrorist funding and any transactions that involved suspected terrorist related activities were shared. The problem is (a) what right does the USA have to subpoenae and access the records of a Europe-based institution and (b) how does SWIFT ensure it's just limited to terrorism records, and not the records of you and I. SWIFT weren't happy about this action, and particularly that it had now come into public domain. One SWIFT executive said to me: “when that New York Times journalist is walking around the next Ground Zero and sees the thousands of bodies caused by his exposing this story, see how happy he is then.” Over a glass of wine, he admitted that he’d like to crush the bones of the journalist and bury him six feet under.You see SWIFT is meant to be private. It’s a bank consortia, and not meant to be open to any old authority raking over its records.And, bearing in mind that SWIFT is head officed just outside Brussels in Belgium, the centre of and capital of Europe, having some gung-ho Yankees barking orders at them does not go down well.Nevertheless, in the spirit of cooperation, the European Commission, Parliament and politicians have been trying to work hard to come up with something that meets the needs of the American authorities whilst not compromising our very European principles.It won’t work.But we’ll try.You see, when it comes to privacy, Europe is from Mars and America is from Venus. Europe believes the individual has a basic human right to protect their privacy. America believes that the State is far more important than the individual, and so listening in to any conversation, no matter how private, is fine.This is all coming to a head as Members of the European Parliament are debating this topic this week and pushing through a revised agreement with the United States on Wednesday.
This follows the block on the original deal in February, which was meant to allow a continuance of the access that came to light in 2006. That was blocked due to ‘insufficient data privacy safeguards’.The amended agreement now states that the USA can request European financial data relevant to a specific terrorist investigation, as long as they substantiate the need for the data.
The whole argument over data privacy is illustrated best by this discussion between Frank Gaffney, a lobbyist for US Security, and Baroness Sarah Ludford, MEP, on the BBC’s Radio 4 programme “The World This Weekend”, aired yesterday and presented by Shaun Ley.
Shaun Ley: If you pop down to the garden centre or a supermarket this afternoon, what you buy could end up being examined by the Pentagon. As part of the fight against terrorism, the United States has been seeking authority to receive details of any personal financial transactions from Britain and other European countries. Since 9/11 they’ve had some access informally but, in March the European parliament blocked a government level agreement on data transfer, worried about the threat to privacy. On Wednesday, MEPs will vote on a renegotiated deal. Frank Gaffney, who was responsible for international security in the State Department under President Reagan, thinks it’s about time.I’ve been speaking to him and to Baroness Sarah Ludford, Liberal Democrat MEP, who’s been telling me about her concerns including something known as ‘data drilling’.Baroness Sarah Ludford: Well, rather than searching specifically for a name of a particular individual or particular data in a bank account, you would do a big trawl. A fishing expedition, as it were. Now we haven’t got 100% perfection and we are still concerned that it involves the bulk transfer of data. So European banking data is transferred en block, in bulk, to the United States and it is searched there. What we would like and we have got certain commitments that in the medium term, the option will be explored and hopefully developed, of the data being extracted in a targeted way on European soil. So we don’t have to hand over this mass of undifferentiated data, because clearly there are concerns about that.Ley: Frank Gaffney, from the US perspective, your authorities wanted this data and wanted this opportunity. Why is it so important to be able to drill down into people’s bank details in that way?Frank Gaffney: We are confronting enemies that are increasingly sophisticated. Getting insights into the movements of funds that enable this kind of activity to take place is, I think, essential to countering these sorts of threats, both of the violent and of the stealthy kind. The more hamstrung we are, the more likely it is that these sorts of seditious activities will go forward with ever greater success. That’s something I don’t think we can tolerate.Ley: And are you worried that these kinds of restrictions that are being negotiated with the EU might leave the investigative powers hamstrung?Gaffney: I do worry about that. I think that’s sort of the object after all, is to constrain those investigatory efforts in the interest of privacy. I like my privacy, like everybody else. I just don’t want to die.Ley: So a lot of these changes potentially put lives at risk.Ludford: I don’t believe so. I strongly believe in trans-Atlantic cooperation in a whole series of areas. I’m vice-chair of the European Parliament’s US delegation. We don’t have reciprocal right to US banking data and some of us have wondered what Congress, and the Senate in particular, would say if Europe was to request that the banking data of all US citizens was to be transferred in bulk, en block, to Europe.Ley: Frank Gaffney, that’s fair enough isn’t it. If you’re going to be given access to my bank details, shouldn’t that work the other way around as well?Gaffney: I can’t speak for the US government obviously, as I’m not a government official anymore, but I suspect that one of the reasons why there might be a resistance to the kind of reciprocity that seems otherwise unobjectionable and fair, is to the extent that European governments and maybe even the European Parliament itself, have been penetrated by folks who are sympathetic to or actually working for organisations like the Muslim Brotherhood. That would be a real problem from the security point of view that I’m talking about.Ludford: I can assure you that that is not the case.Gaffney: I can assure you that it is the case.Ludford: I don’t like this portrayal somehow of Europe is Venus and America is Mars. I think that is a gross misrepresentation. It’s not about being soft on terrorism but, specifically among the Muslim community, we do need leads and cooperation with the police in that community so you have to be, for law enforcement purposes, quite intelligent about the way you seek to isolate the real terrorist suspects from the bulk of the community.Gaffney: I agree very strongly with that, but I don’t believe it is intelligent to embrace the Muslim Brotherhood and organisations like that.Ludford: I don’t think anybody is suggesting that it is.Gaffney: I can assure you ma’am that that is being done in Britain, it is being done in the Continent of Europe, it is being done in the European Parliament.Ludford: I can assure you that the European Parliament MEPs are not at all motivated by concern for the Muslim Brotherhood in our insistence on stricter data protection privacy safeguards.Gaffney: I can simply assure you that it is absolutely a point on which you agree with the Muslim Brotherhood. Whether you are doing it at their behest, or whether you are simply doing it in parallel, is beside the point to my way of thinking.Ludford: I think that is really unhelpful. I’m sorry, I just find that so unhelpful to somehow cast aspersions on anyone who is championing data protections and saying – whether it’s our banking data, our email, our internet usage, our phone calls, travel information – that it ought to be open season for law enforcement to go fishing around in it all because if you don’t agree to that, you are somehow a front for the jihadists. I think that is so absurd that we can’t discuss this sensibly.Gaffney: That is not what I have said.Ludford: Well it comes pretty close to what you said.Gaffney: What I’ve indicated in the comments so far is that there is an obvious need for a balance between privacy and the need to defend ourselves, especially when civil liberties are being used by our enemies as part of this stealth jihad to undermine and to destroy us.Ludford: MEPs have spoken on behalf of the majority of people, who are not the ones you are talking about, and I’m sure that MEPs will next week support this new agreement because it has two effects. One is indeed to try and make sure that we can combat terrorism through finding out about terrorist financing, but it also does so under pretty strict safeguards for data protection, and I think that is a win:win situation.Ley: Frank Gaffney, your last word?Gaffney: I just hope you’re right. We’ll see.
A final note on remittances and I've already been taken to task by one reader, who points out that a 'migrant worker' in one country is another country's customer overseas.
This is a key point for some banks, as they enable their customers to migrate and have full financial services whilst working overseas. That's an opportunity for some ...
However, as I responded, the point of workers' remittances in this migrant worker context is that they are either unbanked or underbanked. It's more about financial inclusion than banking, so it is a slightly different conversation.
And one solution for the underbanked discussed in some depth is SWIFT’s remittance services for banks. It is not surprising we discussed this in depth, as SWIFT are the premier conference sponsor.
