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How do we regulate and ensure AI Machines pay fairly?

12th December 202313th December 2023by Gary Munro4 Comments

I was extremely fortunate to be invited to the recent BIS Securing The Future Monetary System conference in Basel. This was a terrific event, bringing together some of the cleverest people in security from the worlds of banking; academia and industry to discuss the issues faced in securing our future CBDC based monetary systems.

I was there to speak about the technical considerations in Offline CBDCs, however I was also fortunate enough to take part in a roundtable on CBDCs and machine-to-machine payments, which was utterly fascinating, and produced some great insight and thinking that I thought I’d share, within the bounds of the Chatham House Rules. First, some background.

The call for Machine-to-Machine CBDCs

The GBIC model of three distinct types of CBDC is one that has always appealed to me. The GBIC is the voice of the main German banking associations: the National Association of German Cooperative Banks (BVR), the Association of German Banks (BdB), the Association of German Public Banks (VÖB), the German Savings Banks Association (DSGV), and the Association of German Pfandbrief Banks (vdp). It was fascinating to have such a conservative organisation discussing not two but three kinds of digital currency in their digital euro policy paper. They call for a digital currency ecosystem encompassing:

A Wholesale CBDC, issued by the central bank but for use in capital markets and interbank transfers. The GBIC’s experts are calling for this form of the digital euro partly because, by adopting this approach, the ECB would be able to include further digitalisation of central bank accounts in its project. The ultimate aim is to achieve improvements which can benefit consumers, enterprises and also the banking sector.
A Retail CBDC, again issued by the central bank to be used by private individuals in the euro area in the same way as cash for everyday payments, e.g. to retailers or government agencies. It should be possible to use the digital euro like cash, anonymously and offline. They assume that credit institutions will provide consumers in Europe with the necessary smart wallets.
An Industry CBDC. What the GBIC call “tokenised commercial bank money” which will be made available by commercial banks to meet a corporate demand arising from Industry 4.0 and the Internet of Things. Tokenised commercial bank money could facilitate transactions based on “smart” – i.e. automated – contracts and thus increase process efficiency.

In other words, in addition to wholesale CBDC for institutions and retail CBDC for people, they want industrial CBDC designed for Machine-to-Machine payments to satisfy the demand that will arise from the Internet of Things (IoT). Therefore a roundtable session considering Machine-to-Machine CBDCs was going to be interesting. The round table had a great flow, considering three aspects of Machine-to-Machine CBDCs starting with:

What do we mean by CBDC M2M Payments?

Do we mean human induced CBDC Machine-to-Machine payments, or do we mean a fully autonomous exchange of assets? i.e. me pressing a button on my car user interface to allow it to pay the fuel dispenser for my electricity / diesel / petrol or a machine doing it’s own thing, buying and selling as it goes. Of course we went for the second one, much more interesting. As an example, the group considered a set of solar cells generating and putting electricity into the network, and an electric vehicle consuming that energy and paying for it. Where is the human here? Are they explicitly involved in the payment process, well no, so do we have humans at the edge, disintermediated by the system, only involved at set up? Just what are the implications here?

We then consider whether these payments are open loop or closed loop CBDC payments. For Machine-to-Machine, a closed loop CBDC ecosystem could bring benefits, where micro-payments can take place between machines, predominantly offline, only going online occasionally, effectively enabling the machines to cash in and cash out. What if we go further and consider a fully autonomous AI machine, providing services, consuming resources, making and receiving payments as it goes, can this legally be the case, or is there always liability with humans accountable? Something that needs serious consideration.

How does regulation fit in?

How do we regulate for machine-to-machine CBDC payments? Indeed is regulation required? Of course it is, but not we cannot wait for this to appear retrospectively, too often in payments the regulator is playing catch up. For machine-to-machine CBDC payments, visionary regulation is required.

Regulators need to work together with the industry in order to understand machine-to-machine use cases, liabilities and put regulation in place ahead of machine-to-machine CBDC payments taking place. It was the view of the table that proactive, visionary regulation won’t be perfect, but principals-based regulation is needed in order to provide standards and trust. The table postulated that this could be implemented by smart contracts, with regulation at the edge where it can make use of the standard / regulation in place at that time, allowing change to quickly propagate. For example, we can imagine a tax compliant CBDC system for machine-to-machine CBDCs, updating to the latest tax regime. This may bring us to a place where technology, regulation and governance are intertwined, boundaries are not clear, where we have rails and assets. Good, well considered, clear regulation is essential to manage this.

What can we learn from the systems we have in play today?

