Criminals have to adapt their strategies too!

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I’m giving a keynote at the Smart Card Alliance conference in Chicago in a couple of weeks. It’s going to be about EMV in the USA. I’ve just been mulling it over, and once again looked at Deborah Baxley’s neat summary of the immediate future for the US cards business:

Banks scrambling to replace lost fee revenue will likely shift focus to credit and prepaid, impose DDA and other fees, along with new account services and comprehensive pricing packages.

[From� Changing the Game in Cards - pymnts.com]

It’s not just banks who have to rethink their strategies because of developments in the payment sector. I note that in the UK, according to the Centre for Economics & Business Research reported in Fraud Watch 6(18), nearly 100,000 people were victims of direct debt fraud last year, a direct consequence of the use of chip and PIN at retail POS. As card fraud has become more difficult, the criminals have shifted their focus. Direct debit fraud was one basis point of identity fraud cases a decade ago, now it is a tenth of all cases. Criminals have to adapt to chip and PIN just as banks and merchants do.

A GROUP of seven postmen intercepted letters containing credit cards, switched the microchips of the cards with fake ones and then delivered them to the applicants… the syndicate also had the help of a National Registration Department (NRD) officer who supplied them with the names of the mothers of the real credit card applicants

[From� 7 M’sian postmen nabbed for credit card fraud]

It’s interesting to think like a criminal. Well, sometimes. In Chicago, two men were shot by guards while trying to rob a cash transit.

The dead suspect was identified as Jimmy Townsend, 52… a convicted felon and was sentenced to 10 years in prison for two separate armed robbery convictions.

[From� 2 suspects shot, one fatally, in armored truck heist - Chicago Breaking News]

Armed robbery is a bizarre crime. I think I’m right in saying that in the UK the average sentence is longer than that for murder. In the US, Mr. Townsend spent years in jail for it, and then got killed doing it again. How dumb did he have to be go back to trying to rob armoured cars. If only he read the Digital Money Blog, he would have known that there are much easier targets.

The heavily-armed gang made off with the tournament jackpot of 242,000 euros ($327,000; £217,000) in early March. Police said a 28-year-old Lebanese man, the fourth arrested in connection with the raid, had been detained on Sunday.

[From� BBC News - German police arrest poker tournament heist suspect]

OK, so not all of them got away, but casinos are not a bad idea for enterprising criminals. They do have lots of cash, and often the people in them will not report cash as stolen.

Masked men have stormed a packed casino near the Swiss border city of Basel, making off with hundreds of thousands of francs, prosecutors say.

About 10 raiders pulled up at the Grand Casino in two cars just after 0400 (0200 GMT) and smashed their way in, brandishing machine-guns and pistols. The French-speaking gang ordered the 600 guests and employees to the floor while they emptied registers.

[From� BBC News - Switzerland casino is robbed by armed gang]

Criminals follow the path of least resistance. I hope Bankerstuff don’t mind me quoting from a marketing e-mail they sent me concerning a forthcoming webinar.

A Former Bank Robber Shares Security Insights During Live Webinar on April 28 from 2:00 – 3:00pm Eastern

Troy Evans pursued a career as a self-employed addict, drug dealer, gambler and thief for more than 15 years. Ultimately, his disregard of values and discipline resulted in a 13 year federal prison sentence. Facing the obstacles, pressures and violence of prison life, he was determined that his time behind bars would not be wasted… Having met and interviewed over 300 bank and credit union robbers he is able to give us a “look into the mind of the enemy”. Troy answers questions such as… What can financial institutions do to deter a desperate criminal?

I would have thought than an obvious idea would be to not have any cash since, as another bank robber famously remarked, he went “where the money is”? When it comes to card payments, the money is in getting hold of card details and (because of the switch to chip and PIN) PINs. Here, the criminals soon adapted their strategies to deal with the new instruments.

Victorian Police believe international crime syndicates are bribing shop workers in return for access to EFTPOS terminals as part of an elaborate scam. They believe criminals have stolen as much as $80 million from Australian bank accounts over the past year…

The syndicates install cameras in ceilings to film people entering their identification numbers.

[From� EFTPOS scam costs Australians $80m - ABC News (Australian Broadcasting Corporation)]

They’re using these PINs (since they can’t make counterfeit chip and PIN cards) with the card details to withdraw cash from ATMs. Once all of the cards and ATMs are chip-only, this avenue will be closed to them. Thus while chip and PIN isn’t perfect, it’s good enough to push criminals into other channels. So: a thought experiment…

Suppose we improve the security of payment systems to the point where they cannot, effectively, be broken. Theft, fraud and hacking are not possible. Where would criminals go next? I think they’re spoilt for choice, so relatively small improvements in payment security would send them off to pasture news.

The poll of 533 firms shows that 55% experienced fraud in the last 12 months, with 61% of these hit more than once, a similar picture to the previous year. In total, 75% of the businesses participating in the study experienced online account takeover and/or online fraud.

[From� Finextra: Account takeover fraud plaguing US small businesses]

SME account takeover seems much easier than armed robbery and much more profitable. The so-called man-in-the-middle attacks on OTP systems for remote access to baking accounts are an established attack vector.

According to BillingScore, 19.4% of the value of all transactions in the U.K. premium rate sector are fraudulent, or roughly £1 on every £5 spent. “With the premium rate sector in the U.K. mobile industry currently worth in the region of £700 million, this equates to £135.8 million per year being lost to fraud in the U.K. alone,” the company said.

[From� UK mobile operators ‘hide’ £136m annual fraud loss]

A fifth? As opposed to a few bp in cards? I predict that any forward-looking criminal in this scenario will be eyeing up the telecommunications opportunities. So let’s look at what some forward-looking criminals are doing. I think criminals in eastern Europe are a useful barometer, because they tend to be well-educated and computer-savvy. And they get arrested for time to time so we can see what they get up to. Here’s the stash of Romanian hackers arrested last year. You will, of course, note that it does not include low maximum balance prepaid cards or accounts.

77,350 euros, 49,000 U.S. dollars, 64,860 pounds, 60,645 lei, a luxury watch, a rifle, three pistols and 150 grams of gold. 70 laptops, 165 mobile phones, 35 desktop computers, 15 modems, new servers, 10 blank cards, 2425 SIM cards…

[From� CyberCrime & Doing Time: Nicolae Popescu, Romanian hacker, at large!]

So not only the usual euros and dollars, but also gold (clearly the hackers were diversifying) and also two-and-a-half thousand SIM cards. Two-and-a-half thousand! Here are people taking the messages of convergence, future-proofing and cloud payments quite seriously. As Eric Schmidt said when still with Google, if you don’t have a mobile strategy then you don’t have a strategy. Now, if you’re like me, you will wonder what on Earth they are going to do with these SIMs. Then I remembered something that I’d read a while ago.

Only days after almost two million Bulgarians registered their SIM cards, the Interior Ministry warns that new forms of abuse are appearing. According to the ministry, two cases had recently been uncovered in which telephone fraudsters had allegedly offered 50 leva to Romas for registered SIM cards, Bulgarian daily Standard reported… the Interior Ministry as saying that it expected a flood of SIM cards, registered to Romas and homeless people, to appear on the market in the coming weeks.

[From� Interior Ministry warns of trade in registered pre-paid SIM cards - Bulgaria - The Sofia Echo]

Mystery solved. The answer to why there should be a significant value attached to SIM cards that you can buy for virtually nothing in any shop is, naturally, government policy. After pocketing their windfalls from selling their SIM cards, the homeless and Roma presumably went off to celebrate their good fortune, whereas the criminals went off to figure out how to create a mass supply instead of having to negotiate with individuals.

…only four months into 2010, and organised crime groups already have found ways of beating the system. In fact, there are unsuspecting people right now who are completely unaware that their mobile phones, or names and registration, are being used for serious criminal activities… Radio host Borislav Borissov found out that he was the “proud owner” of about 200 different SIM cards, all registered to his name and personal social security number.