The service focuses upon those banks that are trying to build bilateral services or using open correspondent banking services. The difficulties banks experience when dealing in such areas are all focused upon limitations in scalability, timing, price and service levels.If you have a bilateral agreement, that’s great for the countries covered. But then, if you need to cover new country corridors, a new agreement with another bank is required. Equally, what happens if you’re only transacting four or five times a month? A high cost for creating something that is basically unused.On the other hand, if you use open correspondent banking relationships there is no guarantee of service levels, and therefore pricing and processing can vary.Hence, SWIFT has focused upon creating a technical and commercial framework to solve these issues.The framework covers everything from the terms and conditions of correspondent bank contracts to best practice rules and procedures to the messaging standards and services based around Fileact store and forward.There’s a little bit more to it, and you can read all that stuff over here, but the bit that interested me is that the service already has 43 participants with 14 live users including certified payments services providers, such as Wall Street Exchange.It was stressed that non-bank payments providers are welcome to join the system and so the question came up: “but why would we use SWIFT as you are very expensive?”The SWIFT guys immediately responded by saying that the pricing is based upon a tiered system of usage volumes, with the most expensive items being priced at €0.08 per transaction down to €0.03 per transaction for the highest volume users.“That’s reasonable”, came the reaction from the PSP, “is that all of the pricing?”“Urm, there’s an annual fee of €1,000 to use the SWIFT directory of all participant’s reference data”, the SWIFT guys replied, “and, other than this, that’s about it.”
I think they won over a few more participants this week.
Great conversations continue in the remittances space, or money transfer space if you prefer, with a chat with the global transaction services folks from a major bank.
This bank has a dilemma: are they in the remittances space or are they not?They really want to be in this space but are worried about risk exposures, particularly reputational risk.Their challenge is to find out whether there’s enough profit in remittances to be worth the risk.They recognise that processing money transfers is a good business to be in. It can make money for them, and would fill in some missing pieces of their transaction services business. Not just that, but it may be critical for them. For example, they see mobile money transfer as being key to their future, and see the use of mobile and transaction services as being so obvious that it’s a no brainer for them to be in this space.They would like to do this in partnership with one of the major mobile carriers as, if they aren’t in partnership, others will be and that is dangerous as there are only so many partners out there. If Deutsche Bank gets T-Mobile for example, and Citi gets AT&T, HSBC gets Hutchinson, Bank of Tokyo-Mitsubishi gets KDDI and Royal Bank of Scotland gets Vodafone, then there aren’t that many mobile firms left to partner with.Soon, the markets are stitched up and banks that want to be mobile payments processors globally will be left in the cold.Hmmmm.Meanwhile, the real dilemma is why would a mobile carrier want to be the partner?Sure, it’s not their business to process payments although, as they are also transaction processors, they can find this extension of their core business something they could implement quite easily. Mobile carriers are also used to dealing with small accountholders. Think of your son or daughter’s mobile account. How much is spent per month and how many transactions are made? Maybe a few hundred text messages and a few telephone calls? Maybe €5 to €10 of cost per month.That’s diddly-squat, so mobile carriers are used to processing high volume, low margin transactions on masse.And what’s the real game changer for mobile?Reach.Every person on the planet can probably get access to a mobile handset if they wanted – there are over four billion users out there – and so mobile carriers want to enable financial transactions for all o f their customers.And there’s the rub: a bank only wants to deal with profitable customers, which is why only a billion people on the planet are banked, whilst carriers want to work with all customers, and three out of four are unbanked.Now that wouldn’t be an issue, a bank could offer remittance and money transfers for the three out of four who are unbanked, but it is a problem because banks need to comply with AML and KYC rules.Mobile carriers don’t provide that information and, in many instance, they don’t get or need that information.Mobiles can be picked up and SIM cards used anonymously.That’s no good for a bank ... although if the account is only €5 a month, maybe that is OK as banks do support limited use prepaid cards anonymously.But then mobiles are topped up and that additional value needs to be monitored.So, you now have mobile carriers starting to come in to the AML and KYC rules.For example, on e African money transfer operator told me that customers are being instructed to re-register their telephones with some form of identification in some countries.All well and good you may say, but then a banker replied that that is OK except that the mobile firms just get an ID with no proof of correct details.For the banks, they need all the customer’s details plus proof to ensure the correct ID is being presented via utility bills and other means. So there is an issue here.But let’s say that it is solvable. Then there’s still another issue: profit.For a bank, the risk versus reward equation for remittances is skewed heavily against the money transfer market.For example, several banks got into buying money transfer operations during the first half of the last decade as global migrant worker movements exploded.They thought they could cross-sell to the users of these services and, as migrants became more affluent, maybe get them fully banked along with their family.But this was not the case.For example, Spanish banks tell me that the users they thought they could cross-sell to in Spain already had bank accounts. They just used the remittance service because it was cheaper, faster and more reliable than using the bank.Hence, the cross-sell dream was a flawed vision.And there are hardly any profits in remittances unless you’re a really big player with massive volume.In fact, on that note, it’s getting worse as the credit crisis means that not only are there fewer migrant workers these days, as many have moved back home, but the ones that remain are sending less money home. So margins are tight, there’s no growth in volumes or values, and profits are almost non-existent.But let’s say you overcome the issue of AML and profitability, then what?There’s another issue: coverage.To be a player in this game, you need a lot of agents – Moneygram has 200,000 agents worldwide for example – to disburse payments and manage accounts. Those agents need appropriate licensing and vetting, and that’s a challenge for a bank.Even if you have all the agents, you then need geographic coverage – Moneygram has reach to over 160 countries – and most banks do not have that coverage and, in the case of some, don’t want it.For example, think about an American bank. An American bank would have no issue covering global service provision ... except when you start talking about coverage in Iran maybe. Or in Pakistan and other politically sensitive country operations.Now these banks start to worry that they might have an exposure like the one that UBS encountered.When the American forces broke open Saddam Hussein’s vaults in Baghdad, they found millions of dollars of crisp new dollar bills. However, the US had outlawed the supply of US dollars to Iraq for over a decade, so how did they get there?The Fed investigated and found the currencies came through other outlawed nations including Libya and Syria, via branches of UBS.Result: UBS were fined $100 million which, at the time, was one of the largest fines ever made for a bank infringement of US regulations.So there’s the rub.Even if you can organise money transfers, monitor things well, get the AML and KYC in place and operate profitability, a bank still has a huge reputational risk exposure if they get heavily into the remittances market.Let’s say you can overcome all of this though, as a bank, then what?Well, there’s a final issue: smell.Banks think migrant workers are smelly and don’t want them in their branches and migrant workers think that banks are smelly, as they look down their noses at them.You may think it over-states that case, but one French bank openly stated that they did not want to be in remittance services because they don’t want these “poor, foreign workers” in their branches.And these “poor, foreign workers” often feel intimidated by bank lobbies and branches, and the sort of people who use them, so would rather deal with someone who speaks their language who they feel they can trust more.There are loads of other points that could be made here but, all in all, even if you can organise money transfers, deal with the AML and KYC issues, find a way to make some money and manage the high reputational risk, a bank shouldn’t be getting into remittances because it does not smell right.So who will make this space their own?Hmmm ... now who are leading the remittances and financial inclusion space today?Oh yes, Safaricom/Vodafone (M-PESA) and a few other mobile carriers and operators.And so the real dilemma is: why would a mobile carrier want to be the partner?Now it gets interesting...
We had a really interesting free-ranging conversation about remittances and new services for remittances yesterday.
Oh yes, I should say that I’m at a remittances conference so that’s the reason why.The discussion was about the NEXT BIG THING in money transfer ... or rather whether and if there is a NEXT BIG THING in money transfer.