Today we have bad actors in the system, using their own AI engines to feed their rules into the system. So how do we apply the brakes? If / when things do go wrong where is the liability at the end of the chain? Is it even possible to find who is responsible in such an autonomous AI system with many interactions and components?

We concluded that to does this effectively we need to build the system with ethics embedded in the system, and perhaps for visionary regulation for machine-to-machine, or robot to robot, CBDC payments Asimov’s laws are not a bad place to start.

It was a fascinating event, with great conversations on all aspects of CBDC solution security. If you want to know more about CBDCs then please get in touch.

Be on the smart side of the Great Reset

14th December 20212nd September 2024by Lishoy FrancisLeave a comment

The human society is now at crossroads – demanding changes in our lifestyle, health choices, economics, and civil liberties. These changes are accelerated by climate change, political response to the pandemic, the need for racial and gender equality, human migration, and of course, a few break-through technologies such as digital automation, data analytics, and machine-learning (AI). So where are we heading? The call for “Great Reset” has been reverberating since the past few years and is now getting louder and louder. This was the topic of the virtual fireside chat by two visionaries on our Tomorrow’s Transactions webinar, Brett King and Dave Birch, discussing the societal and technological changes that are foreseen in the next few decades. This conversation was centered around Brett King’s (Richard Petty, co-author) book, “The Rise of Technosocialism” and aligns with Consult Hyperion’s engagement with think tanks on global issues. Our aim to is separate foresight and facts from fiction in trying to understand the trends in the market that our clients should watch-out for especially in payments, banking, transit, digital identity, and information security.

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Will 2022 start to drive the future of Interoperability and Inclusion?

13th December 20212nd September 2024by Tim RichardsLeave a comment

Our overriding theme of this year’s Live5 is interoperability which will lead to inclusion. Whether this is in payments or transit, identity or as a generalised trend what we’re seeing is a collapsing of the barriers between silos. In some areas this is happening more quickly than in others.

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Payments are hard. That’s why the world’s leading payment organisations come to us.

12th October 20212nd September 2024by Consult HyperionLeave a comment

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The changing face of payments

9th August 20212nd September 2024by Tim Richards1 Comment

EMV is at the heart of global payment card processing. As a specification it governs the processing of billions of transactions globally, with the vast majority of those flowing through the international payment schemes. As a technology it has been incredibly successful, reducing fraud levels everywhere it’s been introduced and its extension into contactless payments is now the fastest growing area of face-to-face payments. The idea that EMV might soon be obsolescent seems far-fetched, to put it mildly, but there are reasons to believe that its hegemony is under threat.

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On Mondex and CBDCs (again)

30th July 20212nd September 2024by Tim RichardsLeave a comment

Introduction

We were delighted to get a lot of good feedback on Neil’s previous blog on Mondex Memories and CBDCs and its relevance to CBDCs and thought it would be interesting to respond to some of the more interesting – and difficult – points raised in a follow-up blog. Before addressing those I wanted to put the Mondex program into some historical context. They were very different days – we didn’t have an intranet until 1996, let alone internet access. There were no SDKs – although actually we did build a precursor to one of those – or APIs and the idea of remote payments was still in its infancy (although we did that too).

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Mondex Memories and CBDC

13th July 20212nd September 2024by Neil McEvoyLeave a comment

Deep in the mists of time (that is to say, the early-1990s), I led the team from Consult Hyperion responsible for Mondex specification, design and development. For those not familiar with paleo-payments, it was one of a clutch of (contact) smart card based electronic cash systems, none of which survived beyond, let’s say, early adolescence. There were two main reasons for their demise, one technological and one business. The concept was ahead of the capabilities of the underlying technology. Transactions took about the same amount of time as cash plus change, which wasn’t a compelling reason for anyone to leave their wallet behind. The promoters of the schemes (retail banks and payment brands) did not target particular niches where there may have been a business case (I always thought car parking might work) but instead blanketed retail outlets in particular cities or small countries. So, mostly unused devices were put under the counter, and people forgot about the schemes after an initial blaze of publicity.

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City Currency

18th August 20202nd September 2024by David G.W. BirchLeave a comment

The pandemic has revised interest in a topic that has surfaced repeatedly in Tomorrow’s Transactions events over the years, and that is the issue of local and complementary currencies. The Bristol Pound, the Brixton Pound, the Lewes Pound and many other experiments have sprung up around the country (indeed, around the world) to try to stimulate and regenerate local and regional trade and prosperity in response the changing economic circumstances. We tend to think of currencies as being instruments of the nation state but that’s actually a recent invention in the great scheme of things. There’s no reason to see optimal currency areas as inviolable laws of nature rather than transitional borders under prevailing monetary and financial arrangements.

