Friends and relations

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[Dave Birch] While I was sitting through a presentation (a very good presentation, I might add) on social media strategy for one of our client's financial services business, it struck me that they were slightly misjudging the more interactive and transactional nature of social media, doing great stuff but treating social media as another customer communication channel. I'm naturally more interested in social media for transactions: social commerce. I've given a couple of talks about this recently, pointing out the opportunities that social commerce opens up.

One prediction says social commerce will top $30 billion globally by 2015 with Facebook-generated sales one of the primary drivers.

[From Infographic: The history of F-commerce | SMI]

There are many different ways that financial services organisations can exploit this. A good example, to my mind, is the way in which Amex works with Foursquare.

Just after announcing that it passed 10 million users, location-based check-in service Foursquare has said it is partnering with American Express to give members even better deals when they check in at merchants’ stores across the country.

[From Foursquare partners with American Express for deal check-ins | VentureBeat]

This is a terrific proposition and it's well implemented (through statement credits, so no coupons or vouchers or anything are needed). And, to follow this example, Amex also has a Facebook pages where its large number of fans can come to learn about products and services, share with the community of card holders and so on. Great stuff. And it isn't only financial services organisations that are integrating themselves into social media to create new kinds of social commerce.

That is because the well-known mobile service provider is now allowing its customers to log on to Facebook to purchase phone credit.

[From O2 details new contactless payment technique]

Wow, that's pretty interesting.

Pre-paid subscribers will now be able to access a secure app on the social networking website, where they will put in credit card details in order to purchase top ups.

[From O2 details new contactless payment technique]

Credit card details? Not Facebook credits? But you get the picture. Something like Facebook can be used to create a more intimate transactional environment without having to develop software, making it easy for consumers to "friend" and "like" and so forth. Personally, I don't find this sort of thing particularly appealing because to me it's the wrong kind of social relationship: I want something more granular.

Here's what I mean. I don't want to be friends with my bank—after all, I'm a typical consumer so I hate banks—but I do want to be friends with my bank account. Why can't Barclays let me friend my current account so I can see its status updates like "Premium card fee £10.00", "Direct Debit British Gas £37.85" and "Counter Credit £5.00" and so forth? I quite like the text messages that Barclays sends me but would prefer something more immediate and more detailed (I often call this "streaming commerce") so that I can make decisions and respond.

Similarly, I don't especially want to be friends with MBNA, but I do want to be friends with my MBNA American Express card. If i see a status about about my payment being use, that would be really useful. If I see a status update from my card that appears to have gone on holiday to Kazakhstan while I'm in Peckham, I can press a button somewhere and get straight through to lost and stolen cards. I wouldn't mind if the status updates where now and then promotional messages instead of transaction reports, that would be handy. It would due like my friend telling me that there's double reward points in Sainsbury's today, so something like that. I'm using "friend" generically, of course, I don't mean to imply that Facebook is the one and only way to implement a social media strategy.

Facebook usage in the UK fell nearly 4pc in July to its lowest level since 2009, sparking concerns that the social network has hit its peak and may be declining in popularity.

[From Facebook usage falls to three-year low – Telegraph]

I don't use Facebook that much—it's really for sharing with my brother and sister, other family members and a few old friends—and I've not got a crystal ball to see whether we'll still be using it in a couple of years.

Many of the smartest people I know are leaving Facebook as well. I predict we’ll see many people leaving over the coming months and adopting Twitter.

[From The Facebook Exodus and the Future of Human Communication « Far Beyond The Stars | Cyborgs, second selves and cybernetic yogis]

My idea would work even better with Twitter. Suppose Barclays knew my twitter name—maybe they could ask me when I log in for home banking and get permission to send tweets to me—and connected it to my bank account. Now, whenever Barclays gets a new follower on twitter it can scan it's customer database to find out if that twitter name belongs to a customer. If it does, they can starting sending out all status changes as Direct Messages (DMs). That would be simple and great.

I'd love to follow my John Lewis MasterCard on Twitter in this way instead of having to log in to find out what it's been up to. Since I use Twitter all day and every day anyway, it would be a much better channel for payment products to develop a more intimate relationship with me. And think of the practical benefits: if I get a tweet from my debit card telling me it's just been used to withdraw money from an ATM in Belarus, I can call Barclays right away to block it from further misbehaviour. This doesn't seem terribly complex: all Barclays need to know is my twitter name and then it can use the Twitter API to post tweets and only allow me to follow them.

If I could follow my transactional instruments, I could also (in time) feed their tweets, status updates, notifications and so on into other software for mash-ups. I don't know what kind of mash-ups – I'm not smart enough for that – but I'm sure there are people out there who could do great stuff with the data. So a plea to my account, card and service providers: I don't want to be friends with you, because you are corporations and not mates, but I do want to be friends with my stuff: my money, my cards, my phone. How hard can it be?

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

Friends and relations

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While I was sitting through a presentation (a very good presentation, I might add) on social media strategy for one of our client’s financial services businesses, it struck me that they were slightly misjudging the more interactive and transactional nature of social media, doing great stuff but treating social media as another customer communication channel. I’m naturally more interested in social media for transactions: social commerce. I’ve given a couple of talks about this recently, pointing out the opportunities that social commerce opens up.

One prediction says social commerce will top $30 billion globally by 2015 with Facebook-generated sales one of the primary drivers.

[From Infographic: The history of F-commerce | SMI]

There are many different ways that financial services organisations can exploit this. A good example, to my mind, is the way in which Amex works with Foursquare.

Just after announcing that it passed 10 million users, location-based check-in service Foursquare has said it is partnering with American Express to give members even better deals when they check in at merchants’ stores across the country.

[From Foursquare partners with American Express for deal check-ins | VentureBeat]

This is a terrific proposition and it’s well implemented (through statement credits, so no coupons or vouchers or anything are needed). And, to follow this example, Amex also has a Facebook pages where its large number of fans can come to learn about products and services, share with the community of card holders and so on. Great stuff. And it isn’t only financial services organisations that are integrating themselves into social media to create new kinds of social commerce.

That is because the well-known mobile service provider is now allowing its customers to log on to Facebook to purchase phone credit.

[From O2 details new contactless payment technique]

Wow, that’s pretty interesting.

Pre-paid subscribers will now be able to access a secure app on the social networking website, where they will put in credit card details in order to purchase top ups.

[From O2 details new contactless payment technique]

Credit card details? Not Facebook credits? But you get the picture. Something like Facebook can be used to create a more intimate transactional environment without having to develop software, making it easy for consumers to “friend” and “like” and so forth. Personally, I don’t find this sort of thing particularly appealing because to me it’s the wrong kind of social relationship: I want something more granular.

Here’s what I mean. I don’t want to be friends with my bank — after all, I’m a typical consumer so I hate banks — but I do want to be friends with my bank account. Why can’t Barclays let me friend my current account so I can see its status updates like “Premium card fee £10.00”, “Direct Debit British Gas £37.85” and “Counter Credit £5.00” and so forth? I quite like the text messages that Barclays sends me but would prefer something more immediate and more detailed (I often call this “streaming commerce”) so that I can make decisions and respond.

Similarly, I don’t especially want to be friends with MBNA, but I do want to be friends with my MBNA American Express card. I’m using “friend” generically, of course, I don’t mean to imply that Facebook is the one and only way to implement a social media strategy.

Facebook usage in the UK fell nearly 4pc in July to its lowest level since 2009, sparking concerns that the social network has hit its peak and may be declining in popularity.

[From Facebook usage falls to three-year low – Telegraph]

I don’t use Facebook that much — it’s really for sharing with my brother and sister, other family members and a few old friends — and I’ve not got a crystal ball to see whether we’ll still be using it in a couple of years.

Many of the smartest people I know are leaving Facebook as well. I predict we’ll see many people leaving over the coming months and adopting Twitter.