To be honest, there’s not.There’s just mobile.Building on yesterday’s discussions of mobile, there’s actually just two discussions about mobile worth having in the remittances space: SMS texts for receivers and Mobile Internet Services for senders.The general view is that SMS is it for wiring money to and fro. However, for the smart iPhone and Android users of this world, a fuller and richer experience using mobile internet apps might be a good thing.Then some really good conversation started about why mobile remittances are all focused upon national systems like M-PESA and GCash, rather than the promise we thought was there for global mobile remittance services.Global mobile remittance services still have that promise but, today, it is all national.This is because any mobile operator could launch a local remittance service.They don’t necessarily need to partner with a bank – did Safaricom for M-PESA or Globe Telecom for G-Cash – and they can just get on with it.However, if you were launching a global service, you would need to include so many other players. Banks, Money Transfer Operators, Money Transfer Agents and Merchants, Mobile Carriers and more. That gets way too complex and difficult.We ended up saying that the breakthrough will come as we move towards national and regional hubs for payments and transactions.In other words, SWIFT, the European Payments Council, the G8 payments development group, Mobey Forum, the GSMA and a few other key groups could create global standards and interoperability, along with multilateral clearing, to enable global money transfer.Could be a long time coming, but worth watching out for ...
And there are a number of blogs dedicated to identity management issues, such as Dave Birch’s Digital Identity Blog and Kim Cameron’s Identity Blog. There’s even a film called Identity, although it has nothing to do with identity management and is far more related to being schizophrenic.So what is the problem with identity?Maybe it is related to the latter – not being schizophrenic but certainly having multiple identities. That’s the issue.We need a way to uniquely identify people for governmental purposes and for financial matters.From a government perspective, it’s all to do with taxation and benefits, with far too many people being able to buck the benefits systems and claim multiple benefits for multiple identities when all the money is flowing to a single claimant.The same is true in finance, where it is too easy to create multiple accounts with multiple names and addresses. We may say, with all the AML rules about account opening, that this is not true today ... not true.Students learn the benefit of multiple overdrafts early in life. For example, a comment from Sam Sam in the Student Room:Re: Opening multiple student accounts “In the blurb that you have to agree to, the banks often want to know that the account with them will be either your 'only' or your 'main' student account. loads of people have several different accounts though, people just tell porkies. If you need to provide a previous bank statement or something, you could just take a statement from a regular/solo account. just don't tell them.”But do they do this with different names and addresses ... probably not. For example, I have multiple bank accounts – business and personal – but they all come back to a single, unique person and address.And what happens to that single, unique person and address?They give it away on Facebook:"The days of you having a different image for your … co-workers and for the other people you know are probably coming to an end pretty quickly … Having two identities for yourself is an example of a lack of integrity." Mark Zuckerberg, founder and CEO of Facebook
Yea right.
So here’s my lack of integrity: I’ve got two Facebook accounts, three bank accounts, four Twitter accounts, five credit cards, several land addresses and many more email addresses and yes, you’ve guessed it, about ten different personalities.
Shucks!All of the above makes it clear how it is possible to defraud or disappear, if you know how.Case in point: Jason Bourne.In the excellent series of films about Bourne, which began with the Bourne Identity (there's that word again), we learn that he’s a lost man. What is his identity? Who is he? How can he find out? How can he prove he is Jason Bourne?Living under a pseudonym with memory loss means the original person has been lost.Good film ... but it is all fiction isn’t it?Nope.The proof reader of Neil Strauss’s latest book, Emergency (March 2009), talks about how to be a Jason Bourne in real life, through the creation of multiple bank accounts and holding several passports. “If you wanted to withdraw your entire life savings and move it to a bank in Switzerland, what would you do? Now that I’d decided to hide my assets offshore, the information from the Sovereign Society conference about the government tracking withdrawals and transfers of more than $10,000 applied to me. It seemed impossible to get the money from my American bank to the Swiss bank Spencer recommended without ringing alarm bells. Even if I moved it in small increments, there would still be a paper trail detailing exactly how much money I’d transferred. So I did what any resourceful American would do: I bought a book on money laundering.”Oh, so simple ... if you want to do this. I'm not advising that btw, but the potential and possibilities are clear and, whilst we have these gaps in the system for those who want or need to leverage and crack them open, identity management will always be an issue for governments and banks.So what’s the solution?An identity card with biometric recognition? A DNA database of all citizens?Nah. The UK has tried both and the first thing the new UK government has shut down is the biometric identity card programme, because it’s too expensive, and their efforts to keep a DNA database are severely challenged.So what is the solution?I personally don’t think there is one. A bit like fraud, there will always be an ‘acceptable level’ of fraudulent identity usage.The question then is what is that ‘acceptable’ level and how do you minimise money laundering, fraud and other underhand activity?Probably through some sort of government and bank shared identity tracking system.That would be my best guess anyway.
Meanwhile, must disappear now as I need to put some money into my very private Swiss bank account.
There’s the classic old joke about the European dream being a place where the police are English, the chefs are Italian, the car mechanics are German, the lovers are French and the bankers are all Swiss. The nightmare is that it is a place where the police are German, the chefs are English, the car mechanics are French, the lovers are Swiss and the bankers are Italians.
It seems that the nightmare is coming true, although the basket case is Greece and the bankers are German.Last week’s surprising comments from German Chancellor Angela Merkel that “the euro is in danger” and “if the euro fails, Europe fails” sent shudders across the world’s markets, and probably made Brussels shake with rage.But the Germans are shaking with rage. After Nicolas Sarkozy was rumoured to threaten Merkel with France’s withdrawal from the euro if she didn’t step up to the plate and support a Greek bailout, Germany’s citizens have been demonstrating their rage by printing deutsche marks whilst the national newspaper, Bild, is stirring anger towards the EU and the Greeks in particular with headlines such as:
"How much more do we have to pump into this country?" April 26th
"Why are we paying the luxury pensions of the Greeks?" April 27th
"Greeks ready to cut back? They would rather strike!" April 28th
As I talk to German colleagues, they refer to Greece as the Golden Fleece and that they aren’t paying bills in Greek restaurants because they’ve prepaid to 2020.All of this puts a huge strain on the European Union, in its fragile 53rd year of unity, particularly as Spain, Italy and Portugal are considered to be on a par with Greece by many, forming a Southern European Union called the PIGS [Portugal, Italy, Greece and Spain].
It raises a key question in my mind, and I’m sure all of the bankers I deal with: if the euro fails, what happens to the monetary union of banks, the Financial Services Action Plan and all those bank and insurance directives like Solvency II, MiFID and the PSD?
What happens to Chi-X, SEPA, the EBA and the rest?
In order to answer this question, you have to look at two key areas. First, is the economic and monetary union (EMU) broken? Second, if it is, do we throw away the eighteen years of change introduced by the agreement to launch the euro when the Maastricht Treaty was signed in February 1992?Let’s take the first question: is the EMU broken?We asked this question in 2005, when the French and Dutch threw out the EU Treaty. Answer: it is political union that they were rejecting, not economic union. Note: even with their rejection, and the Irish no vote, the Treaty became the Lisbon Treaty in 2010 regardless of such resistance. In other words, in the interests of the long-term vision of Europe, Europe wins.
Equally, America has taken years to gain its United status, starting with a nation of disparate states that had far less history than those of Europe. Their Union was easier in comparison, and that still took years, so Europe’s union will take time and will face many more tests.
But this is the greatest test so far.
The size of this test should not be underestimated as it is the first time that we are seeing an economic union, resulting in a cascading effect upon money and politics. Historically, the tests for Europe have been mainly about how much power is ceded to Brussels. This test is showing the inter-relationship between economies and Germany’s anguish is that if they are to keep the vision of Europe in harmony, then they have to pay for it.