[From� Bulgarian criminals ‘beating the system’ of pre-paid SIM card registration - Bulgaria - The Sofia Echo]

I know where I’d invest my criminal dollars! Mobile is the future! No, of course, I’m just joking to make a point. If I really was going to invest dollars in a criminal enterprise, it would be in Somali pirates, except for one sticking point. I’m afraid my strict ethical position will not allow me to deal with these people.

The al Shabaab group, which professes loyalty to al Qaeda, said mobile money transfers (MMT) helped feed Western capitalism and were turning Somalia’s Muslims against Islamic banking practices.

[From� Somalia’s al Shabaab bans mobile money transfers | Top News | Reuters]

I cannot do sufficient violence to my conscience to support a group who are against mobile payments.

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

Consult Hyperion or any of its clients or suppliers

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

In all conscience

by 1 Comment

I’m giving a keynote at the Smart Card Alliance conference in Chicago in a couple of weeks. It’s going to be about EMV in the USA. I’ve just been mulling it over, and once again looked at Deborah Baxley’s neat summary of the immediate future for the US cards business:

Banks scrambling to replace lost fee revenue will likely shift focus to credit and prepaid, impose DDA and other fees, along with new account services and comprehensive pricing packages.

[From Changing the Game in Cards - pymnts.com]

It’s not just banks who have to rethink their strategies because of developments in the payment sector. I note that in the UK, according to the Centre for Economics & Business Research reported in Fraud Watch 6(18), nearly 100,000 people were victims of direct debt fraud last year, a direct consequence of the use of chip and PIN at retail POS. As card fraud has become more difficult, the criminals have shifted their focus. Direct debit fraud was one basis point of identity fraud cases a decade ago, now it is a tenth of all cases. Criminals have to adapt to chip and PIN just as banks and merchants do.

A GROUP of seven postmen intercepted letters containing credit cards, switched the microchips of the cards with fake ones and then delivered them to the applicants… the syndicate also had the help of a National Registration Department (NRD) officer who supplied them with the names of the mothers of the real credit card applicants

[From 7 M'sian postmen nabbed for credit card fraud]

It’s interesting to think like a criminal. Well, sometimes. In Chicago, two men were shot by guards while trying to rob a cash transit.

The dead suspect was identified as Jimmy Townsend, 52… a convicted felon and was sentenced to 10 years in prison for two separate armed robbery convictions.

[From 2 suspects shot, one fatally, in armored truck heist - Chicago Breaking News]

Armed robbery is a bizarre crime. I think I’m right in saying that in the UK the average sentence is longer than that for murder. In the US, Mr. Townsend spent years in jail for it, and then got killed doing it again. How dumb did he have to be go back to trying to rob armoured cars. If only he read the Digital Money Blog, he would have known that there are much easier targets.

The heavily-armed gang made off with the tournament jackpot of 242,000 euros ($327,000; £217,000) in early March. Police said a 28-year-old Lebanese man, the fourth arrested in connection with the raid, had been detained on Sunday.

[From BBC News - German police arrest poker tournament heist suspect]

OK, so not all of them got away, but casinos are not a bad idea for enterprising criminals. They do have lots of cash, and often the people in them will not report cash as stolen.

Masked men have stormed a packed casino near the Swiss border city of Basel, making off with hundreds of thousands of francs, prosecutors say.

About 10 raiders pulled up at the Grand Casino in two cars just after 0400 (0200 GMT) and smashed their way in, brandishing machine-guns and pistols. The French-speaking gang ordered the 600 guests and employees to the floor while they emptied registers.

[From BBC News - Switzerland casino is robbed by armed gang]

Criminals follow the path of least resistance. I hope Bankerstuff don’t mind me quoting from a marketing e-mail they sent me concerning a forthcoming webinar.

A Former Bank Robber Shares Security Insights During Live Webinar on April 28 from 2:00 – 3:00pm Eastern

Troy Evans pursued a career as a self-employed addict, drug dealer, gambler and thief for more than 15 years. Ultimately, his disregard of values and discipline resulted in a 13 year federal prison sentence. Facing the obstacles, pressures and violence of prison life, he was determined that his time behind bars would not be wasted… Having met and interviewed over 300 bank and credit union robbers he is able to give us a “look into the mind of the enemy”. Troy answers questions such as… What can financial institutions do to deter a desperate criminal?

I would have thought than an obvious idea would be to not have any cash since, as another bank robber famously remarked, he went “where the money is”? When it comes to card payments, the money is in getting hold of card details and (because of the switch to chip and PIN) PINs. Here, the criminals soon adapted their strategies to deal with the new instruments.

Victorian Police believe international crime syndicates are bribing shop workers in return for access to EFTPOS terminals as part of an elaborate scam. They believe criminals have stolen as much as $80 million from Australian bank accounts over the past year…

The syndicates install cameras in ceilings to film people entering their identification numbers.

[From EFTPOS scam costs Australians $80m - ABC News (Australian Broadcasting Corporation)]

They’re using these PINs (since they can’t make counterfeit chip and PIN cards) with the card details to withdraw cash from ATMs. Once all of the cards and ATMs are chip-only, this avenue will be closed to them. Thus while chip and PIN isn’t perfect, it’s good enough to push criminals into other channels. So: a thought experiment…

Suppose we improve the security of payment systems to the point where they cannot, effectively, be broken. Theft, fraud and hacking are not possible. Where would criminals go next? I think they’re spoilt for choice, so relatively small improvements in payment security would send them off to pasture news.

The poll of 533 firms shows that 55% experienced fraud in the last 12 months, with 61% of these hit more than once, a similar picture to the previous year. In total, 75% of the businesses participating in the study experienced online account takeover and/or online fraud.

[From Finextra: Account takeover fraud plaguing US small businesses]

SME account takeover seems much easier than armed robbery and much more profitable. The so-called man-in-the-middle attacks on OTP systems for remote access to baking accounts are an established attack vector.

According to BillingScore, 19.4% of the value of all transactions in the U.K. premium rate sector are fraudulent, or roughly £1 on every £5 spent. “With the premium rate sector in the U.K. mobile industry currently worth in the region of £700 million, this equates to £135.8 million per year being lost to fraud in the U.K. alone,” the company said.

[From UK mobile operators 'hide' £136m annual fraud loss]

A fifth? As opposed to a few bp in cards? I predict that any forward-looking criminal in this scenario will be eyeing up the telecommunications opportunities. So let’s look at what some forward-looking criminals are doing. I think criminals in eastern Europe are a useful barometer, because they tend to be well-educated and computer-savvy. And they get arrested for time to time so we can see what they get up to. Here’s the stash of Romanian hackers arrested last year. You will, of course, note that it does not include low maximum balance prepaid cards or accounts.

77,350 euros, 49,000 U.S. dollars, 64,860 pounds, 60,645 lei, a luxury watch, a rifle, three pistols and 150 grams of gold. 70 laptops, 165 mobile phones, 35 desktop computers, 15 modems, new servers, 10 blank cards, 2425 SIM cards…

[From CyberCrime & Doing Time: Nicolae Popescu, Romanian hacker, at large!]

So not only the usual euros and dollars, but also gold (clearly the hackers were diversifying) and also two-and-a-half thousand SIM cards. Two-and-a-half thousand! Here are people taking the messages of convergence, future-proofing and cloud payments quite seriously. As Eric Schmidt said when still with Google, if you don’t have a mobile strategy then you don’t have a strategy. Now, if you’re like me, you will wonder what on Earth they are going to do with these SIMs. Then I remembered something that I’d read a while ago.