[From The Facebook Exodus and the Future of Human Communication « Far Beyond The Stars | Cyborgs, second selves and cybernetic yogis]

My idea would work even better with Twitter though. Suppose Twitter made a small change to their system so that a user could opt to be in “secure” mode. A secure mode user can only be followed (or searched) by users in their “secure list” or whatever. Then, my MasterCard could be secure user “mc-53XX-XXXX-XXXX-XXXX” the only name in its secure list would be “@dgwbirch”. Now, when anyone else tries to follow or search mc-53XX-XXXX-XXXX-XXXX they see nothing.

I’d love to follow my John Lewis MasterCard on Twitter in the way instead of having to log in to find out what it’s been up to. Since I use Twitter all day and every day anyway, it would be a much better channel for payment products to develop a more intimate relationship with me. And think of the practical benefits: if I get a tweet from my debit card telling me it’s just been used to withdraw money from an ATM in Belarus, I can call Barclays right away to block it from further misbehaviour. This doesn’t seem terribly complex: all Barclays need to know is my twitter name and then it can use the Twitter API to post tweets and only allow me to follow them.

If I could follow my transactional instruments, I could also (in time) feed their tweets, status updates, notifications and so on into other software for mash-ups. I don’t know what kind of mash-ups – I’m not smart enough for that – but I’m sure there are people out there who could do great stuff with the data. So a plea to my account, card and service providers: I don’t want to be friends with you, because you are corporations and not mates, but I don’t want to be friends with my stuff: my money, my cards, my phone. How hard can it be?

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

Theatrics

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[Dave Birch] I was twittering the other day about the tedious, annoying and pointless anti-money laundering (AML) procedures that I had to go through at the Post Office to get two hundred US dollar for a visit to the States. These wasted everyone’s time and money. Incidentally, not everyone is subject to the same stringent AML provisions as mere peasants such as you and me.

Guarantee 5, of eight areas of demands that Fifa has detailed for governments, relates to Bank & Foreign Exchange Operations. Section 5.B is entitled “Foreign Exchange Undertakings” and states that the government must provide for “the unrestricted import and export of all foreign currencies to and from the UK, as well as the unrestricted exchange and conversion of these currencies into US dollars, euros or Swiss francs”.

[From Fifa’s demand to be exempt of UK money-laundering legislation | Football | The Guardian]

I hate to say WTF, but seriously WTF? Why on earth should they even want to import and export unrestricted amounts of currency? Churlish observers might see this as a provision relating to tax evasion which, given the amount of money that footballers and their agents earn, looks like an unnecessary perk. Unless I’ve misjudged things, and tax evasion is considered a standard perk for the rich, which is why I don’t have access to it.

These AML procedures for such trivial sums (when 500 euro notes are allowed to circulate freely) have a potentially damaging impact on new services designed for low-value payments because they impose pointless costs. It’s almost a knee-jerk reaction to a new technology for payments to inside that it presents a unique opportunity for money launderers and to demand regulation.

U.S. mobile payments services providers should be required to establish programs to mitigate the risk of money laundering

[From Portals and Rails]

That’s a good idea. If I were a US mobile payments service, I’d start by pressing the Federal Reserve to abolish the €500 and $100 bills, which are the favourite tools of money launderers everywhere.

The UK’s border police were patting themselves on the back today after seizing over half a million quid in cash from the hand luggage of two Nigerian men at Heathrow Airport. The men said the money – a mix of €500 and $100 bills…

[From UK border police seize £500k from Nigerians’ hand luggage • The Register]

Note again: not prepaid cards, mobile phone vouchers, gold or Marks & Spencer gift certificates but cash. As an aside, this report led me to wonder if this is what they are really scanning for at the airport!!

Consider Umar Farouk Abdulmutallab—the Nigerian “Jockstrap Jihadist” who boarded a Detroit-bound jet in Amsterdam with a suicidal plan in his head and some explosives in his underwear… He was, after all, traveling without luggage, on a one-way ticket that he purchased with cash. All of this while being on a U.S. government watch list.

[From The Case for Calling Them Nitwits – Magazine – The Atlantic]

And, more recently,

The US Transport and Security Administration is likely to face questions about why he was allowed to board even though his luggage was allegedly found to contain a mobile phone taped to a Pepto-Bismol bottle, three other mobile phones taped together and several watches taped together.

[From Dutch police arrest terror suspects on US flight – Telegraph]

They were keeping their eyes peeled for cash, presumably. I’m not surprised that he wasn’t stopped, to be honest. I went through security on to a US flight last year with a carry-on bag containing six Nokia phones, a Samsung phone, an iPhone, a Vivotech POS terminal, a box of credit cards, an iPad, a MacBook Pro plus all of the assorted chargers and cables, a digital MP3 recorder, a digital camera and a Flip video camera together with spare batteries and a bunch of RFID stickers. I was sure that I would be stopped and asked to open the bag up—which would have been fair enough—but nothing. Had I packed some spending money, I presumably still be in the cells.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers


You have to eat your own dog food

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[Dave Birch]  Hmmm. Last time I was in the US I was in an Interesting lunchtime discussion. If you go to a restaurant in the New York, sit down, get served some ice water, and then open the menu to find a notice saying that they accept cash only and do not take cards, do you…

a) Pay $2 or whatever to withdraw cash from the ATM in the restaurant and they pay using that cash and leaving a generous tip.

b) Have a whip-round between you to try and drum up enough cash for the meal, but not for a tip, or

c) Get up and walk out.

Personally, I would go for option

d) Get up, walk out and then report the restaurant to the IRS for conspiracy to evade taxes and potential money laundering.

You have to stick to your guns on some things. I shall be back in the New World shortly and intend to test my theory. By the way, any of my English readers outraged by the criminality, tax evasion and corruption facilitated by cash can now vote for one of Her Majesty’s Governments new-fangled “e-petitions” on the topic. If we can get 100,000 signatures, then in theory they are supposed to discuss it in Parliament—come on over to the e-petition website to vote. I hope my employer won’t object to my non-party political campaigning!

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers


Do we need money at all?

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[Dave Birch] There is a phenomenon, well-known to economists, that is labelled “the double coincidence of wants” and is taken to explain the very fundamental first steps in the evolution of money. It is called the double coincidence of wants because it depends on two coincidences about things that are wanted. Let me explain.

Suppose I have a pig and you have a lawnmower. No trade between us is possible unless we happen to bump into each other at the very moment that I need a lawnmower (unlikely coincidence) and that you need a pig (a doubly unlikely kind of coincidence). Hence the end of primitive barter and the invention of a trade intermediary otherwise known, in the general sense, as money.

Thus, in a primitive economy, such as we have today, money is an inevitability because we either use it to overcome the double coincidence of wants or go back to being feudal serfs. Technology, however, can serve to increase the probability of the double coincidence and thus serve facilitate trade. Writing in Victorian times, William Stanley Jevons observed of the Victorian eBay (or “vBay”, as I like to think of it):

Within the last few years a curious attempt has been made to revive the practice of barter by the circulation of advertisements.The Exchange and Mart is a newspaper which devotes itself to making known all the odd property which its advertisers are willing to give for some coveted article. One person has some old coins and a bicycle, and wants to barter them for a good concertina. A young lady desires to possess “Middlemarch,” and offers a variety of old songs of which she has become tired. Judging from the size and circulation of the paper, and the way in which its scheme has been imitated by some other weekly papers, we must assume that the offers are sometimes accepted, and that the printing press can bring about, in some degree, the double coincidence necessary to an act of barter.

In the age of the interweb, it seems to me that there may be an opportunity to use another intermediary otherwise known, in the general sense, as identity. Here’s why. The double coincidence of wants does not exist as a dynamic in a fully connected world, because there will always be someone, somewhere, who wants anything at all, whatever it is. Let me explain.