Therefore, returning to the rejection of the European constitution, that was a political rejection and when a country has an economic crisis, the monetary union means that other nations pay and, as a result, that political will is tested when one nation's tax dollars are taken to pay for another nation's debts.
That is why this challenge is so much greater than any before, because it is testing the political will of citizens, not just their ability to trade and compete.
The core issue though, is that it is not just the Greek economy and Greece that would leave the Union if they were allowed to fail. It is the Union.
Should the Greek economy fail to honour their government bonds due to being economically bankrupt, the ratings agencies and banks would downgrade Spain, Portugal and Italy, and there would be a spiral effect. This means the European Union breaks apart.
That is why the Greek failure option is unpalatable ... but is the alternative palatable?
Why do we need a European Union?
Answer: Europe needs to be a Union to maintain its drive to be a regional superpower, and competitive commercially and economically with China and America. There’s the rub. If Europe fails, then the UK, Germany and France fail, as parity to compete internationally and intraregion becomes far more difficult.
This is why Greece needs the bailout and why Germans are paying.It does not help Angela Merkel maintain her status or power hold in Germany – her popularity is sinking faster than the Titanic – but if Greece fails, it is felt that Europe may fail too. And that is not an option seen to be agreeable today.Also, nations have been bailed out already.Two years ago, Spanish banks received over €50 billion worth of ‘aid’, in the form of mortgage-backed securities with the European Central Bank (ECB), when they faced a property meltdown. Did the Germans wail out about that bail out? No. Why?Because it wasn’t on the front page of the Bild. That bail out was smaller and less obvious, so no-one really noticed.The Greek bailout is a bit bigger – €110 billion – admittedly, but it is supported by the IMF and is necessary for Europe’s future. ‘nuff said, although if you want to know more, Robert J Samuelson in the Washington Post provides a particularly good overview of why Europe needs to support Greece.My summation is that Europe will survive this crisis, the euro will stay and the currently ridiculous pricing of US$1.24 to the euro will reverse within the next month or so, as forecasted by most economists.
But let’s look at the worst case scenario: what do we do if the euro does fail? Does it mean we unravel all we’ve done to date?
This is the second and, in some ways, more important question: is there a backup plan?OK, if the Eurozone breaks apart, then it matters ... but it will not throw away all that has been built to date.The banks will still want to use cross-border instruments that work. They will just bring back a margin to represent those cross-border movements whilst maintaining the efficiency of the infrastructure that has been built.As Werner Steinmuller, Head of Global Transaction Services of Deutsche Bank, stated when we researched the Payment Services Directive (PSD) and the Single Euro Payments Area (SEPA) last year: Deutsche Bank is in a comfortable situation. We spent quite a sizable amount on SEPA infrastructure and have a brand new system that is extremely capable of doing this that is also highly scalable. Others have not made this investment so this gives us a price advantage. We have built some conversion solutions for handling old volumes and now can run both old instruments and the new SEPA instruments so, if SEPA is coming, we are extremely well positioned. If SEPA fails, I can write off the investments and still win. In other words, the SEPA process has forced the banks to build new infrastructure, new systems and new efficiencies in transaction processing. That will stay. It does not go away if the euro goes away, as the new infrastructure is designed to handle efficient transactions, not euro payments. So if we look at SEPA Credit Transfers and Direct Debits, the Euro Banking Association (EBA) and STEP2 ... it will all stay. The EBA will be a private consortium to operate efficient systems, rather than a government initiative to create efficiency, and it will stay. There will be a charge for this, and a charge that could provide a substantial return to the banks that created this infrastructure, but it will not go away.The same will be true for Chi-X, and the capabilities electronic trading platforms have introduced into the European equities markets. Sure, some countries may want to block and reverse policies in these areas – Spain? – but the process of regional investing is unstoppable now. Goldmans, Merrill, BarCap and co, won’t want to see this go away, so it will remain.Bottom-line: the efficiency of European payments and investing is in the interest of banks, corporates and institutions today, not just governments and policymakers.So, if the euro fails, my answer is that the all the investment made by the financial markets in efficient systems will stay. It will just be at a profit rather than a regulation.
Inspired by three events this week, I focused on apps for my panel discussion today ... and got shot down in flames for talking bollards.
Harrumph.
Here are the events, the logic, the proposal and why it got shot down.
First, the events.
Event number one: my first iPhone
My Blackberry has just been switched for an iPhone. Now, not knowing the beauty of iPhone apps personally until I made the switch, I am so in love with the new phone. It’s not just the ease of everything, the thousands of choices of apps from flight and traffic alerts to currency values to imitating noises your bottom makes, it’s something else that really amazed me. The ease of setup.
You see I am used to programming things, like the PC and Blackberry. With the iPhone, you just plug it in and it automatically synchs all your contacts, calendar, email accounts, music etc. No setting up involved, it just does it. Fantastic.
Event number two: bank bloggers unite
This week, James Gardner kicked off a debate about iPhone apps and the lack of one at HSBC. A good debate is always a great way to resolve an issue, and between James and Brett King’s entries on this, I think it’s obvious that the iPhone and iPad have some potential in banking.
Event number three: apps are for dummies
Number three event is the front page in the business section of the Straits Times today, which has headlined with an interview with Philip Yeo. Mr. Yeo heads up the Singapore government’s innovation and enterprise
programme, Spring Singapore, and has managed to incur the wrath of Apple's fanatical followers by saying that they buy 'useless applications' for Apple's products as 'gullible customers'.
In fact, he goes one step further and calls them ‘dummies’. Tut-tut. He did clarify later on that he meant dummies as in ABC for dummies, the books, rather than being idiots although, listening to the interview, I think he meant the latter.Anyways, these three events inspired me to outline a vision of the future based upon this logic.The logic is that banks are being componentised, as mentioned many times before.As banks componentise their services into little pieces of functionality, my original proposal is that they would then offer these as widgets to customers who could build them back into any form of integrated service they wanted.
Now, my view has gone a step further with the belief that the banks will actually wrap them into apps. I should say that my use of the word app here, is in terms of the ease-of-use of Apple apps but it does not mean that has to be Apple based.
Just so you know I'm not an Apple fanatic, just someone who can see the ease-of-use of apps is a revolution. So where I talk about apps, think about Google's Android phone or any other phone that makes mobile interet access easy, as these are the new generations of phone that are revolutionary.
Y'see first there were SMS and WAP-based phones; then there were mobile internet access smartphones; and now there are intelligent mobile internet phones with apps.
That's the revolution.
The first phones were mainly for just that - telephone calls. The second wave allowed us to pull information to the phone, but push internet services were more difficult. Push began with the Blackberry, but that was just for push email. The iPhone revolution of apps gives us location-based push services that users download to gain such usability.
That's the revolution.
It gives us the ability to create location-based components of functionality that are relevant at the point of action.
It gives users the immediate access to pieces of functionality on demand.
It makes using the internet on the mobile as simple as touching a screen.
That's the revolution.
Now, back to banking and treasury services (note: the only reason for the focus on treasury, corporate and B2B is because that's the conference I'm attending this week).
If banks are component-based, and each bank offers different treasury apps and usability, you will soon end up with a million banking apps. There will be a liquidity risk app, an e-invoicing app, a supply chain app, a cash management app, an accounts payable app, a foreign exchange app ... and so on and so forth.
Corporates will then take these apps and select those that work best for their businesses.
They will download the apps to their corporate treasury iPads, iPhones and Androids (Google), and roll these out to their ‘dummies’: the employees who need to look at days sales outstanding, inventory, supplies and logistics, etc.
These dummies will be used to the interface and service – a bit like folks got used to using PC’s and keyboards to access the internet in the old days – and will take to this easily.