Only days after almost two million Bulgarians registered their SIM cards, the Interior Ministry warns that new forms of abuse are appearing. According to the ministry, two cases had recently been uncovered in which telephone fraudsters had allegedly offered 50 leva to Romas for registered SIM cards, Bulgarian daily Standard reported… the Interior Ministry as saying that it expected a flood of SIM cards, registered to Romas and homeless people, to appear on the market in the coming weeks.

[From Interior Ministry warns of trade in registered pre-paid SIM cards - Bulgaria - The Sofia Echo]

Mystery solved. The answer to why there should be a significant value attached to SIM cards that you can buy for virtually nothing in any shop is, naturally, government policy. After pocketing their windfalls from selling their SIM cards, the homeless and Roma presumably went off to celebrate their good fortune, whereas the criminals went off to figure out how to create a mass supply instead of having to negotiate with individuals.

…only four months into 2010, and organised crime groups already have found ways of beating the system. In fact, there are unsuspecting people right now who are completely unaware that their mobile phones, or names and registration, are being used for serious criminal activities… Radio host Borislav Borissov found out that he was the “proud owner” of about 200 different SIM cards, all registered to his name and personal social security number.

[From Bulgarian criminals 'beating the system' of pre-paid SIM card registration - Bulgaria - The Sofia Echo]

I know where I’d invest my criminal dollars! Mobile is the future! No, of course, I’m just joking to make a point. If I really was going to invest dollars in a criminal enterprise, it would be in Somali pirates, except for one sticking point. I’m afraid my strict ethical position will not allow me to deal with these people.

The al Shabaab group, which professes loyalty to al Qaeda, said mobile money transfers (MMT) helped feed Western capitalism and were turning Somalia’s Muslims against Islamic banking practices.

[From Somalia's al Shabaab bans mobile money transfers | Top News | Reuters]

I cannot do sufficient violence to my conscience to support a group who are against mobile payments.

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Licensed operators

by 1 Comment

France has been in the forefront of the NFC revolution, with an early commitment to cross-industry co-operation, considerable work on standards and models and an aggressive timetable for getting phones into the market. Remember this?

A dozen French cities plan to launch wide-scale contactless payment and information service on mobile phones with the backing of the ministry of industry, reports Les Echos. The city projects approved under the initiative will receive state assistance for consultancy and engineering, but no other subsidies are planned at this stage.

[From Aid from French Ministry of Industry for mobile contactless cities. « Contactless & NFC City League]

You will undoubtedly recall that a few months later, the French mobile operators decided to get together with a processor and form a mobile payments proposition to launch a serious assault on the banks’ retail payment franchise.

Orange, SFR, Bouygues Telecom et Atos Origin créent une société commune pour proposer une plate-forme unique de paiement en ligne, sécurisée par le mobile.

[From Union sacrée des opérateurs mobiles dans le paiement sur Internet - OPERATEUR DE TELECOMMUNICATIONS SERVICES INFORMATIQUES ATOS ORIGIN FRANCE TELECOM SFR BOUYGUES TELECOM]

Well they’ve made their first assault on the enemy positions and have been granted a PI licence. Why would they bother, you might wonder, when polls show that the majority of consumers don’t want to use mobile payments?

The 59% of consumers who were against the idea, meanwhile, gave their reasons as: Security (79%)

[From Most French consumers not in favour of mobile payments • NFC World]

The answer is, of course, that consumers don’t know what they are talking about and it’s a waste of time asking them about anything new. Whatever they might say a priori, in all of the pilots and trials that we have been involved in, they really, really, liked mobile proximity.

But there are some real issues, and we need to address them.

Dead phone batteries. Wrong merchant terminals. Terminals turned off. Terminals unrepaired. No terminals at all.

These and other, less obvious glitches suggest contactless technology may not be the mobile payments panacea for tattered magnetic stripes and other problems with plastic cards.

[From Mobile Payments Inheriting the Problems of Contactless - American Banker Article]

Well, yes and no. (I am a consultant, after all). Let’s have a look at these

Dead phone batteries. NFC is interoperable with the existing contactless payments and ticketing systems. As you may have noticed, your Oyster card doesn’t have a battery in it: that’s because it is powered through the electromagnetic field of the terminal you touch it to, and the same is true for the NFC interfaces in phones: if the phone has no battery you may not be able to access your m-wallet to check your transactions, redeem coupons and so on, but you will be able to to use it pay in a shop and ride the subway.

Wrong merchant terminals. I don’t think this will an issue. Right now there are some problems with some cards not being accepted in some terminals, but this is the result of standards problems three or four years ago. The contactless EMV standard should interoperate seamlessly. Some of the terminals are certainly “wrong” from the point of view of consumer experience, but that’s a different thing.

Terminals turned off. Fair enough, I do see this from time-to-time. But it’s a teething problem. There is a problem with terminals being turned off after the merchant has rung up the purchase and then having press some more buttons to turn it on, but that’s an implementation issue.

Terminals unrepaired. I don’t think this is a long term problem. Contactless terminals (since they have no slot or contacts) are considerable more reliable in practice than contact or stripe terminals. Experience from other sectors suggests to me tha tthe cost of maintaining an estate of contactless terminals is less than half the cost of maintaining an estate of conventional terminals.

No terminals at all. This, I think, is the real problem. When I was last in the US, I saw contactless terminals in places where they didn’t really have much impact, like in CVS. But in the places where contactless would have really helped and speeded things up — BART machines, airport carts, Coke machines and so on — nothing.

The point is, that those are real issues that do need dealing with, whereas what the public says are their concerns, such as about the security are, in my opinion, not real issues and it should be handled through marketing communications. Oh, wait…

85% of users said they considered the protocols for operating with the NFC system to be sufficiently secure.

[From Sitges trial results: Consumers pay more often and spend more with NFC phones than with cards • NFC World]

This must be a translation from Spanish, because I’m not sure that “protocols for operating with the NFC system” translates properly in English, but it’s good news all the same. I’m not saying that everything is perfect in the NFC world. Even in France, where progress has been slow despite the commitment of major banks and operators. It’s still a new technology.

The problems are one of the main reasons bank Crédit Mutuel-CIC has held back on launching its m-payment service, according to Patrice Hertzog, payment systems manager for Crédit Mutuel-CIC. He said it has been difficult for the bank’s trusted service manager, Gemalto, to set up and manage the bank’s PayPass application on SIM cards produced by other vendors, such as Oberthur Technologies.

The problems have occurred despite much standards work by the French Association Française du Sans Contact Mobile, or AFSCM, and prior trials involving multiple French banks, mobile operators and vendors.

[From ‘Open’ Battles Break Out Among NFC Vendors Over Android | NFC Times – Near Field Communication and all contactless technology.]

To be honest, this suggests that vendors are not building TSMs from scratch based on the new standards but are putting wrappers around their existing card personalisation systems. That sort of thing is, to me, more of a real issue than incorrectly worrying about what the public think, but whatever. Things are moving. Even in the US, the new technology is getting a foothold and there will soon be TSMs there too.

The joint venture formed by U.S. mobile carriers to launch NFC-based mobile payment… has selected France-based Gemalto to download and manage payment and other secure applications on NFC phones to be used in pilots expected to be held in three to four cities during the second half of 2011

[From U.S. Carrier Joint Venture Chooses a Trusted Service Manager | NFC Times – Near Field Communication and all contactless technology.]

There’s plenty of activity in the US as elsewhere, and since I’ve been looking at the US for clients recently I was interested to read about the work done by the Federal Reserve Banks of Atlanta and Boston. This work suggests that the success factors for the US will rest on the evolution of an open eco system for NFC.

The mobile infrastructure would likely be based on Near Field Communications (NFC) contactless technology resident in a smart phone and merchant terminals.

Ubiquitous platforms for mobile should leverage existing rails, including the ACH network for non-card payments, and support new payment types that meet emerging needs.
Some form of dynamic data authentication would be at the heart of a layered mobile payments security and fraud mitigation program.