I have a pig. You have a lawnmower. You want a pig, but I don’t want a lawnmower. I do, however, want a day’s golf. You don’t know anyone who has a day’s golf, but you do know that the golf club needs some paint. You swap your lawnmower for some paint and give it to the golf club. Then you ask them to give me the day’s golf, and I give you the pig. To our primitive forebears, the cost of resolving this transaction chain would have been utterly prohibitive. But tody we can resolve the long chain of intermediate coincidences, minimising each step by search, in a few milliseconds. In this way, it is possible to imagine trade taking place without money.

On the other hand, it is not possible to imagine it taking place without trust. If, at each step of this chain, the buyer had to institute a detailed examination of the seller in order to determine the likelihood of them delivering the goods or services as advertised, the chain would never resolve in a reasonable time. With some kind of trust infrastructures, while fraud may never be eliminated, it can be controlled to the point at which trade may flourish. Let me explain.

Imagine the chain or barter is being resolved through a system much like eBay. I might set my turbo-barter client to auto-resolve at 100 stars. So you look for someone who wants a lawnmower and you find a taker who has 70 stars and one who has 200 stars, so the software automatically selects the 200 star taker and moves on. Now it’s looking for someone who wants paint, and it finds the golf club. The golf club has 6,500 stars so that is auto-resolved too. In a few milliseconds the whole chain is resolved and everyone knows where to take their goods or deliver their services. You the deliver the lawnmower to Alice, she delivers the paint to Bob, the golf club sends you a day pass. Everyone goes up one star.

Beautiful.

Except… For this kind of auto-trust to work, I need to know that Alice really does have 200 stars. And for that, I need an identity management infrastructure. Note that I don’t need to know who Alice is, I only need to know certain facts about her. So as long as the infrastructure enables me to determine those facts, no problem.

Now imagine a world without money. A world where eBay has been replaced by tBay, the trusted online Exchange & Barter for the 21st century and beyond.

I want to buy a bus journey into town. I got to tBay and select “Arriva Bus Day Pass”. My preferred unit of currency is kCalories, so my phone tells me that Arriva have set a reserve price of 3.5kCal. I know that bus tickets always sell for their reserve price, except in very special circumstances. I click OK.

The system now starts two searches: one from my tBay account, where the things I have as surplus are listed, and one from the Arriva tBay account, where the things that it wants are listed. in a couple of milliseconds the bargain is struck: because I volunteer at a local care home for two hours a week (I play Bridge with the residents), I have plenty of surplus time in my Time Bank, so my phone redeems an hour of this time for some surplus kilowatt hours of electricity the care home has from it’s solar panels (it used to feed these into the grid, but now it uses them to negotiate barter deals) and the care home passes these to Shell. Shell credits three litres of diesel to Arriva. Everyone is happy. My phone confirms that a deal has been struck. I know nothing about the electricity, or the diesel, or whatever.  I just know that there’s less time in my time bank and a bus ticket in my m-wallet.

At every stage in this chain, the identities have been checked and the credentials validated using cryptography, tamper-resistant keys and interoperable credentials. The Time Bank sent a digitally-signed message to the Care Home, the Care Home used the Time Bank’s digital certificate to check the signature, and so on.

Proving, once again… identity is the new money.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers


 

Don’t do as I do

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[Dave Birch] Government can be ambivalent when it comes to cash, by which I mean the notes and coins “in circulation”. In 1875, Jevons explained (in Chapter 18 of Money and the Mechanisms of Exchange) a source of this tension and how it was that the Treasury was some £200K per annum better off because of the circulating medium of exchange. He says

The character of the contract between the government and the bank is of too intricate a nature to be readily fathomed or described, but it substantially amounts to the government borrowing the larger part of the fifteen millions of deposits, and allowing the bank to use the rest to cover the cost of printing and managing the note circulation.

This why there is a tension between the parts of government who profit from the interest on money in circulation and the parts of government who see cash as a drain on resources. In some countries there is also a tension between the parts of government who try to collect tax and government ministers who want to minimise on the overheads associated with complex record keeping.

Until a few weeks ago Giulio Tremonti, Italy’s finance minister, was paying one of his former government advisers €1,000 a week in cash for the use of a Rome apartment. Quite why Mr Tremonti felt it necessary to make his rental payments in cash, rather than by bank transfer or by cheque, remains something of a mystery… It is inconceivable that he is unaware of the role that cash payments play in perpetuating the chronic Italian disease of tax evasion.

[From Renting in Rome – FT.com]

As the FT politely noted, “Mr Tremonti’s cash payments set a poor example to Italian society.” Indeed they do. In fact they set a poor example for other societies to, including our own. I think that anyone who pays rent, or builders, or car dealers in cash should be prosecuted for conspiring to defraud Her Majesties Revenue and Customs. But that’s not to say that everyone in Italy is as pro-cash as the finance minister. The banks there recognise the high cost that cash imposes on Italian society as a whole.

The Italian Banking Association has declared “war on cash” [saying] it costs banks and companies as much as 10 billion euros ($13.3 billion) a year to process cash payments, mainly in increased security and labor.

[From Italian Banks Wage `War on Cash’ as Consumers Pass on Plastic – Bloomberg]

Well yes, but the efficiency of the banking system is only one of the drivers for cash replacement. In large parts of Europe, particularly Southern Europe, the financial crisis will, in my opinion, turn out to be a much more important driver for the adoption of electronic payments not merely for consumer convenience but for cash replacement.

Companies often pay salaries in cash to evade taxes, particularly in Italy’s southern region, where organized crime is prevalent.

[From Italian Banks Wage `War on Cash’ as Consumers Pass on Plastic – Bloomberg]

This should simply be illegal. End of. Bear in mind the scale of this problem at the time when the Italian government’s ability to repay its debt is a matter of grave concern and economists are openly discussing default.

Italy loses about 100 billion euros of revenue a year from untaxed transactions in the so-called underground economy, which amounts to about 22 percent of gross domestic product, according to government statistics. The Finance Ministry agrees with ABI proposals to make public offices accept electronic payments and install point-of-sale terminals.

[From Italian Banks Wage `War on Cash’ as Consumers Pass on Plastic – Bloomberg]

So even if the finance minister isn’t taking a stand against cash, the finance ministry is. As, as noted, are the banks, who have put forward a simple plan to get started.

Banks also want a ban on cash salaries…

[From Italian Banks Wage `War on Cash’ as Consumers Pass on Plastic – Bloomberg]

Now that’s fighting talk, if you ask me. It’s also not completely bonkers: some countries have done this already (in UAE, for example, you are not allowed to pay migrant workers in cash) and I think it makes sense. It doesn’t mean forcing people to have bank accounts, by the way, because for a great many people simple prepaid instruments would be a better choice for them and a better choice for the banks (who are forced to waste money providing “basic bank accounts” to people who don’t want them. Paying salaries electronically is the first step but it’s going to take something like that to make serious inroads into cash-based tax evasion. We need to make all transactions electronic as well.

And yet cash on the table is simply the only way to do business—even when buying homes or entire companies—for many people in Argentina. Transferring such money electronically would solve the problem in an instant. But in a society where income tax evasion runs about 50 percent and taxes eat up 65 percent of the money people do declare, many people are reluctant to use banks that way

[From Argentines risking all to carry huge wads of cash – Yahoo! Finance]

The point, though, is that if banks make cash reduction a strategic issue, then they can develop market-specific tactics and make the effective in the short term. Look across the water to where the National Irish Bank (NIB) is blazing a cash-free trail across the Emerald Isle.

By the end of this year, all of NIB’s remaining 33 branches will be cash-free. (About a fifth are already cashless.)

[From Farewell cash: e-banking is becoming more popular but some risk being left behind – Surviving the Recession, Personal Finance – Independent.ie]

I probably seem a little blinkered in these comments, because not all cash use is because of tax evasion, naturally. Some if it is for money laundering, corruption, drug dealing and organised crime.