Similarly, the users, the corporates and the banks will be in continual ‘synch’ because, just as my iPhone automatically synched with my iTunes and Outlook, it will automatically synch with my corporate treasury processes, data and content.
In other words, you end up with treasury being redefined as we move to banking-on-demand 24*7 through treasury-in-the-pocket.
The critical point in this logic is that, by making treasury app-based, corporates will be much more efficient:
They will be able to mix and match the apps and the app providers – banks – to best fit their business model;
They will be able to ensure that even the most unskilled member of staff, associate, player, employee or whatever can use them;
They can be easily adjusted to suit business changes over time through centralised control;
They can be a mix of in-house created or bank provided and operated or collegiate, open source apps; and
They will always be secure, up-to-date, controlled and managed in real-time 24*7.
All of the above will give the treasury ops incredible flexibility, agility and speed to adapt to changing circumstances.Now ok, I said a lot more than that, but this was the gist of it.
So here’s the proposed treasury operations future.
The corporate treasury runs on SAP today, and will in the future probably. However, the CFO will have consolidated all treasury ops onto SAP as a single platform and determined that a small number of bank partners will be selected to integrate with it.
Those bank partners will be selected on the basis of the beauty, ease, adaptability and refreshment of their component-based bank app functionality, and its fit with the business needs of the corporation.
To me, this is a simplified future as we have turned a tipping point from proprietary bank lock in and lack of standards in the past, to very easy and flexible developments that are open sourced and simple in the future.
And here’s where I got shot down.“Oh, but treasury is far more complex than your simple consumer view of the future.”“Oh, but this won’t work because our processes and infrastructures are too difficult to change to this vision.”“Oh, but technology is expensive.”“Oh, but oh but, oh but, yea but no but yea but no ...”
I was really disappointed with this reaction. Of course, I had views on these points which have been explored on this blog before, but the disappointment is that I expected more buy-in for such a vision in visionary Asia.Then I got it.
None of these guys use iPhones (double click image to enlarge, and note Chinese and Indian iPhone users):
Note: Japan and Australia don’t count in this context as these are developed economies versus emerging markets
The thing that really sticks in the throat is that by omitting to view these developments, corporates and banks will miss the whole trend towards business simplification that such tools allow.
Luckily some banks are not so short-sighted in Asia, as the announcement of the iPad coming up for sale from July in Singapore was underscored with the news that OCBC and DBS have both developed specific apps for this service, amongst the first.
Meanwhile, and to put the record straight, HSBC and First Direct are on the case with these technologies as they are sponsors of this conference and have told me some of their plans.
Finally, and the real underline of this blog entry, is that it now explains why, when the Chair of the panel I was on asked: "Chris, what are the new things you see happening? Do you think, for example, that we could use the iPhone for Treasury one day", he got a big laugh with that opening question.
Like Philip Yeo, these guys think the iPhone is just a toy.
It's not.
The iPhone, Android and, more importantly, the app is for business use as much as it is for consumers.
Get real.
Postnote: it's a shame but I suspected this at the time. Apparently many folks in the audience thought that I was some Appleite with iPhomania because I kept referring to 'apps'. To be honest, I meant apps as an interchangeable idea with widgets and gadgets to refer to the componentised bank functions.
It actually doesn't matter that much if folks did interpret this as being Apple-based however, as the PC-age was Microsoft-based, the internet-age is Google/Firefox/Explorer-based and the mobile internet is now Apple-based.
With 100 million units shipped in just three years, a further 58 million this year, the iPhone is becoming the de facto standard for the mobile internet.
Ah but wait, what's this?
Android tops iPhone: Google's Android operating system edged out Apple's iPhone operating
system for the No. 2 spot in the U.S. consumer smartphone market in the
first quarter, according to research firm NPD Group.
In a dialogue the other day about payments infrastructures, and building on my comments that all payments innovations are rubbish because they sit on creaking and out-of-date legacy technologies, a colleague stated that it was over-egging the case to say that all the old infrastructures needed to be destroyed and rebuilt.
They likened it more to a City that has been built over time.
You don’t destroy the City because it has old buildings. You basically build anew where needed, renovate where necessary, repair if required and destroy only if you have to.
Now I’m of a slightly different world I suppose. My City is more like Las Vegas than Rome, and here’s where the analogies work well.Rome is a City of several millennia, with ancient monuments and statues that are now representative of the core of the emergence of modern civilizations. The Forum, Colosseum and Ancient City spaces blend well with the more modern developments. Do you destroy the foundations of Rome to enable the modern City to thrive?No ... although many would like to see that happen.Instead, Rome has adapted through the centuries, and today’s modern buildings – such as the Viktor Emmanuel II Monument – sit easily alongside yesterday’s foundations.Sure this constrains the City’s ability to grow and compete, but it also means that the core essence of mankind is preserved below.Now we look at Vegas, a City that was built in the desert sands only a few decades ago. A City of modern splendour, that replenishes itself regularly and reinvigorates itself to maintain leadership as the adult destination for entertainment worldwide.Vegas has demolished nearly all of its hotels from Presley and Sinatra’s days, and rebuilt them into stunning new temples for modern mankind.The only remaining hotel from the Presley days of any significance is the original Hilton hotel where he played nightly. It’s an OK hotel but, when compared with the opulence of the Bellagio or functionality of the Mandalay Bay, it sinks into obscurity.This is the core challenge for Vegas hoteliers: how to compete based upon when to repair and renovate versus when to replace and replenish. Now to the banking system.Is the banking system more like Rome – as my bank colleague would claim – or Vegas?Personally, I think it’s more like Vegas.No, not a gambling den full of nervous men throwing their money away ... that’s investment banking ... by the banking system, I mean its infrastructures, connections and processing.These infrastructures weren’t built in Ancient History and do not preserve the core essence of banking. The essence of banking was founded in Venice, Amsterdam and London, and these historical remains can be seen to this day in the form of the merchant banking documents and buildings that scatter these cities. But the infrastructures were established using more modern technology which, like Vegas, began its irresistible path to automation in the 1950s.Like Vegas, the bank infrastructure has its’ Hilton, Bellagio and Mandalay Bay. Unlike Vegas however, it seems to have far more Hiltons than it should.This is because the banking system was built co-operatively by associations of processors, providers and operators, rather than by competitive hoteliers trying to land grab from each other.Therefore, the question is more to do with whether new and aggressive operators can enter the banking system, bulldoze the old world down and rebuild a new efficient, lean and mean operation.One built for modern civilisations rather than ancient mankind.Hmmmm ... the question would really come down to: when is it right to destroy the old to embrace the new?This is the question Vegasites ask and bankers need to ask this question too.And here’s my suggested list of a few things to answer in order to determine whether to rebuild or repaid:Does the current system provide an ability for the industry to operate effectively?Does the system process transactions at a cost that equivalent to comparable systems in other industries?Are the new technologies that could run the operation bullet proof?Would the new technologies offer a price, cost, speed or risk-avoidance advantage that customers would pay for or that the industry requires in order to be secure?Would a rebuild deliver annual cost savings and return on investment that could justify a destruction within a reasonable timeframe?... and so on.These are all obviously questions that are sensible and asked regularly by the banks, industry operators and service providers who manage and run the infrastructures, processing and operations of this industry.I guess.
With the general frustration folks appear to have with bank fees - not sure why as banking has to cost something, doesn't it? - I just got wind of the new Currency Exchange for P2P transactions. Here's how it works:
Or, if you prefer, in text form:
"CurrencyFair is the people's exchange."