Standards would be designed, adopted, and complied with through an industry certification program to ensure both domestic and global interoperability, including a standard to ensure that devices used to facilitate mobile payments do not create any electronic interference problems.

A better understanding of a regulatory oversight model should be developed in concert with bank and non-bank regulators early in the effort to clarify compliance responsibilities.

Trusted Service Managers should oversee the provision of interoperable and shared security elements used in the mobile phone.

[From Mobile Payments in the United States Mapping Out the Road Ahead - Boston Fed]

On that final point, things are already moving.

The joint venture formed by U.S. mobile carriers to launch NFC-based mobile payment… has selected France-based Gemalto to download and manage payment and other secure applications on NFC phones to be used in pilots expected to be held in three to four cities during the second half of 2011

[From U.S. Carrier Joint Venture Chooses a Trusted Service Manager | NFC Times – Near Field Communication and all contactless technology.]

So there’s plenty of activity in the US as elsewhere and plenty of organisations are looking at how the move to mobile proximity may impact their businesses.

A white paper that outlines the survey findings, including how the most forward-thinking financial institutions are building a business case for mobile payments, is available at www.fiserv.com/mobilestrategy.

[From Forward-Looking Financial Institutions Focused on Mobile Payments Business Case, Says Fiserv Survey - pymnts.com]

I couldn’t help but think, as I read this, that the very act of building a business case for something like this is fundamentally backward-looking, trying to shoehorn something that is the basis of a new value network into the existing business models. The report says that the factors that the FIs evaluated across these business lines included customer retention and profitability, cost reduction, revenue generation and retention, increased customer engagement and competitive parity. When I looked at the revenue generation part of it, though, it only referred to revenue generation in terms of debit card transactions and keeping the connection to the DDA. This isn’t how forward-looking organisations are thinking about revenue generation from mobile payments, they are thinking about delivering entirely new products and services that are simply not possible in conventional (ie, card) environments, generating revenue from things that banks don’t do.

Google is to run tests of mobile payments at stores in New York and San Francisco in the summer, according to anonymous sources cited by Bloomberg. The search engine giant will pay for installation of thousands of NFC cash-register systems from VeriFone Systems at merchant locations, one source told the wire.

[From Finextra: Google to run commercial trials of NFC at the POS - Bloomberg]

Well, well. So while financial institutions are agonising over the business case, Google is giving out the terminals for free. It’s not hard to see why: they don’t care about the miniscule margins on the payment transaction and arguing about how to slide and dice the merchant fee, they care about building new business around knowing who is buying what and where. So leadership in the NFC space is may well shift away from the payment incumbents. Perhaps the answer to the age-old question about whether banks or operators would control the mobile payments space is… neither.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Banks and mobile operators are working together on NFC, but will they “win” in the new value network

by 1 Comment

France has been in the forefront of the NFC revolution, with an early commitment to cross-industry co-operation, considerable work on standards and models and an aggressive timetable for getting phones into the market. Remember this?

A dozen French cities plan to launch wide-scale contactless payment and information service on mobile phones with the backing of the ministry of industry, reports Les Echos. The city projects approved under the initiative will receive state assistance for consultancy and engineering, but no other subsidies are planned at this stage.

[From� Aid from French Ministry of Industry for mobile contactless cities. « Contactless & NFC City League]

You will undoubtedly recall that a few months later, the French mobile operators decided to get together with a processor and form a mobile payments proposition to launch a serious assault on the banks’ retail payment franchise.

Orange, SFR, Bouygues Telecom et Atos Origin créent une société commune pour proposer une plate-forme unique de paiement en ligne, sécurisée par le mobile.

[From� Union sacrée des opérateurs mobiles dans le paiement sur Internet - OPERATEUR DE TELECOMMUNICATIONS SERVICES INFORMATIQUES ATOS ORIGIN FRANCE TELECOM SFR BOUYGUES TELECOM]

Well they’ve made their first assault on the enemy positions and have been� granted a PI licence. Why would they bother, you might wonder, when polls show that the majority of consumers don’t want to use mobile payments?

The 59% of consumers who were against the idea, meanwhile, gave their reasons as: Security (79%)

[From� Most French consumers not in favour of mobile payments • NFC World]

The answer is, of course, that consumers don’t know what they are talking about and it’s a waste of time asking them about anything new. Whatever they might say a priori, in all of the pilots and trials that we have been involved in, they really, really, liked mobile proximity.

But there are some real issues, and we need to address them.

Dead phone batteries. Wrong merchant terminals. Terminals turned off. Terminals unrepaired. No terminals at all.

These and other, less obvious glitches suggest contactless technology may not be the mobile payments panacea for tattered magnetic stripes and other problems with plastic cards.

[From� Mobile Payments Inheriting the Problems of Contactless - American Banker Article]

Well, yes and no. (I am a consultant, after all). Let’s have a look at these

Dead phone batteries. NFC is interoperable with the existing contactless payments and ticketing systems. As you may have noticed, your Oyster card doesn’t have a battery in it: that’s because it is powered through the electromagnetic field of the terminal you touch it to, and the same is true for the NFC interfaces in phones: if the phone has no battery you may not be able to access your m-wallet to check your transactions, redeem coupons and so on, but you will be able to to use it pay in a shop and ride the subway.

Wrong merchant terminals. I don’t think this will an issue. Right now there are some problems with some cards not being accepted in some terminals, but this is the result of standards problems three or four years ago. The contactless EMV standard should interoperate seamlessly. Some of the terminals are certainly “wrong” from the point of view of consumer experience, but that’s a different thing.

Terminals turned off. Fair enough, I do see this from time-to-time. But it’s a teething problem. There is a problem with terminals being turned off� after the merchant has rung up the purchase and then having press some more buttons to turn it on, but that’s an implementation issue.

Terminals unrepaired. I don’t think this is a long term problem. Contactless terminals (since they have no slot or contacts) are considerable more reliable in practice than contact or stripe terminals. Experience from other sectors suggests to me tha tthe cost of maintaining an estate of contactless terminals is less than half the cost of maintaining an estate of conventional terminals.

No terminals at all. This, I think, is the real problem. When I was last in the US, I saw contactless terminals in places where they didn’t really have much impact, like in CVS. But in the places where contactless would have really helped and speeded things up—BART machines, airport carts, Coke machines and so on—nothing.

The point is, that those are real issues that do need dealing with, whereas what the public says are their concerns, such as about the security are, in my opinion, not real issues and it should be handled through marketing communications. Oh, wait…

85% of users said they considered the protocols for operating with the NFC system to be sufficiently secure.

[From� Sitges trial results: Consumers pay more often and spend more with NFC phones than with cards • NFC World]

This must be a translation from Spanish, because I’m not sure that “protocols for operating with the NFC system” translates properly in English, but it’s good news all the same. I’m not saying that everything is perfect in the NFC world. Even in France, where progress has been slow despite the commitment of major banks and operators. It’s still a new technology.

The problems are one of the main reasons bank Crédit Mutuel-CIC has held back on launching its m-payment service, according to Patrice Hertzog, payment systems manager for Crédit Mutuel-CIC. He said it has been difficult for the bank’s trusted service manager, Gemalto, to set up and manage the bank’s PayPass application on SIM cards produced by other vendors, such as Oberthur Technologies.

The problems have occurred despite much standards work by the French Association Française du Sans Contact Mobile, or AFSCM, and prior trials involving multiple French banks, mobile operators and vendors.

[From� ‘Open’ Battles Break Out Among NFC Vendors Over Android | NFC Times – Near Field Communication and all contactless technology.]

To be honest, this suggests that vendors are not building TSMs from scratch based on the new standards but are putting wrappers around their existing card personalisation systems. That sort of thing is, to me, more of a real issue than incorrectly worrying about what the public think, but whatever. Things are moving. Even in the US, the new technology is getting a foothold and there will soon be TSMs there too.