And criminals prefer cash. Whitey Bulger, the Boston gangster who lived in Santa Monica for 15 years, paid his rent in cash, and stashed thousands of dollars in his apartment walls.

[From As Plastic Reigns, the Treasury Slows Its Printing Presses – NYTimes.com]

Note what was stashed in the walls. Not prepaid Visa and MasterCard products, not gift certificates from major retailers and not Oyster cards. Cash. It’s time for governments to get serious about cash and whatever the treasuries might say about seigniorage loss recognise that cash does significant damage to the economy. Other countries are beginning to take a stand and tackle cash use head on.

To discourage the use of raw cash in economic transactions in the country, the Central Bank of Nigeria (CBN) yesterday in a circular to all banks, Cash-in-Transit (CIT) operating firms, payments system service providers, as well as money card acquirers, issuers and processors, said that the new policies, including payment of increased penalties for cash transactions by individual and corporate bank account holders, are to help reduce the high usage of cash as well as moderate the cost of cash management among operators in the country’s financial system.

[From Central Bank sets new cash withdrawal limits]

Good for them. Remember, the costs of cash fall disproportionately on the poor, so in developing countries that means that most of the population pay the costs of cash while the benefits accrue to the few.

According to the CBN, about N150 billion is spent yearly to produce, store, transport, protect and destroy naira notes.

[From The Nation – CBN’s drive towards cashless economy]

That’s a billion dollars per annum that could be invested in more productive sectors of the economy, so no wonder any intelligent government would be working to actively reduce the amount of cash in circulation and to actively support the transition to ceaselessness at points of sale and service.

The CBN announced its intention to implement the cashless banking policy with effect from June 2012. It drew a lot of apprehension from the general public and stakeholders.

[From allAfrica.com: Nigeria: World Bank Endorses CBN Cashless Banking Policy]

It’s a bit like the announcement of the end of cheque clearing in the UK. I hope the CBN demonstrates more backbone that us Brits did in the face of reactionary whingeing. I hate the UK U-turn on cheques, not simply because my clients are from the e-payments sector but for what is says about the UK’s vision of itself, its dreadful backward-facing non-technologically informed leadership and national aspirations and trajectory as a supposedly developed nation. A truly forward-looking nation would move in a different direction. Look across the water to the Netherlands, where cash is on the way out in retail.

Marqt is a new concept-store, where you can get a wide selection of groceries, delivered directly from local farmers. It’s has the quality products you’d expect from an organic market, but the streamlined experience of a modern store, which means no cash, only PIN.

[From Marqt – Amsterdam, Netherlands – Shopping]

The use of language in this review is both illustrative and informative. A “modern store” means, amongst other things, “no cash”. I couldn’t agree more. I used to live in the Netherlands and have fond memories of my time there, but these are now being subverted by the green-eyed monster of jealousy!

Personally I live in a up-class village just outside of Amsterdam. In my village (7000 inhabitants) we have a supermarket that accepts no cash after 6PM whilst between 4PM-6PM only one cashier accepts cash. The IKEAstore in Amsterdam has 15 cashier-outlets: 3 for cash and 12 card-only.

[From Are Central Banks Killing Cash? | LinkedIn]

I live in an “up-class village” just outside of London and when I last went to the pub I had to walk round to an ATM to get cash (at my time and expense) because the pub only takes cards for transactions over £10. Perhaps the government should look at Korea and other economies where retailers are given a tax break to share the proceeds of cashlessness.

According to Deputy Minister of Taxes Sahib Alekberov, serious tax credits will be submitted to the persons implementing cashless payments using plastic cards

[From News.Az – Implementation of large cash payments to be banned in Azerbaijan]

OK, so maybe “back-to-Baku” isn’t a great rallying cry. We need to find a better figurehead to take the British public forward on a journey to a more efficient and more equitable economy. I don’t really understand modern politics, but I think getting an old pop singer on board might be an excellent first step.

“There are no direct practical reasons, as far as I can see, to have coins and banknotes,” wrote Abba star Bjorn Ulvaeus in a recent blog post. “There are obvious advantages in getting rid of them. Sweden should be able to be the first country in the world to do this.”

[From The Monetary Future: Sweden Considers Cashless Society]

Sweden is certainly an advanced nation and we should look to them for guidance and direction in many fields. But this isn’t one of them and I don’t want our United Kingdom to come second. We may not have Abba, but we do have a daft government initiative on e-petitions and an endless supply of nutters to propose them. So I hope that you will sign my e-petition to abolish cash and cheques in the UK within a decade as soon as it is approved. Watch this e-space.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers


Let’s not panic about online identity

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[Dave Birch] There’s an increasing moral panic about online identity underway, and it’s resulting in some very strange proposals for unenforceable legislation. I’ve been reading about one such example in the UK called “Clare’s Law”.

According to the Mail on Sunday, Theresa May, the Home Secretary, has indicated in a letter that she is considering the idea.

[From Government considers ‘Clare’s Law’ – Telegraph]

I didn’t really read the rest of it, but I assume the idea is that when you click on an online newspaper article at, let’s say, the Daily Mirror or the Daily Mail, then you are automatically connected to some kind of police database that will tell you whether the reporter has been arrested or imprisoned for phone hacking or whether, let’s say, Trinity Mirror or Associated Newspapers have been involved in any underhand news-gathering techniques. If I thought for one moment that implementing laws like this would actually stop women being murdered or children being bullied to death, then I would support it wholeheartedly. But they won’t. In fact, as far as I can tell from the statistics, widespread internet use in the UK has led to a reduction in the number of murders. Pointless knee-jerk legislation around poorly-understood technologically-uninformed debate is not solely a British phenomenon.

He recommended the introduction of an “Internet Driving License” in schools that would explain the dangers of Facebook

[From Germany considers banning wild Facebook parties | ZDNet]

Now it’s a bit harsh to pick on Facebook, but the truth is that teenagers (from my personal experience) understand perfectly well how Facebook works, so this is almost certainly unnecessary. But if there was an Internet Driving License that you had to use to log in to web sites, that would almost certainly make the situation far worse, since these website would now know exactly who you are, and this information would then be freely obtained by perverts, the secret police, News International or whoever else wants to pry. Why is this better than anonymity (which doesn’t exist anyway – look what happened to the not-Anonymous-at-all hackers). As I have posted at boring length and with tedious repetition, this is the wrong way to go.

Most websites don’t need or even want or need to manage the identities of their users—they simply want a way to reliably identify their users over time.

[From Facebook Wants to Supply Your Internet Driver’s License – Technology Review]

Indeed. So I could use my Facebook identity “Dixie Flatline” to do all the sorts of things I need to do online, and everything would work fine. Google could show me the right search results, The Telegraph could show me the right adverts. But wait…

He also talks about his decision to become the first outside investor in Facebook. The two things that stuck out for him about Facebook were: a) the fact that this was the first site where people logged in with their real identities, and so it had the potential to be an identity layer for the web

[From Peter Thiel: If I’d Known, I Would Never Have Started PayPal]

None of my Facebook identities are in my real name, so I’m not sure about this. And I’m absolutely not sure about the implicit judgement that only my “real” identity should be allowed or valued.

I remembered Gresham’s Law from my business school days explaining why ‘bad’ money drives out good money… It seems bad identity, like bad money, drives out good identity.

[From Why bad Identity drives out good identity | IdentitySpace]

Well, I’m not sure about this analysis either. They’re talking about using Facebook Connect to make it easy to log in to comment on various newspaper sites. I wanted to take advantage of the convenience of using Facebook to log in and comment in various places, so naturally I did what any normal person would do and I created a synthetic person. I made up a name, got an e-mail address, made up a few details—schools attended, that kind of thing—and hit OK. My synthetic person has, at the time of writing, got two friends already (I sent friend requests to everyone who attended the university that my imaginary person had pretended to go to, and two of them accepted, so I sent requests to their friends and now my entirely synthetic persona has five friends!).