For example, "Jim is an Aussie living in London. He still has a flat in Sydney and he rents it out. The rent he gets he has to exchange into pounds to help finance his flat in London. But while he is trying to change dollars into pounds, Shirley wants to turn her pounds into dollars. She's retired but wants to help out her son-in-law who has just started a business in Brisbane. We bring Jim and Shirley together ...
"You can browse and choose the deal you want because it's a market. That means if anyone does try to charge above the odds for their Pounds or their Zloty or whatever, they'll never sell them. It's as simple as that."
Or, if you prefer, here's how it works in picture form:
To secure everything, Currency Fair works with Bank of America. As they say:
"We're no friend of the banks. Except one. We are a friend of Bank of America. All your money is held in segregated client accounts with Bank of America, the largest bank holding company in the United States by assets. That's bank speak for your cash is safeguarded by being held separately to ours."
Interesting choice of Bank of America, although BoA did have a 'vision' unit - they used to publish the Future Banking Blog - and that could be the reason why.
The only downside of Currency Fair appears to be that it has been created by a bunch of Irish, Welsh and Ozzie ex-banking backpackers - that must be the reason for the sheep in the picture above - but hey, you can't win 'em all.
Postscript: American Express exchange rates at Heathrow Airport ...
Here's my latest retail payments focused presentation. It's premise is that there's loads of innovation out there, with micropayments and iPhone apps being hotbeds of innovation for developed economies whilst microfinance and 2G GSM messaging being creative fields for developing economies.
However, all of these innovations are just froth on the cake of the payments infrastructure and the core of that infrastructure - the clearing and settlement services that underpin these services - is still pretty rotten. There's still lots of legacy infrastructure out there, which needs updating to operate in our 21st century world ... but sits languishing because banks are slow to act.
And the fact that banking protects banks through bank licensing, means that none of the innovative firms - including PayPal - can make much difference to this rotting core.
A little bit over-stated, but I think it makes the point.
You'll notice some of my usual slides in here, but I've also added quite a few new ones, including several that list stunning numbers ... such as Facebook currently uses over 30,000 servers!!
If you're wondering what's happening with SEPA (the Single Euro Payments Area) then this interview with Gilbert Lichter, Secretary General of the Euro Banking Association (EBA) and CEO of EBA Clearing, provides a good overview of the latest and greatest:
We had a great session at the FSClub the other day, discussing the views of the corporate client and their relationship with the bank. The panel consisted of a representative for corporate treasurers; a former head of treasury ops for a major technology vendor; and the head of epayments for a large, global bank.
The corporate treasury representative kicked off the evening by discussing the key challenges for a treasurer. These are roughly summarised by:
Access to credit: the relationship between the corporate borrower and their bank has fundamentally changed as the bank now looks very carefully at who is asking for how much and what they are going to use it for;
Regulations: as the uncertainty over Basel III and OTC derivatives regulations are in flux and this could clearly change a treasurer’s portfolio of investments;
Pensions: where the resources, management and overall structure of the portfolio is being challenged, and the trustees are nervous of reactions of the fund;
Value-add: both of the treasurer and the treasurer’s bank – the corporation is looking for value-add from treasury functions and this means a clear focus upon processes, technology, employees and customer relationships
He summed up all of the above by making it clear that treasury and treasurers have a real issue right now, which is that they cannot see the lay of the land for the future. I asked him if the issue of access to credit was down to the banks tightening up so much that they wouldn’t lend, or if businesses just don’t want loans, which is what quite a few banks claim.His view was that it’s ok if you’re a FTSE100 firm and need to borrow, as the banks don’t want to upset those relationships, but that it’s far harder if you’re outside the FTSE100. Sounded like the old adage of those who owe the bank £1,000 have a problem but those who owe the bank £1 million mean the bank has the problem.The banker followed by stating that this is the ‘year of disruption’ as focus moves from Western economies to Eastern economies, and that the corporate supply chain would be radically altered as firms re-engineer for dealings with Asian economies, and China in particular.For these reasons, risk is becoming increasingly important as a factor and this is why firms are moving away from the open account style of trading popularised in the early 2000s to refocus around bank licensed relationships and letters of credit.He also felt that regulators have a real challenge here as “generals fight the war they fought before”. In other words, regulators have zero foresight, only hindsight, and that is their dilemma.
The banker went on to talk about SWIFT and the fact that the level playing field has also been disrupted.
In this context, it related to SWIFT’s post-9/11 subpoena by the US authorities to disclose any messages that might relate to terrorism. How is SWIFT meant to delineate between those that might relate to terrorism and those that do not? It’s impossible. But this means that the EU cannot agree with the USA on the information sharing rights and access to SWIFT messaging. As a result, SWIFT has to take an increasingly regionally focused approach to financial markets, rather than a global approach.
It made me wonder whether this meant that SWIFT’s role is diminished.
Strangely enough, maybe not, as the banker went on to discuss the increasingly internationalised way of doing business and the fact that the internet and, more importantly, mobile internet is making this even more the case.
Mobile internet banking is enabling many new international organisations to launch so that the old days may have been one of an Asian cash business, a European cash business and an American cash business, but it’s now a Global cash business.
Corporates are expanding globally but, in many cases, they are not big enough to split the world up into the regional structures required and expect the bank to do that for them. This means that there is an increasing focus upon the quality of bank’s service and client engagement.
The former treasury head then had their chance to respond, and said that the top of mind matters for treasury varied by company size and region; whether they were cash rich or exposed to net debt; how they fitted into the supply chain; and whether they were a retailer, manufacturer or producer.The core question for all of them however is: can I access credit, liquidity, capital, etc. For these reasons, all of them need a good sight of their cash positions and a good feeling about the strength of their banking partner(s).Her view is that it is still very difficult for a global corporate to find a single global bank relationship for these reasons, as no single bank has a global position or platform that is adequate in every geography. The question however is how many relationships do you therefore have to have: ten, twenty, thirty...She believes that treasurers will have as many relationships as required to be effective but will then use technology for virtual consolidation to provide that cash positioning dashboard on a globalised basis. In this context, being bank agnostic is the key. She also believes that the move towards open account trading is inevitable, unlike the banker, and that the procure2pay process will be reengineered to reflect this.The question then is what are the right timings for netting, pooling and positioning: end-of-day, intraday or real time?Of course, I would say real-time.The evening then went into an open Q&A, with a wide range of topics covered from the role of technology to the future of SWIFT; supply chain processes to working capital reengineered; the role of social media to the role of the EACT and EU; the bank relationship and standards to the corporate relationships and TWIST; and more.All great stuff that could form a blog entry of several thousand words but, at just over a thousand, this will doodle-do.All in all, an event that looks like it will become a stable Club meeting for years to come.Oh yes, and what’s on a treasurer’s mind?
It fascinates me when we talk about ‘identity’ that we always seem to think of identity management as being a single thing ... but it’s not.
First, there’s the use of identity for identification; second for authentication; third, for verification; and fourth for fulfilment. Then there are the many instances of providing and proving identification: at a bank, at an airport or border control, at a vehicle hire firm or other high cost rental, when opening a telephone account or similar service, when picking up tickets for a concert, etc. Finally, there are the many reasons for needing identity checks, from tracking money laundering and politically exposed persons (PEPs) to fraud and identity theft issues to just checking that you are who you say you are.Although these all sound the same, they have distinct differences and is the reason why there are so many identity solutions out there. Generally, such solutions fall into a catchment of being for an anti-fraud focus or for a verification process, with the process being based upon:
Something you know, such as a PIN, Password or Personal Fact
Something you have, such as Card, Token or Telephone
Something you are, such as a Fingerprint, Voice or other Biometric
Somewhere you are, based upon GPS location or similar proximity analysis
Some way you behave, such as your general activities, channel usage and location
Obviously the five areas above are also inter-connected, as you could use a PIN, Biometric and Telephone along with location services to verify a user based upon five-factor authentication rather than two. But we don’t do that today, and some banks struggle with even one factor authentication.You cannot be serious I hear you cry, but no, it’s true.Ring your bank and pretend to be someone else.I’ve done it.I had to pretend to be my father-in-law and it was easy once you got the bravado together to claim to be someone you’re not.So the question of identity for authentication and verification is still not good enough.What are the potential solutions out there?Generally, further variations on the above.For example, I recently went to a presentation by a number of firms that use the words identity in their company name. Both firms were focused upon improving password security by offering easier password access and control.I then got a call from another firm with identity in their name, and they wanted to talk to me about biometrics.A third firm offered to provide mobile-based authentication services.So let’s look at these variations in a little more depth.First, the something we have.This is the most basic form of identification – a document, validated by an authority, that says: “yes, it’s you”.