The joint venture formed by U.S. mobile carriers to launch NFC-based mobile payment… has selected France-based Gemalto to download and manage payment and other secure applications on NFC phones to be used in pilots expected to be held in three to four cities during the second half of 2011

[From� U.S. Carrier Joint Venture Chooses a Trusted Service Manager | NFC Times – Near Field Communication and all contactless technology.]

There’s plenty of activity in the US as elsewhere, and since I’ve been looking at the US for clients recently I was interested to read about the work done by the Federal Reserve Banks of Atlanta and Boston. This work suggests that the success factors for the US will rest on the evolution of an open eco system for NFC.

The mobile infrastructure would likely be based on Near Field Communications (NFC) contactless technology resident in a smart phone and merchant terminals.

Ubiquitous platforms for mobile should leverage existing rails, including the ACH network for non-card payments, and support new payment types that meet emerging needs.
Some form of dynamic data authentication would be at the heart of a layered mobile payments security and fraud mitigation program.

Standards would be designed, adopted, and complied with through an industry certification program to ensure both domestic and global interoperability, including a standard to ensure that devices used to facilitate mobile payments do not create any electronic interference problems.

A better understanding of a regulatory oversight model should be developed in concert with bank and non-bank regulators early in the effort to clarify compliance responsibilities.

Trusted Service Managers should oversee the provision of interoperable and shared security elements used in the mobile phone.

[From� Mobile Payments in the United States Mapping Out the Road Ahead - Boston Fed]

On that final point, things are already moving.

The joint venture formed by U.S. mobile carriers to launch NFC-based mobile payment… has selected France-based Gemalto to download and manage payment and other secure applications on NFC phones to be used in pilots expected to be held in three to four cities during the second half of 2011

[From� U.S. Carrier Joint Venture Chooses a Trusted Service Manager | NFC Times – Near Field Communication and all contactless technology.]

So there’s plenty of activity in the US as elsewhere and plenty of organisations are looking at how the move to mobile proximity may impact their businesses.

A white paper that outlines the survey findings, including how the most forward-thinking financial institutions are building a business case for mobile payments, is available at www.fiserv.com/mobilestrategy.

[From� Forward-Looking Financial Institutions Focused on Mobile Payments Business Case, Says Fiserv Survey - pymnts.com]

I couldn’t help but think, as I read this, that the very act of building a business case for something like this is fundamentally backward-looking, trying to shoehorn something that is the basis of a new value network into the existing business models. The report says that the factors that the FIs evaluated across these business lines included customer retention and profitability, cost reduction, revenue generation and retention, increased customer engagement and competitive parity. When I looked at the revenue generation part of it, though, it only referred to revenue generation in terms of debit card transactions and keeping the connection to the DDA. This isn’t how forward-looking organisations are thinking about revenue generation from mobile payments, they are thinking about delivering entirely new products and services that are simply not possible in conventional (ie, card) environments, generating revenue from things that banks don’t do.

Google is to run tests of mobile payments at stores in New York and San Francisco in the summer, according to anonymous sources cited by Bloomberg. The search engine giant will pay for installation of thousands of NFC cash-register systems from VeriFone Systems at merchant locations, one source told the wire.

[From� Finextra: Google to run commercial trials of NFC at the POS - Bloomberg]

Well, well. So while financial institutions are agonising over the business case, Google is giving out the terminals for free. It’s not hard to see why: they don’t care about the miniscule margins on the payment transaction and arguing about how to slide and dice the merchant fee, they care about building new business around knowing who is buying what and where. So leadership in the NFC space is may well shift away from the payment incumbents. Perhaps the answer to the age-old question about whether banks or operators would control the mobile payments space is… neither.

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Who thinks pseudonymity isn’t important?

by 2 Comments

OK, at the extreme risk of boring everyone to tears, let’s ask the same old question again: should you be allowed to do things on the Internet without giving away your “real” identity? Remember this was something that was discussed here a little while back, using the simple case of newspaper comments as an example. Someone has come up with an interesting way of solving for two problems simultaneously: paying for news online and making people responsible for their comments…

However, he recently went back and was surprised that, in order to comment you need to hand over your credit card, and the paper will charge you $0.99. Obviously, this is more to prove that you are who you say you are, but it does seem a bit distorted when the newspaper wants to charge people just to comment. Also, once charged, your name and hometown are automatically associated with your comments.

[From Newspaper Wants You To Pay To Comment | Techdirt]

Interesting. I think the idea of paying to comment is very interesting. I might be tempted to do that in some cases. But paying to give up your real name? I’m not so sure. I might well want to comment on something without that kind of disclosure. Back to “real names” again. The discussion goes on and on.

Why does a comment with a real name have so much more value?

[From The Real “Authenticity Killer” (and an aside about how bad the Yahoo brand has gotten) — Scobleizer]

This isn’t always true. A nurse at a hospital, forced to comment with her real name, is highly unlikely to post anything critical of a doctor. There’s a difference between an authenticated persona (so that the web site can be sure she really is a nurse at the hospital) that may be based on a pseduonym (or even a cryptographically strong unconditionally unlinkable anonym) and an authenticated identity. There may be many reasons why the latter is undesirable.

Mexico announced a plan Monday to reward people who report suspected money laundering, under a program that will allow them to get up to one-quarter of any illicit funds or property seized. Under the new plan, people can file reports in person, by telephone or by e-mail. The exact percentage of individual rewards will be determined case by case by a special committee.

[From Mexico sets rewards for reporting money laundering | ajc.com]

Would you e-mail in a tip about a suspected money launderer and expect to pick up the reward? It seems to me that this is a good example of system that demands real names for integrity but real names mean it can never work. (Although, and it’s outside the scope of this piece, it is entirely cryptographically possible to enable the payment of rewards to anonymous people).

Public servants, law enforcement and banking system employees will not be eligible for the rewards, in part because it is already their duty to report suspicious transactions.

[From Mexico sets rewards for reporting money laundering | ajc.com]

Good luck to anyone who decides to report in person, or by telephone. SIM registration is mandatory in Mexico, which means that the money launderers will find you before the police do — don’t forget, they have more money than the police do. Come to that, they have more money than anyone does.

More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn – a sum equivalent to one-third of Mexico’s gross national product – into dollar accounts from so-called casas de cambio (CDCs) in Mexico, currency exchange houses with which the bank did business.

[From How a big US bank laundered billions from Mexico's murderous drug gangs | World news | The Observer]

Given the stringent anti-money laundering (AML) regulations in place around the globe — which meant it took me 15 minutes to put a few quid on my Travelex prepaid card at Heathrow, something I will never do again — I’m surprised that this could have happened, but there you go. Perhaps instead of hassling people trying to load low-value prepaid payment accounts, the authorities could focus on the counterparties in larger electronic transfers. Hence the discussions about Legal Entity Identifiers (LEIs) that have been going on recently. Many interbank payment messages have account identifiers only — you could send money to my account with the name Carlos Tevez and it would still get to me because it’s only the account stuff that matters — and the some law enforcement agencies want to stop this and have banks validate the names as well (it will help to track funds to and from suspects I guess).

LEI will be assigned at the over all corporate entity level and also at subsidiary levels. Its usage will be standardized Internationally. My immediate thought was, never mind systemic risk, this is the perfect means to route B2B transactions across a myriad of financial systems and payment schemes worldwide!

[From Reflections on NACHA Payments 2011 — Payments Views from Glenbrook Partners]

I’m sure I’d heard somewhere before, possibly at IPS 2010, that the plan was to use the SWIFT business identifier codes (BICs), but apparently that’s no longer the case.