Anyway, I’m quite happy having my “business” persona for commenting on things to do with work and a quite separate “citizen” persona for taking part in political debates, being rude about celebrities and asking questions on technical issues where I don’t want to reveal who I am. I’m not pretending to be someone else, which is a different issue entirely (and, of course, wrong).

Fouad Mourtada was arrested on 5 February on suspicion of stealing the identity of Prince Moulay Rachid, younger brother of King Mohammed VI… Mr Mourtada was convicted of “villainous practices linked to the alleged theft of the [prince’s] identity”.

[From BBC NEWS | World | Africa | Jail for Facebook spoof Moroccan]

My synthetic identity isn’t really anonymous. If I used that identity to bully a schoolgirl to death, then I would hope that it wouldn’t take the police more than five minutes to get a warrant to find out from Facebook what e-mail address is used, which IP addresses I’ve logged in from, and so forth. In a hour or two they would be knocking on the door to arrest me.

Randi Zuckerberg wants to eliminate the freedom to post anonymously online. “I think people hide behind anonymity and they feel like they can say whatever they want behind closed doors,” Randi said.

[From Facebook’s Randi Zuckerberg Wants to End Online Anonymity: Free Speech or Real Names? – Page 2]

Either Peter or Rachel must be wrong, but whatever. Either Facebook uses real names as Peter says, or it doesn’t, as Rachel says. But “real names” in any case are a useless “pointer” to a real person.

Mark S. Zuckerberg, an Indianapolis bankruptcy attorney, might not consider Facebook founder Mark Zuckerberg to be a friend. That’s because the world’s largest social networking website has shut down the lawyer’s personal Facebook account… “I was originally denied an account with Facebook two years ago because of my name, and I had to send them copies of my driver’s license, birth certificate and Indianapolis Bar Assn. license just to get them to believe that I exist and to allow me to set up my page,” Zuckerberg told the TV station in a statement.

[From Facebook reportedly disables account of attorney Mark S. Zuckerberg [Updated] | Technology | Los Angeles Times]

That doesn’t sound like a terribly cost-effective identity management system to me, so I don’t know that an Internet Drivers License based on Facebook will necessarily sweep the web (although that’s not to say that Facebook couldn’t be a useful Identity Providers in an NSTIC structure). So what’s the deal with the “anonymity” that doesn’t actually exist? You’d have to be a pretty stupid criminal to use Facebook to commit a crime.

Ashley Mitchell, 29, broke into the Zynga mainframe, stole the identity of two employees and transferred chips said to be worth more than £7m to himself… the company became aware in August 2009 that large amounts of chips were vanishing and suspected the two employees whose identities Mitchell had adopted. However, investigators then realised the system had been hacked and narrowed the search to Paignton. Mitchell’s neighbours had their computers seized because he was “piggy-backing” on their unsecured Wi-Fi connections.

[From British hacker jailed over £7m virtual gaming chips scam | Technology | The Guardian]

This is part of the plot of a novel that I’m writing that involves a guy taking revenge on a love rival by downloading child porn to the rival’s laptop. It’s the perfect crime, because the love rival gets arrested and his life is ruined even though he is never charged with anything. In my novel, the protagonist gets away with it, but in real life…

Mitchell was eventually identified because he used his own Facebook profile during one of his attempts to hack into the system.

[From British hacker jailed over £7m virtual gaming chips scam | Technology | The Guardian]

Doh! You’d get caught whether you used your real name or not, but even so it’s pretty dumb to use your real name. Perhaps Facebook’s addictive qualities will turn out to be a net benefit to law enforcement.

The victim later noticed that the intruder also used her computer to check his Facebook status, and his account was still open when she checked the computer.

[From Burglar leaves his Facebook page on victim’s computer – journal-news.net | News, sports, jobs, community information for Martinsburg – The Journal]

For all sorts of reasons, then, it doesn’t make any difference whether you use your real name or not, and the whole discussion about real names on Facebook and the connection between real names and crime and other unwanted behaviour is, to my mind, limited.

A Facebook spokesperson said the website does not comment on individual accounts, but said it believes a “real name culture” creates more accountability and a safer and more trusted environment.

[From Facebook’s ‘real name’ policy attacked by Chinese blogger | World news | The Guardian]

So is it good or bad that people can say whatever they want online? If you want to complain about Big Brother (or indeed her little brother, Mark Zuckerberg of Facebook fame) should you be able to do so anonymously? In George Orwell’s 1984, the state had a two-way TV screen installed in all homes so that it could both control the discourse, and thus shape people’s opinions—Goebbels said that successful propaganda was that that left people unaware of the source of their convictions—and spy on everyone at the same time. When he was writing, in the 1940s, he could never have imagined that not only would we buy Big Brother’s screens and carry them around with us at all times but that we would voluntarily sign up to be monitored! We’ve already seen how government agencies from despicable regimes use social media to spy on dissidents: forcing everyone to use their real name would make it so much easier for them.

we are all being tracked in ways we probably won’t like, not only by commercial concerns but by Governments and other political interests. Web 2.0 and its social networks makes this scarily easy

[From Why the world’s secret police want you to join Facebook .. « mick’s leadership blog]

There are genuine issues to be dealt with here. Bad things do happen, and the public and politicians want something to be done. By all means go ahead and send me abusive Facebook messages in bogus names – I will just block them and move on. And to be honest, if someone is going to send me death threats, I’d rather it was via Facebook so that they can be tracked down and caught.

So many high-profile incidents in such a short time has sparked a storm of public outrage, with Premier Anna Bligh personally penning a letter to Facebook founder Mark Zuckerberg, while Prime Minister Kevin Rudd said he would consider appointing an online ombudsman, describing cyber crime and internet bullying as “frankly frightening”.

[From Dealing with the dark side of Facebook]

Whether Facebook bullying is more or less of a problem than regular bullying, I couldn’t say as I don’t have the expertise. But then, nor do any of the people in government who are dreaming up legislation on the topic. In fact, I don’t know what the government, regulators, legislators, lobbyists actually want since as a society we don’t have a coherent strategy for identity in the online world.

I won’t dwell on the irony that the government that’s keen to protect you from privacy-violating Web trolls also wants the Web’s plumbing retrofitted to make wiretapping easier. But the last organization I want designing my Web browser is the federal government.

[From If you want Web privacy, stop being such a freeloader. Pay for it. – By Jack Shafer – Slate Magazine]

I don’t think they’re quite suggesting that just yet, but I understand the sentiment.

Slate technology columnist Farhad Manjoo likes my argument but says: “I doubt there’s a market for such a browser. People don’t care about privacy. They just say they do. If they did, they wouldn’t use Facebook.”

[From If you want Web privacy, stop being such a freeloader. Pay for it. – By Jack Shafer – Slate Magazine]

I feel this is too simplistic. It’s like saying that people don’t care about road safety because some of them get run over. But hey, I’m a parent as well as a consultant so if someone offered me a magic wand that would stop kids from getting run over, it would be very tempting to take it. Since there isn’t a magic wand to stop people from being horrible to each other on the Internet, and forcing people to give their real names will not only not stop the problem but will also be dangerous, we have to go down another path involving trusted intermediaries.

Some day, not so far out in the future, there will be a parallel web that you can only enter by signing up with some form of id, a credit card for example, a verified by Visa web.

[From Editorial: Facebook, single identities, and the right to be anonymous—Engadget]

I don’t doubt that this is true, although I think a Virgin Media web and a Sky web and a TalkTalk web are more likely than a Visa web. This is, in essence, the same idea that I wrote about last year.

On the red, open, internet people and organisations will exchange encrypted data across an untrusted network. Some people may choose not to connect to the red internet at all and only crazy people (and organisations) will send unencrypted data to unauthenticated counterparties.