Often a card and sometimes a card with your photograph on it, this identification has been around since the war.
The trouble with this form of identity is that it can be forged, copied, stolen and easily used by another card holder.
Therefore, we introduced the something you know.The idea here is that there is a secret code that goes with the card to show that not only is the person presenting the card the owner, but they can prove it.The most common something you know is a Personal Identification Code, or PIN. PINs are generally allocated by the bank but can be changed to whatever you want.Although secure therefore, it’s easy to second guess or, due to Chip & PIN, shoulder-surf and steal.Equally, PINs can be hacked and compromised via intelligent machine-in-the-middle attacks and so banks introduced a four-digit PIN password enhancement by asking things like date of birth and mother’s maiden name.It soon became obvious that criminals could find out such information from public record and so we are now in a world of much more complex codes and secrets.For example, GrIDsure offer a pattern-based PIN so that criminals cannot predict your PIN numbers. Equally, RSA security offer lots of tokens and keys to generate one-time passwords on top of basic identity information, to ensure that a criminal is foiled.
Unfortunately, in the latter case, many of these efforts just add to the effort required for the customer every time they are trying to make a payment or access the bank service. For example, we have the Chip Authentication Program (CAP) and Personal Card Readers (PCR) in the UK for online payments processing.
The trouble is that you have to have the terminals with you and, even if you do, people use them so infrequently that they often forget the process. As a result, their use of online payments falls whilst PayPal goes from strength to strength.
The reason? PayPal is simple, easy and convenient, but PCRs are not.Equally, what is really interesting in the two instances above, is that these things are already being side-tracked by the mobile telephone, which offers something you have that is unique – your SIM card and telephone number – along with an interactive dialogue for access to PINs and One-Time Passwords.In addition, it offers an easy way to track where you are, and hence can be a good way of triangulating information for a bank. For example, if someone tries to withdraw cash or make a payment in New York when their mobile telephone GPS signal is being picked up in San Francisco, the bank could immediately question such transactions.Therefore, I wholly expect the mobile telephone to become the key to most forms of identification.
The mobile can even play directly into the biometrics field, thanks to fingerprint recognition and even apps under discussion that will use the mobile telephone’s camera for iris or face recognition. In particular, the work of Voice Commerce to create voice biometric payments is of interest here.
Voice Commerce is now a PSD-approved Payments Institution and Visa Partner, all based upon mobile voice biometric services.
So where does that take us?The mobile telephone becomes the unique identity management system for future financial services?Sure, it provides a clear capability to track behaviour and location, along with easy verification and validation of something you have and something you know and potentially something you are.But is that it?What happens if you lost the telephone? What happens if you forget the codes or passwords? Is Voice Biometrics really ready for prime time? What I am really asking is: what is the process on the other end of the telephone that’s required?This still therefore mandates a clear bank identity management system, shared across multiple institutions, which can allow the user to access finance with just a single sign-on rather than multiple sign-ons.That’s the thought for next generation financial services. A simple multibank, cross-border identity system that can work easily and simply and conveniently behind the mobile bank interface.Hmmmm ... I wonder what system that could be?Whichever system it is has to have a number of key features.First, it will not just be a technology solution, as there must be clear and recognised policy, legal and operational rules which allow the shceme to operate across bordres and banks.Second, an identity scheme cannot just be a “number”. Numbers are too easy to break, and you therefore must have a name specified and associated with the number in order for the identity management system to allow transactions to be truly non repudiable, as in legal.Third, solutions have to be massively scalable, which means cloud-based today.Fourth, it must be capable of supporting multiple applications across multiple geographies and multiple industry silo’s. And, whilst achieving all of the above, it needs to be simple to use but unbreakable.
A while ago, I talked about cover payments and the introduction of the changes to SWIFT MT202 message types. A wee bit technical for the blog, but worth it as the costs of implementation of the changes were, and are, a major concern for the banks I deal with.
Today, a press release landed in my inbox. Usually the "Delete" button is reached before I even notice the title of such releases, but this one intrigued me:
"SWIFT's MT202 COV Led to More Work, Data Quality Concerns - Dow Jones Survey"
Hmmm ... what's all this about then? On reading, it's all about a small - just over 50 - group of bankers saying: "yes, MT202 COV is a pain".
"The majority (60 percent) of compliance and payments industry executives believe the new SWIFT cover payments rule
MT202 COV raised the standard of sanctions compliance ...
... but many also credit it with increased workloads and costs as well as mounting concerns over duplicate alerts and data quality, according to surveys conducted by Dow Jones.
Roughly half (49 percent) of survey respondents experienced an increase in workload following the introduction of MT202 COV while 39 percent said their costs of compliance increased.
The rising costs come as 51 percent of respondents expect their budgets to be stagnant over the next year.
When respondents were asked to rank their level of concern regarding key issues when screening wire transfer messages, their concern rose across the board after MT202 COV took effect. Data quality saw the biggest jump as 41 percent were “very” or “extremely” concerned about this issue before MT202 COV, but 62 percent said the same after the rule took effect.
Concern about a high number of duplicate alerts also jumped significantly as 47 percent of respondents identified this as an issue after MT202 COV took effect, compared to 30 percent before the rule was implemented.
Dow Jones conducted two surveys to measure the impact of MT202 COV, which took effect in November 2009. The first survey, conducted from Aug. 31, 2009 to Sept. 9, 2009, received 52 responses and the second survey, conducted from March 23, 2010 to April 6, 2010, received 53 responses.
After my post last week about my latest presentation with an audio file, my keynote in Bahrain this week was going to be a variation of the presentation. Due to being unable to fly to Bahrain, I mentioned on Monday that most of the day had been spent editing a video file for the conference to be able to present my keynote.
This 'aired' for the first time this morning and so here is the video version for the blog:
Bearing in mind that this was made with a cheap ($200) HD video camera, free video editing and slide management software and cheap ($59 per year) hosting services, it's an extraordinary way for anyone to create and become their own media channel in the 21st century.
Mind you, they could improve the looks of the anchor hosts a bit, couldn't they?
I sometimes get unusual things in the email – no comments thanks – such as the full post-conference write up of a cards and commercial payments conference in the USA last month.
Here’s a few quotes and notes that caught my attention ... Marcie Verdin, Group Head of Large Market Segment, Global Commercial Products (why do people have such strange job titles in American firms) for MasterCard Worldwide stated that there are $90 trillion commercial payments made each year, of which cards were responsible for less than $1 trillion. Oh yes, being a US conference, I guess all of the other payments must be made with paper cheques.As if to back that up Peggy Yankovich, Senior Vice President for Global Transaction Banking Division at HSBC, stated that the total amount of American B2B payments were currently worth around $18 trillion per annum. The majority of these - $14 trillion worth – are for transactions worth over $5,000 each. What is astounding therefore is that cheques accounted for around 70% of B2B payments.Get electronified America!!Thinking that this might be the case, it was nice to see that einvoicing made the agenda with Henry Ijams, Managing Director and Founder of PayStream Advisors, noting that half of all companies were evaluating einvoicing and one in five are currently using this process. Conversely, it was a bit disappointing that 80% don’t use einvoicing though and, most tellingly, 64% said that they process fewer than 25% of their invoices electronically. A long way to go to get efficiency in those processes.