Vandenreydt said SWIFT is changing its tune due to a recent meeting of the International Standardization Organization’s Technical Committee 68, where SWIFT has a seat. At the meeting, participants concluded that developing a new code would help avoid ambiguities that might be involved if existing codes are used. “[The committee] wants a pure number without country or other information,” Vandenreydt added. The BIC is made up of eight to 11 alphanumeric characters with four letters for the bank, two letters for the country, two digits for the location, and three digits for the specific branch.

The utility is still working with ISO on what the identifier would look like. Vandenreydt said that process could take up to three months, though he expects a decision to be made sooner. He noted the proposal also depends on other details about the initiative that haven’t been specified by OFR, such as how long the registration authority would have to ramp up the system, whether IDs will be assigned or requested, and how many codes are expected.

[From SWIFT Retools Legal Entity Identifier Proposal]

So here’s a positive suggestion. Forget about the 1960s notion of an identifier as a unique alphanumeric code and instead make the identifier a pseudonym attested by a bank. So we become consult.hyperion!barclays.co.uk or something similar. It doesn’t matter whether the sender, or anyone else, knows who Consult Hyperon is, because the identifier tells them that Barclays does. And for 99% of real-world transactions, that’s enough. What’s important is that we are always consult.hyperion!barclays.co.uk in all relevant linked transactions. Then, if consult.hyperion!barclays.co.uk is found to be sending money to Osama bin Laden on a regular basis, the appropriate law enforcement agencies can provide Barclays with a warrant and Barclays will disclose. For general commerce, the persistence is the critical foundation. The always-accurate Eve Maler pointed this out a while back:

The neat thing is, we do this all the time already. When you meet someone face-to-face and they say their Skype handle is KoolDood, and later a KoolDood asks to connect with you on Skype and describes the circumstances of your meeting, you have a reasonable expectation it’s the right guy ever after. And it’s precisely the way persistent pseudonyms work in federated identity: as I’ve pointed out before, a relying-party website might not know you’re a dog, but it usually needs to know you’re the same dog as last time.

[From Tofu, online trust, and spiritual wisdom | Pushing String]

Quite. But there’s another point. You don’t need to be a “real” persistent identity to have a reputation, as should be obvious. A useful reminder of this came at the end of 2010, when an anonymous critic was named the Village Voice’s “Music Critic of the Year”.

Twitter spokesperson Matt Graves called it a “milestone”; whether he’s serious or not, (“dead serious,” he later said) @discographies certainly carries a certain seriousness throughout today’s interview in the Village Voice. “Twitter,” the account holder says, “may be the first mass communications system that also functions as a meritocracy: it actively promotes good ideas and good content, regardless of where they come from.”

[From Anonymous Twitter Account Named Music Critic of Year by Village Voice]

I’m not sure that meritocracy is the right word, but I think the sentiment is accurate: you have to earn reputation to attach to your identifier, and once it’s been earned it’s hard to replicate (unlike intellectual property). So I might want to send money to @discographies without knowing or caring whether @discographies is a roomful of students or an internationally-known music critic. (And, over on Digital Money, I will point out that I want to send money to @dgwbirch — which is an entirely unique Twitter identifier — by MasterCard, PayPal, WebMoney, M-PESA or anything else, but that’s another point entirely.) Why can’t @discographies be mutated into discographics!wellsfargo.com or whatever?

It’s an entirely plausible model: banks managing reputation, because it’s more important than money. The presence of banks legitimises the market, so knowing that a bank has carried out some KYC on @discographies means that other players can treat the reputation attached to it seriously without being concerned about the “real” identity.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Reputation does not depend on “real” identity

by Leave a Comment

OK, at the extreme risk of boring everyone to tears, let’s ask the same old question again: should you be allowed to do things on the Internet without giving away your “real” identity? Remember this was something that was discussed here a little while back, using the simple case of newspaper comments as an example. Someone has come up with an interesting way of solving for two problems simultaneously: paying for news online and making people responsible for their comments…

However, he recently went back and was surprised that, in order to comment you need to hand over your credit card, and the paper will charge you $0.99. Obviously, this is more to prove that you are who you say you are, but it does seem a bit distorted when the newspaper wants to charge people just to comment. Also, once charged, your name and hometown are automatically associated with your comments.

[From� Newspaper Wants You To Pay To Comment | Techdirt]

Interesting. I think the idea of paying to comment is very interesting. I might be tempted to do that in some cases. But paying to give up your real name? I’m not so sure. I might well want to comment on something without that kind of disclosure. Back to “real names” again. The discussion goes on and on.

Why does a comment with a real name have so much more value?

[From� The Real “Authenticity Killer” (and an aside about how bad the Yahoo brand has gotten) — Scobleizer]

This isn’t always true. A nurse at a hospital, forced to comment with her real name, is highly unlikely to post anything critical of a doctor. There’s a difference between an authenticated persona (so that the web site can be sure she really is a nurse at the hospital) that may be based on a pseduonym (or even a cryptographically strong unconditionally unlinkable anonym) and an authenticated identity. There may be many reasons why the latter is undesirable.

Mexico announced a plan Monday to reward people who report suspected money laundering, under a program that will allow them to get up to one-quarter of any illicit funds or property seized. Under the new plan, people can file reports in person, by telephone or by e-mail. The exact percentage of individual rewards will be determined case by case by a special committee.

[From� Mexico sets rewards for reporting money laundering | ajc.com]

Would you e-mail in a tip about a suspected money launderer and expect to pick up the reward? It seems to me that this is a good example of system that demands real names for integrity but real names mean it can never work. (Although, and it’s outside the scope of this piece, it is entirely cryptographically possible to enable the payment of rewards to anonymous people).

Public servants, law enforcement and banking system employees will not be eligible for the rewards, in part because it is already their duty to report suspicious transactions.

[From� Mexico sets rewards for reporting money laundering | ajc.com]

Good luck to anyone who decides to report in person, or by telephone. SIM registration is mandatory in Mexico, which means that the money launderers will find you before the police do—don’t forget, they have more money than the police do. Come to that, they have more money than anyone does.

More shocking, and more important, the bank was sanctioned for failing to apply the proper anti-laundering strictures to the transfer of $378.4bn – a sum equivalent to one-third of Mexico’s gross national product – into dollar accounts from so-called casas de cambio (CDCs) in Mexico, currency exchange houses with which the bank did business.

[From� How a big US bank laundered billions from Mexico’s murderous drug gangs | World news | The Observer]

Given the stringent anti-money laundering (AML) regulations in place around the globe—which meant it took me 15 minutes to put a few quid on my Travelex prepaid card at Heathrow, something I will never do again—I’m surprised that this could have happened, but there you go. Perhaps instead of hassling people trying to load low-value prepaid payment accounts, the authorities could focus on the counterparties in larger electronic transfers. Hence the discussions about Legal Entity Identifiers (LEIs) that have been going on recently. Many interbank payment messages have account identifiers only—you could send money to my account with the name Carlos Tevez and it would still get to me because it’s only the account stuff that matters—and the some law enforcement agencies want to stop this and have banks validate the names as well (it will help to track funds to and from suspects I guess).

LEI will be assigned at the over all corporate entity level and also at subsidiary levels. Its usage will be standardized Internationally. My immediate thought was, never mind systemic risk, this is the perfect means to route B2B transactions across a myriad of financial systems and payment schemes worldwide!

[From� Reflections on NACHA Payments 2011 — Payments Views from Glenbrook Partners]

I’m sure I’d heard somewhere before, possibly at IPS 2010, that the plan was to use the SWIFT business identifier codes (BICs), but apparently that’s no longer the case.

Vandenreydt said SWIFT is changing its tune due to a recent meeting of the International Standardization Organization’s Technical Committee 68, where SWIFT has a seat. At the meeting, participants concluded that developing a new code would help avoid ambiguities that might be involved if existing codes are used. “[The committee] wants a pure number without country or other information,” Vandenreydt added. The BIC is made up of eight to 11 alphanumeric characters with four letters for the bank, two letters for the country, two digits for the location, and three digits for the specific branch.