On the blue, closed, internet you will need to authenticate yourself before you are allowed to access anything and a digital identity infrastructure will deliver privacy (and in some cases anonymity) through cryptography, not through data protection registrars or privacy ombudsmen.

[From Digital Identity: Red army]

Now, I would ague that the with proper technology, implemented in privacy-enhacing ways to support sensible business models, then as an individual I will have more privacy using a bank-provided pseudonym across an encrypted VPN (the blue Net) than I will have using the red Net. In other words, privacy and anonymity are not the same thing at all. Get rid of anonymity wouldn’t necessarily end privacy and more privacy doesn’t necessarily mean more anonymity.

Who you are, though, is just one aspect of the overall conversation about the future of privacy. At a public hearing organised by the FCC and the FTC,

the industry participants by and large thought privacy concerns about location services were overblown. Consultant Brandt Squires went so far as to say, “I’d like to think privacy is a thing of the past, but it’s not necessarily so.”

[From Mayor of Starbucks Today, Local Hero Tomorrow: The Power and Privacy Pitfalls of Location Sharing | Center for Democracy & Technology]

I wouldn’t like to think that at all. I’d like to think that it’s a matter of control. If I’m posting comments that are against, say, the Syrian government under the nom de plume John Doe, then I still don’t want Syrian government secret service agents to track me down and blow me up, even if they don’t know my real name. Piecemeal panic about anonymity isn’t going to get us anywhere. We need to develop a proper policy toward privacy and then use that policy to set strategies for commerce, crime and chat. Let’s not put the cart before the horse no matter how great the panic.

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

 

Currents

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[Dave Birch] For reasons not especially relevant to this post, I was involved in a discussion about what generic name to use for complementary, alternative, open source and other types of “new” currency. The idea was to clarify and support some discussions between public and private-sector stakeholders by distinguishing between some fundamentally different implementation models that are all, confusingly, called “currency” (or worse, and more confusingly still, “money”). So I thought I would try and think out loud to set up a strawman and attract comment to move the discussion forward.

One simple typology could be created by beginning with distinguishing fiat and non-fiat currencies. Fiat currencies (the name comes from the Latin – remember “fiat lux”?) are currencies that are not backed by anything. Examples are World of Warcraft gold pieces (WWGs) and US Dollars (USDs). You can’t go to the Federal Reserve and ask for your dollar to be redeemed for anything other than another Federal Reserve Note (FRN, aka “greenback”) and—I admit I haven’t read the terms and conditions in exacting details—you can’t go to Blizzard and ask for your WoWGs to be redeemed in anything at all.

Fiat currencies that are issued by the central banks of nation states are the special kind of currency that we are used to calling “money”. They are like frequent-flier miles, but backed by a standing army and (in some countries) legal tender laws. So let’s call them conventional currencies. Remember how we used to think that having an airline was one of the defining characteristics of a sovereign nation, and now we don’t think that any more? We still think of having a conventional currency as being a defining characteristic of a sovereign nation. Creating it’s own currency was one of the very first things that the world’s newest sovereign nation, South Sudan, did earlier this month. Now, of course, the link was broken in Europe when the euro became the currency of multiple now-sort-of sovereign nations. But the link will surely break in another way, as we develop currencies that are not linked to sovereign nations.

As Facebook starts to host all sorts of commerce—and is now mandating the use of its currency—perhaps it’s time to stop thinking of it as a company and start thinking of it as a country.

[From Facebook: Pay our way or get out – Fortune Tech]

But would you accept a fiat currency that was backed not by a sovereign nation, but by the market? Like Bitcoin? Bitcoins only have a value because people believe that they will be accepted, but there are currencies that are accepted because they are backed by something else. These are what are generically called non-fiat currencies. They are currencies that are backed – that is, they can ultimately be redeemed for something else. Broadly speaking, I have a “3Cs” model that divides these into commodity currencies, community currencies and concocted currencies.

concocted currency is a currency that is redeemable in another currency or basket of currencies. At the national level, these are managed by currency boards: for example, in a Latin American country that has been through hyperinflation, the government might fix the local peso in terms of dollars and only issue pesos against a dollar reserve. The pesos are now backed by something that is a better store of value, even though that something isn’t backed by anything. You may also have synthetic concocted currencies, such as the Special Drawing Right (SDR) used by the World Bank or the World Currency Unit (WoCU), discussed here a couple of months ago. These are created from a basket of currencies for the purpose of reducing volatility in trade and therefore stimulating it by implementing a reliable means for deferred payment. An example might be the Brixton Pound.

community currency is a currency that is backed by a community that doesn’t have a standing army (ie, not nation states), it’s worth being that the members of the community agree to accept it as a means of exchange in return for goods or services. Generally speaking, these communities have been quite small because the trust relationships at the heart of them don’t scale, but since the earliest days of the internet interested parties have been looking at using new technology to deliver large-scale solutions. An example might be a LETS scheme in the physical world, but more interesting examples are to be found online, where new currencies ranging from Facebook Credits to World of Warcraft gold pieces are already in use in huge and vibrant communities.

commodity currency is a currency that is backed by a commodities or group of commodities. Any tradable commodity that has a large enough market to establish a price will do, but the better choices are commodities that cannot easily be manipulated. Precious metals are an obvious category and gold in particular is the archetype. There are some people who think that society should go back to gold as a way to achieve monetary stability (eg, Ron Paul) and there are a number of states in the US where bills are being introduced to do just that.

HR 4248 would abolish the legal tender laws, allow the establishment of private mints, and repeal capital gains taxes on gold and silver, allowing them to compete effectively as currencies

[From The Monetary Future: Ron Paul Testifies on Behalf of Free Competition in Currency Act]

I’m not so sure about this, because I suspect the new economy needs new currencies, but that’s a different issue. Anyway, I think these give us something to work with, and I’m genuinely looking forward to your comments. But back to the beginning of the post. Why are we thinking about the obscure topic of currency terminology?

As I concluded in piece about Bitcoin for Prospect Magazine, there’s a discussion starting up. The future of money is on the agenda. We’re in the position of agricultural economists trying to work out the best kind of money for the industrial revolution, waiting for central banks to emerge as an institution, waiting for new technology for manufacturing coins, waiting for Isaac Newton to come along and invent the gold standard. We need to look at experiments like Bitcoin and learn from them, whether or not we think that they may be part of that future or not.

New York University media studies professor Douglas Rushkoff attributes dearth of open source currency to “centuries and centuries of programming.” Our current system of centralized monetary instruments, explains Rushkoff, dates back to the Middle Ages, when peer-to-peer economies flourished. As local currencies thrived, so did the middle class—threatening Europe’s aristocracy. Financial experts, hired by the rich to halt the threat, suggested that local currency be outlawed and replaced with a single form of money dubbed “coin of the realm.”

[From Can “Complementary” Currencies Save Us From the Next Crash? | Show Me the Money | Big Think]

I don’t think Douglas is quite right with this analysis, but I understand the spirit of what he is saying. And he is not the only one saying that the “operating system for money” is broken.

Many people think that the time has come to think seriously about the next phase of monetary evolution, beginning with the nature of currecy. I am not alone in thinking that the idea of new currencies is one whose time has come in order to bring some stability to the world of money.

[From Next-Gen Currencies and Banks as Utilities – Umair Haque – HarvardBusiness.org]

Now, I’ve written before about the kinds of currencies that might make sense, but the truth is this is a new subject and still in such an early phase of development that it’s really not clear what is happening.

I’ve already been approached by groups who are trying to get funding for systems to store value in renewable energy or local currencies. There’s something going on here, and I’m a long way from understanding it

[From Digital Money: An eternal discussion]

Given the surge of interest in the subject—not only from cranks like me, but from government, thinks tanks and others—I created an expert panel on alternative currencies for the Digital Money Forum earlier this year, and I’m still reflecting on some of the views that emerged in the debate together with some of the discussions I got into at SXSW a month later. This made me interested in the new and hip topic of “gamification”, which I think our clients might find themselves more interested in as time goes by. If we take world of online games seriously (which I have for a few years now), this opens up some ideas about how currencies could evolve.