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Ancient and modern

12th July 2011by Consult Hyperion7 Comments

[Dave Birch] I was totally shocked to arrive home from work the other day to find my good lady wife celebrating with her tax rebate cheque. Apparently HMRC miscalculated millions of Her Majesty’s subject’s tax bills and we were one of the lucky overpayers. We are a couple of gallons of petrol better off than before. But a cheque! HMRC must have our ethnic background on file as “Amish”. Despite the fact that since time immemorial (for me) we have paid our tax bill online via internet banking, the creaking hand-cranked contraptions at the Revenue are apparently unable to use any form of payment invented after the Act of Union (in 1701).

To be honest, I’ve always been puzzled by the Amish, the strange religious sect in America made popular by the noted screen actor Harrison Ford in his 1985 film “Witness“. The Amish reject “modern” technology, but they seem to me to have a rather arbitrary definition of what constitutes “modern”. Why, for example, do they use wheels? Or nails? Or chemical fertilisers? What’s the cut-off point? 1750? Why not the invention of the transistor in 1948? Or the synthesis of urea in 1828?

The Amish, particular the Old Order Amish — the stereotypical Amish depicted on calendars – really are slow to adopt new things. In contemporary society our default is set to say “yes” to new things, and in Old Order Amish societies the default is set to “no.”

[From The Technium: Amish Hackers]

Speaking of reactionary sects that eschew the modern world to remain in the comforting cocoon of a romanticised rural past, I read in the Daily Mail that

Plans to scrap the use of cheques from 2018 were dropped today after the UK Payments Council admitted there was no better paper alternative.

[From Cheques will not be scrapped in 2018 but because there are no better alternatives | Mail Online]

Well, the wrinklies have triumphed again. Another minor skirmish in the intergenerational war for resources has been won by Joan Bakewell’s generation and our children are going to be made to subsidise a paper cheque system that should have been a distant memory for them. The Payments Council has been forced to cancel the end of cheque clearing (originally scheduled for 2018) and promise to keep cheques

for as long as customers need them

[From Payments Council – Payments Council to keep cheques and cancels 2018 target]

Note that I am specific in the wording, as were the Payments Council. No-one was banning cheques: they were ending cheque clearing. If someone else — the Post Office, Age Concern or the CBI — wanted to run a cheque system, they were free to do so. And, to be honest, that would be a good solution, because then their members could pay for it and those of us who couldn’t care less if they never saw another cheque could have ignored them.

I suspect that in the coming age riots of 2025, the cheque book will used as a rallying symbol of revolt by our impoverished offspring because the banks (ie, bank customers) are going to have to pay to support paper cheques into the foreseeable future. This is ridiculous. If some people (eg, my mum) want to carry on using cheques, it should be on the basis of full cost recovery: if you want a cheque book, you should pay for it, and if you want to cash cheques, you should pay £2 (or whatever) to do so.

The Government is aware that, although there are declining numbers, 54% of adults still write cheques, and on average every adult write 13 cheques and receives 4 cheques each year.

[From Frequently asked questions on the closure of the cheque system – HM Treasury]

Yes, but that misses the point. When I last wrote a cheque to my son’s school, I didn’t want to. I would much rather have used PayPal, internet banking, my debit card or M-PESA. I don’t want to receive cheques either, from HMRC or anyone else.

When someone sends you a cheque, it’s like being set homework.

[From Digital Money: I could imagine using this]

So what happened? In recent weeks I’ve had some conversations with people countries such as the Netherlands, Belgium and Denmark where no-one has seen a cheque for a generation asking me why the UK is different. It’s the British disease: faced with the end of cheque clearing in a generation, the British response is not embrace electronic alternatives, for charities to look at inventive and efficient online and telephone giving, for small businesses to exploit the Faster Payment Service (FPS) or for the Post Office to create its own paper-based alternative but to moan and complain and demand that everything be kept the same as it is. What happened was that reactionary press comment, entrenched interests, publicity-seeking MPs and a fragmented industry have combined to conspire against the forces of rationality and modernity. And they won.

But why stop there? Cheques are quite modern invention and I don’t understand why the Commons Treasury Committee and the Daily Telegraph want to turn the clock back only to the 17th century. They are not true conservatives, whereas I am. I have therefore decided that my only course of action is to appeal to the European Court of Human Rights to force the Payments Council to reinstate the tally stick system that was prematurely ended in 1834. My great-great-great-great-great grandfather was perfectly happy using tally sticks and was, I’m sure, most distressed by the end of the scheme and the burning of the sticks in the Houses of Parliament furnaces which, as you may recall, resulted in the fire that destroyed the medieval palace and a splendid painting by Turner. It is most unfortunate that Associated Newspapers and Saga did not exist at that time, since I feel they might have been able to spearhead a successful campaign against the introduction of foreign methods (such as double-entry bookkeeping).