The utility is still working with ISO on what the identifier would look like. Vandenreydt said that process could take up to three months, though he expects a decision to be made sooner. He noted the proposal also depends on other details about the initiative that haven’t been specified by OFR, such as how long the registration authority would have to ramp up the system, whether IDs will be assigned or requested, and how many codes are expected.

[From� SWIFT Retools Legal Entity Identifier Proposal]

So here’s a positive suggestion. Forget about the 1960s notion of an identifier as a unique alphanumeric code and instead make the identifier a pseudonym attested by a bank. So we become consult.hyperion!barclays.co.uk or something similar. It doesn’t matter whether the sender, or anyone else, knows who Consult Hyperon is, because the identifier tells them that Barclays does. And for 99% of real-world transactions, that’s enough. What’s important is that we are always consult.hyperion!barclays.co.uk in all relevant linked transactions. Then, if consult.hyperion!barclays.co.uk is found to be sending money to Osama bin Laden on a regular basis, the appropriate law enforcement agencies can provide Barclays with a warrant and Barclays will disclose. For general commerce, the persistence is the critical foundation. The always-accurate Eve Maler pointed this out a while back:

The neat thing is, we do this all the time already. When you meet someone face-to-face and they say their Skype handle is KoolDood, and later a KoolDood asks to connect with you on Skype and describes the circumstances of your meeting, you have a reasonable expectation it’s the right guy ever after. And it’s precisely the way persistent pseudonyms work in federated identity: as I’ve pointed out before, a relying-party website might not know you’re a dog, but it usually needs to know you’re the same dog as last time.

[From� Tofu, online trust, and spiritual wisdom | Pushing String]

Quite. But there’s another point. You don’t need to be a “real” persistent identity to have a reputation, as should be obvious. A useful reminder of this came at the end of 2010, when an anonymous critic was named the Village Voice’s “Music Critic of the Year”.

Twitter spokesperson Matt Graves called it a “milestone”; whether he’s serious or not, (“dead serious,” he later said) @discographies certainly carries a certain seriousness throughout today’s interview in the Village Voice. “Twitter,” the account holder says, “may be the first mass communications system that also functions as a meritocracy: it actively promotes good ideas and good content, regardless of where they come from.”

[From� Anonymous Twitter Account Named Music Critic of Year by Village Voice]

I’m not sure that meritocracy is the right word, but I think the sentiment is accurate: you have to earn reputation to attach to your identifier, and once it’s been earned it’s hard to replicate (unlike intellectual property). So I might want to send money to @discographies without knowing or caring whether @discographies is a roomful of students or an internationally-known music critic. (And, over on Digital Money, I will point out that I want to send money to� @dgwbirch—which is an entirely unique Twitter identifier—by MasterCard, PayPal, WebMoney, M-PESA or anything else, but that’s another point entirely.) Why can’t @discographies be mutated into discographics!wellsfargo.com or whatever?

It’s an entirely plausible model: banks managing reputation, because it’s more important than money. The presence of banks legitimises the market, so knowing that a bank has carried out some KYC on @discographies means that other players can treat the reputation attached to it seriously without being concerned about the “real” identity.

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


These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Tax pressures could boost e-payments in Europe

by Leave a Comment

They called April 6th “Black Wednesday” in the UK. Well, I heard someone say that on the BBC. It’s because it was the start of the new tax year, and since the government maxed out the credit card, the payments are going up. There’s going to be some pressure to collect to more tax, because there’s a limit to how much you can put the rates up before avoidance (and emigration) reduces the total amount collected. I wonder if we will soon be going down the Greek route.

The Greek government announced Thursday it is shutting down bars and nightclubs… that fail to offer receipts. So far, six bars and clubs have been shut down as par of a broader sweep where two-thirds of all inspected businesses were fined. The absence of receipts allows businesses to avoid value added tax, or consumption tax, the Ministry of Finance said in a press release.

[From� Euro Debt Crisis - Cash-Strapped Greece Cracks Down on Fun - CNBC]

Now this could be good for the e-payments industry, because the easiest away to avoid receipts and therefore evade tax is to pay in cash. Here, in� the birthplace of income tax, the government are apparently going to have something of a crackdown on tax evasion.

HMRC has targeted so-called ‘ash cash’ or payments to doctors for signing death certificates before bodies can be cremated and also undeclared cash payments to dentists.

[From� HMRC targets middle class tax evaders – Telegraph Blogs]

This seems on the margin to me: I shouldn’t think the amount of tax being evaded by doctors writing death certificates will amount to� one payoff of a local government official and I have to say that none of my dentists has ever asked me for a cash payment for anything.

It could even be argued that agreeing to pay your builder in cash might be seen as a conspiracy to defraud the Revenue

[From� HMRC targets middle class tax evaders – Telegraph Blogs]

Now you’re talking! Agreeing to pay your builder in cash is precisely engaging in a conspiracy to evade tax, and people who do it should be prosecuted. If they paid their share, mine wouldn’t be so much.

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.

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

Getting rid of cash won’t eradicate tax evasion, but it will make it more difficult, and hopefully more expensive, thus shifting otherwise black commerce back into the formal economy. And since the scale of tax evasion in Europe is so colossal, small improvements will deliver significant sums to the treasuries. I couldn’t find a reasonable estimate for this in the most recent tax year, but I did find this estimate for VAT alone.

The current collection model brings with it a VAT Gap due to e.g. VAT fraud, insolvencies, mistakes by the taxable persons in the VAT return and VAT avoidance schemes. Desk research shows that the VAT Gap for 2009 can be cautiously estimated at 6,9% of GDP and 12% of total VAT liability in the EU-27. This means that, in the EU-27, a total of EUR 118,8 billion has according to those estimates not been collected by the tax authorities in 2009.

[From� 118,8bn euros lost in 2009]

Let’s say that 20 billion of this is in the UK, and that getting rid of cash would cut it by a quarter. That’s an instant five billion bonus to the exchequer. I look forward to my rebate.

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


These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Black Wednesday

by Leave a Comment

They called April 6th “Black Wednesday” in the UK. Well, I heard someone say that on the BBC. It’s because it was the start of the new tax year, and since the government maxed out the credit card, the payments are going up. There’s going to be some pressure to collect to more tax, because there’s a limit to how much you can put the rates up before avoidance (and emigration) reduces the total amount collected. I wonder if we will soon be going down the Greek route.

The Greek government announced Thursday it is shutting down bars and nightclubs… that fail to offer receipts. So far, six bars and clubs have been shut down as par of a broader sweep where two-thirds of all inspected businesses were fined. The absence of receipts allows businesses to avoid value added tax, or consumption tax, the Ministry of Finance said in a press release.

[From Euro Debt Crisis - Cash-Strapped Greece Cracks Down on Fun - CNBC]

Now this could be good for the e-payments industry, because the easiest away to avoid receipts and therefore evade tax is to pay in cash. Here, in the birthplace of income tax, the government are apparently going to have something of a crackdown on tax evasion.

HMRC has targeted so-called ‘ash cash’ or payments to doctors for signing death certificates before bodies can be cremated and also undeclared cash payments to dentists.

[From HMRC targets middle class tax evaders – Telegraph Blogs]

This seems on the margin to me: I shouldn’t think the amount of tax being evaded by doctors writing death certificates will amount to one payoff of a local government official and I have to say that none of my dentists has ever asked me for a cash payment for anything.

It could even be argued that agreeing to pay your builder in cash might be seen as a conspiracy to defraud the Revenue

[From HMRC targets middle class tax evaders – Telegraph Blogs]

Now you’re talking! Agreeing to pay your builder in cash is precisely engaging in a conspiracy to evade tax, and people who do it should be prosecuted. If they paid their share, mine wouldn’t be so much.

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.