Consolidation – Will a handful of virtual currency/coupon providers become providers of all virtual currency/coupons? We are already seeing this with Facebook. We could see a few more “big” players step in to consolidate the market. This will help in the management of coupon, award and virtual currency accounts.

[From Kevin Corner – Online Games Online Gambling Startup Fund Raising BlogKevin’s Corner: Gamification Drowning In A Sea Of Coupons, Virtual Currency And Awards]

Well, maybe, but I don’t think Facebook Credits or anything similar could do this in the mass market. Walmart Currency maybe, but not so sure about wholly virtual currencies based on importing existing ideas into the social media space. A currency based on reputation, maybe.

Virtual Currency/Coupon Exchanges – Will exchanges emerge that allow consumers to easily exchange virtual currency and coupons issued by different institutions allowing consumers to leverage coupons and currency outside of the issuing environment. The airlines have done this for years will the other issuers join in. Having a point, coupon or award only valuable within a single environment is not very useful. If exchanges emerge the issuer can still maintain an identity with the virtual currency and give the consumer more options to leverage the currency elsewhere.

[From Kevin Corner – Online Games Online Gambling Startup Fund Raising BlogKevin’s Corner: Gamification Drowning In A Sea Of Coupons, Virtual Currency And Awards]

I’d say probable. Just as foreign exchange markets followed the need to trade in different currencies (although to be fair, trade is a microscopic fraction of today’s F/X) so virtual F/X markets will spring up to interconnect currency islands efficiently.

Merging Of Games And Commerce – This alternative is the most interesting with the distinction between an online game and a shopping experience disappearing. I have already seen this with a virtual world shopping experience under development. The consumer and merchant actually engages in the shopping experience as a virtual person transacting and then receiving the goods through the mail. This moves the entire shopping experience online with no offline complement except for the delivery of the good or service. Although virtual currency is issued there is no physical store experience allowing the consumer to avoid the trek to the store. It also allows for instantaneous virtual currency exchange between merchants in the online marketplace.

[From Kevin Corner – Online Games Online Gambling Startup Fund Raising BlogKevin’s Corner: Gamification Drowning In A Sea Of Coupons, Virtual Currency And Awards]

This last point has, to my mind, fascinating implications, tapping the “gamification” meme. I went along to Jane McGonigal’s talk about her book “Reality is Broken” at SXSW this year and listened to some of her suggestions about the ways in which a generation raised on “games” can be engaged in conversation with the grammar of gaming and the syntax of virtual worlds. I’ve written elsewhere about how interesting it is that my kids, who have never had an economics lesson, understand money, and auctions, and trade, and futures, and all sorts of other things because of playing (primarily) “World of Warcraft”. A few years ago I helped to organise a session on money, trade and economics in virtual worlds for the CSFI and I’m sure that at the time many people saw the field as an amusing diversion, but I’ve always felt that what we insist on calling games have the germ of a genuienly new economy inside them, even if I’m not smart enough to see what that economy will look like.

These are personal opinions and should not be misunderstood as representing the opinions of

Consult Hyperion or any of its clients or suppliers

Cash means a lot of baggage

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[Dave Birch] With my feet up and a cup of tea, I was relaxing reading David R. Warwick’s “The Case Against Cash” in the July edition of “The Futurist” magazine. He notes that of the $829 billion in US currency “in circulation”, two-thirds is outside the US. According to the Boston Fed, the average US consumer has only $79 about their person, with another $157 at home or in the office. Say $200 each for 200 million consumers, that comes to only $40 billion. Even if you calculate it at $300 each for 300m consumers, that’s still only $90 billion, which would imply that about two-thirds of the cash in the US in unaccounted for, a figure that tallies well with more detailed calculations made for some European countries. That means that if the US is as law-abiding as, say, Norway, then there’s about $200 billion of cash in the US that is only used for tax evasion, crime, money laundering and so on.

Mr. Warwick says that the biggest single benefit of the abolition of cash in the US will be the elimination of cash robberies, which costs the country about $140 billion per annum. This may be so, but personally, I think that the greatest benefit will be what he puts second on the list: financial inclusion. People trapped in a cash economy are not only discriminated against (because they pay the highest transactions costs) but they are cannot get on the financial services ladder. They have to take payday loans instead of bank loans, use cheque-cashing services and so on. Helping these people on to that ladder is a very positive outcome for the electronic payments industry (assuming that it can deliver the low-cost products that are needed to do this).

Naturally I sympathise with Mr. Warwick, but I don’t hold out much short term hope for the US getting rid of cash, although I can see that there are some interesting ways to make progress. A correspondent wrote, kindly, in response to a recent post I made about the role of e-payments in reducing cash evasion.

In addition to strict regulations that require POS technology to retain sales records (and criminal liability if they are found to be tampered), the Brazilian state of Sao Paulo created a program called “Nota Fiscal Paulista” which works by consumer demand. It encourages consumers to ask for their receipts, which pressures the business into declaring their sales taxes to the state tax collector. At year’s end the consumer gets a share of their taxes paid returned to them, as well as an entry in a larger lottery. I’ve had family members win sizeable pots simply for opting in to this receipt at check out.

Many merchants really dislike this scheme, presumably because it works, but they are obliged to offer it because of consumer pressure. There’s another similar scheme in Korea, whereby merchants who take more than some threshold (75%?) volume of their transactions electronically rather than in cash get a tax break. The government has presumably calculated that reducing tax evasion from cash sales more than makes up for the revenue reduction from the tax break. Perhaps in these straightened times the US tax authorities might begin to make similar calculations.

However, while the US may not be able to get rid of cash domestically—more’s the pity—it could at least start trying to get rid of cash in some other theatres. Perhaps a good place to start might be somewhere where, unlike America, there is a viable mobile phone-based alternative to cash: Afghanistan, where the M-PAISA scheme is up and running.

Electronic payments, if implemented properly, can bring transparency as well as efficiency. And transparency can have some unexpected consequences. Look what happened when the M-PESA service was launched in Afghanistan (as M-PAISA) and used to introduce efficiency into the process of salary payments for civil servants…

[From Digital Money: Cash does have some unique properties]

Another factor pointing to Afghanistan as the nexus for such an experiment is that the campaign against cash there may be able to co-opt a pretty powerful ally: the US military.

For the past few years the military has been striving to replace its cash transactions with electronic fund transfers and debit card payments in the hopes of achieving a “cashless battlefield,” in the words of Peter Kunkel, a former assistant secretary of the Army.

[From Turn In Your Bin Ladens – NYTimes.com]

Right now, the battlefield is only cashless because all of the cash is being spirited away as soon as it arrives and (I’m sure) to no good purpose—as I heard our (former) man in Kabul Sherard Cowper-Coles pointing out on the BBC’s Start the Week programme recently—and there doesn’t seem to be any way to keep it in place.

Last month, a well-dressed Afghan man en route to Dubai was found carrying three briefcases stuffed with $3 million in U.S. currency and $2 million in Saudi currency, according to an American official who was present when the notes were counted. A few days later, the same man was back at the Kabul airport, en route to Dubai again, with about $5 million in U.S. and Saudi bank notes.

[From Officials puzzle over millions of dollars leaving Afghanistan by plane for Dubai]

I love the title of the article, don’t you? It doesn’t seem that much of a “puzzle” to me.

Cash declaration forms filed at Kabul International Airport and reviewed by The Washington Post show that Afghan passengers took more than $180 million to Dubai during a two-month period starting in July. If that rate held for the entire year, the amount of cash that left Afghanistan in 2009 would have far exceeded the country’s annual tax and other domestic revenue of about $875 million.