Tally sticks had numerous advantages over paper cheques. They were much harder to forge, for example, and were understandable by a largely illiterate population (a situation soon to be restored in this United Kingdom). The sticks were far more durable than cheques are, cheques being made out of flimsy paper instead of fine English wood. Why was this sound and practical system swept away for the convenience of bankers! It is my right to continue to use the tally sticks developed under William I for as long as I need them and quite reasonable of me to demand that the rest of society bears the costs. I hope The Telegraph will support my campaign with vigour. And while we’re at it, why haven’t farthings been legal tender since 31st December 1960? I tried to use some when out shopping the other day and they were refused: outrageous.

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

Wireless Sunday

4th July 2011by Consult Hyperion3 Comments

Off to the Barclaycard Wireless Festival for the day. I don’t really understand why its still called that. In the old days, when it was sponsored by O2, then calling it the wireless festival sort of made sense. But now it’s sponsored by Barclaycard, they should probably call it the Contactless Festival instead. Anyhow it featured a great many very popular bands, as evidenced by the enormous crowd trying to get in.

I know it looks chaotic but in the end it only took about 25 minutes to get in. Contactless was much in evidence. Barclaycard had kitted all of the bars out with contactless terminals and were kind enough to give me one of the promotional lanyards containing a contactless card (a Visa gift card preloaded with £20) to go and try out. Which, naturally, I did. And, I have to say, it worked perfectly. As testimony, allow me to present the first beer I bought with it!

Being me, I couldn’t leave it at that though, and I started to try out some other contactless paraphernalia about my person. An obvious experiment was to try my Barclaycard phone, and that worked too, but oddly it went online, which rather slowed the transaction down. I don’t understand why it did this, so I’ll ask the chaps when I’m next in the office.

More interestingly, I asked a couple of the bar staff what they thought about contactless and they had both positive and negative observations that I promised myself to report in a spirit of openness and balance…

Positive. It’s quick, and you don’t have to hand the terminal to the customer for them to enter a PIN. And they thought my phone was really cool. They also said that some customers had been paying with their own contactless cards and not just the promotional lanyards.

Negative. There were two big issues that came up in both conversations with bar staff. One was the spending limit, which the bar staff said was too low at £12 (the limit was actually £15, but the all of the drinks cost £4, so you could buy three drinks at £12 but not the advertised four beers in a drinks carrier, because that costs £16). Surely it would have made sense to have subbed the bars so that four beers plus carrier was a £15 special.

Enough of these scientific experiments (most of which I drank), and off to see some of the popular beat combos on show. Here’s 47 second taster so that you can get the idea if you’ve never been to one of these events before.

I was reflecting on the security issue later on, because it really seemed a block. I took the time to explain to one of the women at the bar that there was no risk to her as a customer, because the UK banks’ were unequivocal about unauthorised use: if someone uses your card without your permission, they will refund the transaction. Yet she was unconvinced and was clearly uncomfortable about the idea of “no CVM” purchase. This has been true since the earliest days. As I highlighted four years ago:

Among those that are not yet ready to use contactless, security appear to be the dominant consideration. Which means, of course, that whatever we might think about actual security situation we must get better at communicating it.

[From Digital Money: Contactless update]

As I don’t know anything about customer communications and public information, I genuinely don’t know how to cross this chasm, but I wonder if it’s yet more evidence that we should be moving more quickly to contactless phones. The simple PIN code that I need to open up the mobile wallet on my Barclaycard MasterCard phone (the Samsung Tocco that I wrote about before) might well provide the reassurance that people want, even though it doesn’t really make much difference to the overall risk (phones are inherently safer than cards because people notice when they go missing anyway).

Overall, the weekend’s experiences did leave me with three firm conclusions:

1. Both the public and the merchants liked contactless. In this kind of environment – crowded, quick service – the technology performs very well. These were similar to the results seen elsewhere: the punters like contactless payments.

Festival-goers quizzed on the experience, said they were quicker (96%) and easier to use (98%) than credit or debit cards, while a resounding 100% said they’d want to use the PayPass prepaid wristbands again to pay at other festivals, concerts and sporting events.

[From Finextra: Contactless wristbands join wellies and camping gear as festival essentials]

2. We should accelerate the development of contactless phones, because they help with the security issue.

3. The Horrors are a good band, but not my cup of tea.

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

contactless and nfc, prepaid, retail