[From I'm dreaming of a cashless Christmas - Telegraph]

Getting rid of cash won’t eradicate tax evasion, but it will make it more difficult, and hopefully more expensive, thus shifting otherwise black commerce back into the formal economy. And since the scale of tax evasion in Europe is so colossal, small improvements will deliver significant sums to the treasuries. I couldn’t find a reasonable estimate for this in the most recent tax year, but I did find this estimate for VAT alone.

The current collection model brings with it a VAT Gap due to e.g. VAT fraud, insolvencies, mistakes by the taxable persons in the VAT return and VAT avoidance schemes. Desk research shows that the VAT Gap for 2009 can be cautiously estimated at 6,9% of GDP and 12% of total VAT liability in the EU-27. This means that, in the EU-27, a total of EUR 118,8 billion has according to those estimates not been collected by the tax authorities in 2009.

[From 118,8bn euros lost in 2009]

Let’s say that 20 billion of this is in the UK, and that getting rid of cash would cut it by a quarter. That’s an instant five billion bonus to the exchequer. I look forward to my rebate.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Categorising the ages of money

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A few years ago, I was thinking about how to relate the changing technology of money to changes in money, and I thought it would be useful to have some rough categorisation to organise thoughts. At the time, I wrote this:

The era of Money 3.0 is just beginning. Its central dynamic is no longer connectivity (since everything is connected to everything else) but community.

[From� Digital Money: Money 3.0]

After a while, I realised that my initial categorisation was insufficiently granular to organise all of the thoughts I had on the topic and all of the information I had gathered on the topic. (I’m thinking of writing a book about it, which is why I have been gathering a lot of material on the specific topic of the technology of money.) A little while ago I posted a more sophisticated idea for a categorisation of the ages of money, or money eras. This extended the framework from three to five “eras”.

Our current era, Money 4.0, can be dated in retrospect to 1971 when Richard Nixon finally ended the gold standard and Visa introduced the Base 1 network for authenticating card payments based on the magnetic stripe. Money 4.0 is bits about bits, but we still apply the wrong mental model, and imagine it to be bits about atoms.

[From� Digital Money: Another go at categorising money technologies]

This led me to describe the future as a new age of money, Money 5.0 I suppose, where the abstraction becomes complete and there are wholly new kinds of money that are not based on debt (or, indeed, anything else ultimately tangible) or secured in some conventional way but on relationships. Having had a bit of feedback on this, I think it serves its purpose. Obviously, some aspects are a little arbitrary—starting the information revolution in 1871—but I think I can support the dating of the communications revolution to 1971, since this is roughly when company size peaked in the UK (actually it was in 1973), and anyway it fits nicely with the narrative of the 100 year interlude that I contend still constrains our mental models of what money is and how it works.

Money Eras

This categorisation leads me to think that we should be looking for Money 5.0 where we see private bits, not bits about anything, becoming a means of exchange. Why private bits? Well, at this year’s� Digital Money Forum, we had a wonderful session on private currency, chaired by the economist Diane Coyle.

This morning I had the privilege of chairing a fascinating session at the Digital Money Forum run each year by Dave Birch of Consult Hyperion. The speakers were Professor George Selgin of the University of Georgia, and James Turk of the Gold Money Foundation. Both were arguing, from different perspectives, for private money as a competitor to government money.

[From� The Enlightened Economist :: Good money, digital or analogue]

George gave a superb talk on the way in which the industrial revolution in England was hampered by a lack of circulating means of exchange, so private companies stepped in to develop new forms of industrial means of exchange (copper tokens) that help commerce and trade to grow to the great benefit of the nation. It strikes me that we are now in a similar position: we have had the post-industrial revolution but we are still using industrial money and it is holding us back. This is why the virtual empires, such as Facebook, have gone on to produce wholly private currencies—everything from the Everquest Platinum Pieces of old to the Facebook Credits of today—just as the giants of the industrial revolution (eg, Boulton’s Factory) did 200 years ago. If you think that sounds fanciful, remember that the wholly virtual economy—that has no industrial analogue—is already of significant size and growing strongly.

more than 100,000 people in countries such as China and India earn a living by performing ‘micro-tasks’ in the virtual economy. Jobs include categorising products in online shops, moderating content posted to social media sites, or even playing online games on behalf of wealthier players who are too busy to tend to their characters themselves.

[From� Finextra: Three billion dollar virtual economy to fuel developed world - World Bank]

As the World Bank report notes, this economy is already worth several billion dollars. With better money, it could be worth several billion more.

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


These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Waiting for ages

by Leave a Comment

A few years ago, I was thinking about how to relate the changing technology of money to changes in money, and I thought it would be useful to have some rough categorisation to organise thoughts. At the time, I wrote this:

The era of Money 3.0 is just beginning. Its central dynamic is no longer connectivity (since everything is connected to everything else) but community.

[From Digital Money: Money 3.0]

After a while, I realised that my initial categorisation was insufficiently granular to organise all of the thoughts I had on the topic and all of the information I had gathered on the topic. (I’m thinking of writing a book about it, which is why I have been gathering a lot of material on the specific topic of the technology of money.) A little while ago I posted a more sophisticated idea for a categorisation of the ages of money, or money eras. This extended the framework from three to five “eras”.

Our current era, Money 4.0, can be dated in retrospect to 1971 when Richard Nixon finally ended the gold standard and Visa introduced the Base 1 network for authenticating card payments based on the magnetic stripe. Money 4.0 is bits about bits, but we still apply the wrong mental model, and imagine it to be bits about atoms.

[From Digital Money: Another go at categorising money technologies]

This led me to describe the future as a new age of money, Money 5.0 I suppose, where the abstraction becomes complete and there are wholly new kinds of money that are not based on debt (or, indeed, anything else ultimately tangible) or secured in some conventional way but on relationships. Having had a bit of feedback on this, I think it serves its purpose. Obviously, some aspects are a little arbitrary — starting the information revolution in 1871 — but I think I can support the dating of the communications revolution to 1971, since this is roughly when company size peaked in the UK (actually it was in 1973), and anyway it fits nicely with the narrative of the 100 year interlude that I contend still constrains our mental models of what money is and how it works.

Money Eras

This categorisation leads me to think that we should be looking for Money 5.0 where we see private bits, not bits about anything, becoming a means of exchange. Why private bits? Well, at this year’s Digital Money Forum, we had a wonderful session on private currency, chaired by the economist Diane Coyle.

This morning I had the privilege of chairing a fascinating session at the Digital Money Forum run each year by Dave Birch of Consult Hyperion. The speakers were Professor George Selgin of the University of Georgia, and James Turk of the Gold Money Foundation. Both were arguing, from different perspectives, for private money as a competitor to government money.

[From The Enlightened Economist :: Good money, digital or analogue]

George gave a superb talk on the way in which the industrial revolution in England was hampered by a lack of circulating means of exchange, so private companies stepped in to develop new forms of industrial means of exchange (copper tokens) that help commerce and trade to grow to the great benefit of the nation. It strikes me that we are now in a similar position: we have had the post-industrial revolution but we are still using industrial money and it is holding us back. This is why the virtual empires, such as Facebook, have gone on to produce wholly private currencies — everything from the Everquest Platinum Pieces of old to the Facebook Credits of today — just as the giants of the industrial revolution (eg, Boulton’s Factory) did 200 years ago. If you think that sounds fanciful, remember that the wholly virtual economy — that has no industrial analogue — is already of significant size and growing strongly.

more than 100,000 people in countries such as China and India earn a living by performing ‘micro-tasks’ in the virtual economy. Jobs include categorising products in online shops, moderating content posted to social media sites, or even playing online games on behalf of wealthier players who are too busy to tend to their characters themselves.

[From Finextra: Three billion dollar virtual economy to fuel developed world - World Bank]

As the World Bank report notes, this economy is already worth several billion dollars. With better money, it could be worth several billion more.

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

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.