[From Officials puzzle over millions of dollars leaving Afghanistan by plane for Dubai]

There really ought to be more upset about the havoc that these billions of US dollars cause but not merely facilitating but actively encouraging corruption on such an enormous scale, yet even at the very highest levels there’s no sense (that I can find) of outrage. In fact, everyone (except taxpayers, presumably) seems quite happy with the seigniorage-powered status quo.

Karzai said cash transactions are quite normal and then-President George W. Bush was aware of the Iranian donations. The United States supposedly gives him bags of cash as well.

[From BlogPost – Karzai’s bags of cash a conundrum for the U.S.]

Interestingly, when he says “bags of cash” he isn’t speaking metaphorically: they actually do give him bags of cash, as do the Iranians apparently. I don’t think any of them are going to get behind my campaign to reduce the use of cash to the great benefit of society as a whole.

Suspicions of corruption in the Afghan government, with one cable alleging that vice president Zia Massoud was carrying $52m in cash when he was stopped during a visit to the United Arab Emirates.

[From US embassy cables leak sparks global diplomatic crisis | World news | The Guardian]

Not mobile phone top-up vouchers or open-loop prepaid cards or high-street vouchers, but FIFTY TWO MILLION GREENBACKS. That made me wonder about his baggage allowance. How much would $52m in weigh? Could you fit it in cabin luggage or would you have to check it? After all 520,000 $100 bills take up a fair bit of space. I seem to remember from a previous discussion, that a cereal box can hold $500,000 so we’re talking about 100 cereal boxes at least.

In reality, restricting ourselves to $100 bills, the maximum is only $450,000 (the New Jersey ne’erdowells didn’t pack optimally!).

[From Digital Money: Has cash jumped the shark?]

I don’t think you could fit 100 cereal boxes in the two checked bags that you’re allowed on British Airways, but I suppose vice presidents are allowed a couple more. But back to the point, which is…

Why does the world need 1 billion $100 bills? Indeed, why does the U.S. continue to print C-notes at all?

[From Hundred-dollar bills are for criminals and sociopaths. Why do we still print them? – By Timothy Noah – Slate Magazine]

Look, I’m not making any sort of political point about Afghanistan, I’m arguing this general point. The US should cease printing $50 and $100 bills immediately. They have no function in supporting commerce.

And it’s not just that carrying around cash is inconvenient and time consuming. These days, one of its main functions is to finance the black economy: drug deals, counterfeiting, under-the-table employment and other nefarious activities. Because cash is anonymous, people can easily opt out of the taxable economy – leaving the rest of us to pick up the tab for their use of public services. Remove cash entirely, and you make it far more difficult to avoid tax, not to mention discouraging criminal activity.

[From I’m dreaming of a cashless Christmas – Telegraph]

I written before about a current example of large amounts of cash making a problem (that no-one would claim is caused by cash) significantly worse.

Ransoms are paid in cash, partly because Somalia has no functioning banking system, and partly to hamper American anti-money-laundering investigators

[From Piracy: No stopping them | The Economist]

I have to say that this piracy is looking more and more like a viable career option to me. It is very well remunerated and there appears to be much less chance of going to jail than in, say, investment banking or management consultancy.

Of the 650 Somali pirates caught since late 2008, 460 have already been released, according to Lloyd’s Market Association

[From Prime Numbers: The Pirate Den – By Bridget Coggins | Foreign Policy]

The English have a proud history of piracy, so I think I’d fit right in. Avast ye landlubbers!

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers

Anywhere, anyone

Greyscale backing image

I’ve been reading Emily Nagel’s book “Anywhere“. She’s the CEO of Yankee Group and the book is about global connectivity revolutionising business. I hope she won’t be offended if I say that it’s an “airport book”, but it’s an accurate description, at least for me, because I read it on the plane. There’s something that bothers me about it, though. It has lots of stories and examples and narrative about ways in which business is transformed as it goes online, but it doesn’t have “identity” or “authentication” in the index and says nothing about the identity problems that will need to be solved in order to realise the full potential of connectivity. As I’ve often observed before, using my favourite Kevin Kelly classification, connection isn’t the problem: it’s the disconnection technologies that will shape the medium-term roadmap for transforming new technology into business models: once everything is connected to everything else, the business model shifts to the creation and management of subgroups within that single, giant internet of everything.

Here, things aren’t going so well. By coincidence, the Saturday newspaper that I picked up after putting down Emily’s book had a technology advice column, and there was a letter from a typical consumer in it. I paraphrase:

I have a long list of passwords for home banking, shopping, social networks, magazines and so on. I’ve put them all in a Word document. How can I encrypt it?

This is, in a nutshell, the state of the mass market today. We all have masses of passwords, we’ve been complaining about it since 1994, and nothing much seems to happen, largely (I think) because the costs of our time don’t factor into business models. And yet… we don’t seem to be evolving any better business models and we don’t seem any closer to better identity infrastructure. Should we give up? No! I say we should remember William Samuel Henson.

It is sad that the name of William Samuel Henson is largely unknown today. A man of great vision, he petitioned Parliament for permission to set up an airline — with a business model largely based on post — flying to Egypt, India and China. Parliament turned his proposal down on the grounds that it was 1843 and no-one had invented airplanes yet. Henson knew this, obviously, but could see which way technology was evolving and correctly reasoned that just because he didn’t know how to get an airplane off the ground (he had been involved in numerous experiments around powered flight), that didn’t mean that no-one else would. And when they did, there would be a new business to build on aviation technology. So he started thinking about the businesses that would make sense and, since the post had just been invented in the UK, he looked at how that might work in the future.

This is a parable of our identity space now. We can’t get the technology to work, but we know that someone will, so we’re trying to think of business models (I should be clear in our case: we’re trying to think of business models for our clients) that will make sense when the technology works. But we’re thinking about web browsing and e-mail because these have just been invented and they’re our equivalent of the post service. Maybe we should challenge ourselves harder to look at wider possibilities, start from the perspective of social networking, virtual worlds and Twitter rather than Alice sending her credit card details to Bob.

Facebook is better understood, not as a country, but as a refugee camp for people who feel today’s lack of identity-forging social experience.

[From Facebook: the heart in a heartless world | spiked]

I think many organisations should be focusing on the next phase of evolution of online business, and phase that will be fundamentally shaped by the emerging identity infrastructure. But we must be careful not to take what has just been invented (in this case, say, Facebook) and project it into the future as the key to new business models. We have to think more broadly to develop strategic roadmaps for business that can react to the general trends to exploit the technology downstream. An example? Well, it doesn’t matter which social network we’ll be using in five years time, we’ll still need to authenticate ourselves in a more effective way that a Word file full of passwords. It isn’t only me that thinks this.

The president wants consumers to use strong authentication, something more than user name and password, which will most likely add another security factor, say officials familiar with the project.

For example, user name and password is one-factor security, something you know. But additional factors can be added. A token or digital certificate can be a second factor, something you have, resulting in stronger two-factor authentication. If you add a fingerprint or other biometric, something you are, it’s increased to three-factor security.

[From NFCNews | Potential technologies that consumers may use for online ID]

There follows an interesting, but confused, list of options. I’d like to suggest a more straightforward taxonomy, based on a digital identity infrastructure (which doesn’t exist, of course). The article, to my mind, confuses the distinct bindings between the virtual identities that exist in the Net and the real identities that are connected to. This is why it is useful to introduce the notion of digital identity in the middle. So then we get the two categories of things that might be used to solve the

  • Linking virtual identities to digital identities. The article suggests that digital certificates and PKI might be a good way to do this and I agree. Think of a digital identity as a private-public key pair … tamper-resistance… smart cards, tokens, smart phones.
  • Linking digital identities to real-world entities. The article suggests that passwords will be supplanted by biometrics.

Each of these will be a separate business that operates according to difference scale factors (scale in the first case, scope in the second). I don’t know how to make them work, but someone will.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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