Just to get in on the act, Darren Parslow, Head of Global Commercial Solutions at Visa, estimated that prepaid is worth about $3 trillion of payments.
Interestingly, this was the figure that TowerGroup put on prepaid market for 2010 ... back in 2005!
Tony Cunningham, Vice President Business Development at UATP, then made a point that surprised even yours truly: ‘30% of the largest global retailers now accepted an alternative form of payment such as PayPal’.Wow!There’s a whole load of other useful stuff for those interested in commercial payments, so may well be worth a look.
Just had a fascinating chat with Nick Ogden, founder and CEO of Voice Commerce and previously RBS WorldPay which is now part of RBS Global Merchant Services (GMS). As mentioned last week, Voice Commerce is one of the organisations bidding for RBS GMS, now that it is up for sale again, and this week was told that their bid has been rejected.
Here’s the detail.
It was a fully funded cash bid, comprising a group of investors and a major UK listed entity. The bid was “north of £1 billion and south of the £2 billion mark”. The bid would have made RBS GMS a UK-listed company, with Voice Commerce merged into it. In addition to the cash, RBS would have retained an equity stake shareholding in the new business, which would have moved RBS into new markets with new technology. This was a particular focal point for the bid, as Voice Commerce would have integrated voice biometric authentication into the RBS GMS merchant processing epayments business.It was also a stand-alone bid, rather than being some group of partners or partnerships. Apparently, the seventeen expressions of interest included many consortia of Private Equity (PE) and Venture Capital (VC) firms.The Voice Commerce bid received “full marks for management and technology, but was too low and our aspirations are higher” according to a letter Nick received from UBS, the bank advising on the M&A process to RBS.So what happens next?UBS is narrowing bidders to around three or four for a second round of evaluation. These bidders will then enter a due diligence process, with the view to completing the final round of bidding within the next eight weeks or so.Of particular note is Nick’s valuation of the business, bearing in mind that he founded WorldPay and sold it to RBS in 2002. Nick therefore has a “good understanding of that business worldwide and it will be interesting to see the final valuations and whether they have that same level of understanding.”Meanwhile, Voice Commerce is looking elsewhere for acquisitive growth with a focal point around distribution. That’s what they wanted from RBS GMS – the 500,000 merchants and their customers – and could lead Nick to look at companies such as Heartland. Nick would only say they are looking around America, Asia and the Middle East as, having received their PSD approvals in the EU, he wants to take their PSD and Visa authorisation overseas as a critical differentiation point. Equally, he believes that “the emergence of IP-based POS means significant changes will occur with merchant acquiring” over the next few years, and Voice Commerce is ideally positioned to capitalise upon this.
Watch that space, and also the RBS GMS deal. This could get interesting.
Moneris enters the fray for RBS unit By Martin Arnold and Patrick Jenkins Published: April 15 2010 23:19 | Last updated: April 15 2010 23:19Moneris Solutions, the Canadian card payments company, is a surprise bidder for Royal Bank of Scotland’s Global Merchant Services division, as the auction of the business moves into its final stages.The £2.5bn ($3.9bn) operation, centred on the WorldPay payments business and incorporating the Streamline cards operation that dominates the UK market, is one of the assets that RBS must sell under the terms of a European Commission state aid ruling. The government has a shareholding of 70 per cent in RBS after bailing it out last year.Toronto-based Moneris, a joint venture between Royal Bank of Canada and Bank of Montreal, provides credit card payment processing to more than 350,000 North American merchants.RBS plans to invite a small group to join Moneris in the second round of bidding for Global Merchant Services, out of the more than a dozen bids it received earlier this month.The other bidders that are moving into the second round include CVC Capital Partners, the UK-based private equity group, and a consortium of US private equity groups Advent International and Bain Capital.Talks were still being held on Thursday night by RBS on whether to include others in the final round, such as a consortium of Silver Lake, the technology focused US private equity group, and Tsys, a rival US payment services group. Other private equity bidders thought to still be in the fray include TPG, Carlyle and Permira. Groups no longer in the running include JPMorgan Chase Paymentech, Atos Origin of France and Apax Partners, the UK private equity group.Advent believes it may have an edge as it bought 51 per cent of the credit card processing unit of Fifth Third Bank a year ago in a $2bn (£1.3bn) deal. The US arm of Global Merchant Services could be combined with Fifth Third’s business.Moneris has held talks about joining forces with one of the private equity group bidders, but without reaching an agreement.Global Merchant Services generated operating profits of £249m last year. RBS has agreed to provide vendor financing on the deal alongside Goldman Sachs, people close to the deal said.RBS and the bidders all either declined to comment or could not be reached.
Back in 2004, I asked a group of bankers when mobile would take off in banking. They all said: “not in our lifetimes”.
In 2007, Bank of America launched their mobile banking applications and has seen a rapid uptake of users. In less than a year, they reached a million customers on mobile, and saw a further 300% growth in 2008. It took them over a year to get the first million customers; a pregnancy period of just nine months to get the second million; and a short six months to get the third.
According to Doug Brown, the man responsible for mobile banking at Bank of America, the speed of take-up is accelerating even faster in 2009, with 150,000 new mobile customers in September 2009, 210,000 in August and 220,000 in July.
What are they doing?
99% of mobile users’ view balances, 90% view transaction details and about $10 billion of funds have been moved via mobile.
But this is not just for existing accountholders wanting account access. The bank has gained over 150,000 new accountholders from competitors during 2009, just because they wanted mobile banking.
So far so good.
Now jump to Africa.
M-PESA is the story in Africa.
M-PESA is the mobile text service introduced by Vodafone’s subsidiary, Safaricom, back in 2007. Suddenly a country with zero electronic methods for making payments for the masses had an electronic access which has revolutionised the country.
Within a year, one in five Safaricom users were using M-PESA to make payments, and one in ten Kenyans had used the service. By November 2009, M-PESA had become the world’s biggest mobile money service with over 10% of Kenya’s GDP moved by mobile payments. Accidentally, Safaricom had become the biggest bank in Kenya with 8 million users registered and over $2 billion transferred by mobile.
Now M-PESA is being expanded into Nigeria, South Africa and other African countries, whilst banks are saying that customers are actually switching banks to get mobile channel access.
Now jump to Japan.
A bank launched in Japan in June 2008 called Jibun Bank.
Jibun Bank is a mobile only bank. The Bank is designed for access via mobile only. You try to use the bank online, and it’s rubbish. As for branches, forget it. This is a multimedia rich, mobile only bank.
The bank is a joint venture between the Bank of Tokyo-Mitsubishi UFJ and telecom operator KDDI.
Jibun Bank, which means my bank, gained 500,000 account openings in just eight months and, after eighteen months, had Y140 billion ($1.5 billion) of deposits by December 2009, from over 850,000 accounts.
At the start of March 2010, the bank opened their millionth account.
What is the point of these three short case studies?
Well, there are many, many examples of banks innovating with mobile worldwide today, but the lesson is this.
In 2004, bankers believed this revolution would not take place in their lifetime.
One banker actually said to me, in writing: “I think this idea is way out there – ten to twenty years – before this plays out in any sizable way.”
Six years later, the battleground is already defined and being won.
Are you fighting in this space?
Have you lost already?
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