It is interesting to speculate on what will happen to the value chain when the euro-API is in place. Will the European Commission create a vigorous and dynamic financial services world, or replace its bogeymen (Visa and MasterCard) with bugaboos (Facebook and Google)?

The wonderful people at ECN invited me to Berlin to give the keynote at their Mobile Payments Innovation Opportunity and Risk conference. My presentation is up on Slideshare if you want to take a look, but I can tell you right now that it wasn’t the best presentation at the conference. That was made by Olivier Halluitte from Chappuis Halder & Cie, who gave a super overview of the new digital bank experience, delivered a fascinating case study around AXA’s “mobile first” bank Soon and handed out some insightful ideas around the model for services going forward. I’ll paraphrase what he said by saying that he saw the implementation of banking functions being hidden and accessed through an identity layer created and owned by Facebook, Apple, Google and such like. He is not alone in seeing a future role for banks as an API that delivers financial services. According to Perficient, and I’ve got no reason to disagree with them, this kind of “Connected Banking” is one of the top five trends in the financial technology world at the moment.

The use of APIs and integration to diversify and advance product offerings is the future of financial services. Innovators at some of the well-established financial institutions are extending access to banking services for developers and partners in today’s digital economy to deliver new products and services in the marketplace, personalize experiences, add new mobile services and protect people’s privacy through authentication.

[From Top 5 Financial Services Technology Trends – March 2014 | Perficient Financial Services Blog]

There is a danger that this “connected banking” model turns into a sort of “dumb pipe” model of banking, perhaps as is envisaged by the European Commission in their consultations around regulated third-party access to bank accounts (as discussed in part one of this API Blast). This was covered later in the day but our old friend Jean Allix from the Directorate GeneralCompetition (DGComp) and his colleague Philippe Pelle from Directorate General Internal Market (DGInt). Ulf Geismar from Edgar Dunn also referred to the “coming wave of regulation” and explained about the opportunities for new entrants to come into the payment space to compete in a fair playing field.

Here I am lobbying Jean Allix on your behalf.

I couldn’t resist asking, though, whether it really will be a fair playing field. Going back to the Olivier’s presentation, if the banks are essentially condemned to a future as utility pipes that are mandated to provide a “euro-API” for third parties (as discussed in part 2 of this API Blast), including the “OTTs” who have the relationship with the customer (and all the value-added services and profits) then they better have some plans to become operationally-efficient pipes otherwise they will be accumulated and agglomerated.

Naturally, this leads me to speculate what this will mean specifically for payments. If anyone can initiate payments through the API then won’t the fascist nature of monopoly capitalism shape the new business environment? How is opening up the market to competition going to help if the market is then dominated by (e.g.) Facebook and Apple instead of Visa and MasterCard? This cannot be what the Commission intends, but I am curious to know what other outcomes people are imagining. It could be that retailers and service providers take the initiative themselves and access bank account directly, for example.

I’m sure this won’t happen, of course, because I imagine that Visa and MasterCard are right now developing strategies for new push products that will sit on the euro-API and make it easy for merchants to accept new, lost-cost, hard-token, debit-lite payments.

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.

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In time, banks are going to be “Amazonised” and will open their APIs both internally and externally. So what should the focus of the API be? The customer, maybe, rather than their money.

A couple of years ago at the Intellect/Payments Council conference, I gave a talk that touched on the “triple A play” strategy of Authentication, Apps and Application Programming Interfaces (APIs) for payment providers and I said that for most people, most of the time, there will be no “payment experience” because the payments will vanish into the apps. David Marcus, who was then President of PayPal, said the same.

I believe we’re heading very quickly toward a new era in which payments will essentially disappear.

[From State of Payments: Reinventing Money | LinkedIn]

I referred back to this to kick off my talk at the excellent MEETS 2014 conference in Frankfurt. This is the annual event from Sylvia Lukas’ PayComm organisation and my once per year opportunity to catch up payment industry friends from northern, central and eastern Europe. It was as educational, enjoyable and entertaining as always, and for me particularly stimulating this year because of the opportunity to sit in on discussions with banks, schemes, processors and acquirers all developing strategies in response to some significant shifts about to occur in our industry, many of them centred around impending regulatory change. One specific category of interest and importance to our clients is that of the API in banking.

My reason for referring back to my prediction about payments vanishing was to stress the API as the mechanism for it to occur but then to build on this point to consider the impact of API-centric strategies throughout the payments value chain. It was lucky I’d decided to emphasise the “Amazonisation “of the payments industry in my talk, because the best talk of the event, which was Michael Salmony’s (from Equens) opening piece on APIs on the second day, came to similar conclusions from a less technical direction. Michael, as an aside, had the best slide of the entire event, and it wasn’t (directly) to do with payments, but was a comment on European standardisation efforts and how they work out in practice!

I must stress that this focus on APIs is not new. It’s been clear for some time that this is way forward. I remember from a study on APIs that Consult Hyperion carried out last year for one of our US financial services customers that API-centric strategies make sense – because it’s a platform game – whether banks are forced to provide them by the regulators or not.

Moyer cites some banks that are already opening up public APIs, like French banks Crédit Agricole and AXA Bank, and others that have announced plans to do so, like Commonwealth Bank of Australia, ING and Capital One. Overall, she believes there is a growing understanding in the sector of the need for transformation. “I think most banks will provide a public API in the next two years,” she says.

[From Interview: Banks must focus on APIs and apps, not applications – Gartner analyst - Ireland’s CIO and strategy news and reports service – Siliconrepublic.com]

Now, after Michael’s excellent talk on the topic, he ran one of the workshop sessions and I was able to join in a fascinating and detailed conversation about the emerging European environment that I commented on in part one of this API Blast series of posts.

The EBA (European Banking Authority) is given the task to develop, in close collaboration with the ECB, ‘common and secure open standards of communication’ (incl. specs for data transmission and how TPPs are to authenticate themselves vis-à-vis AS PSPs). These standards will need a high level of detail and quality (testing) in order to make them usable.

[From Access to the Account (XS2A): accelerating the API-economy for banks? | Innopay]

I did ask a couple of people what the process for the EBA to develop this API is and what input they are seeking from different stakeholders, but I wasn’t able to obtain sufficient clarity to be able to report. Perhaps a correspondent might be able to point me in the right direction?

Anyway, at the workshop session I was in, the delegates were discussing trends in retail payments and they used an interesting classification to drive the debate, exploring how retail payments are changing in all of these areas.

It’s not the point of this blog to report the discussions, but I will say that as far as I could tell most of the European banks at the event seemed to agree with Michael’s point about the importance of developing a strategy around APIs, given the inevitability of the regulatory mandate. There are many aspects to this strategy and, as Craig Burton has said about this, many organisations will have to develop entirely new competencies in order to participate in API-based competition.

I think the biggest change is in the area of token and key management. If an organization wants to make sure that its API(s) are not being abused, well managed keys and tokens are essential. Managing developer’s with keys is probably not something most organizations have ever done.

[From 1 Raindrop: Security > 140]

A final point with respect to opportunities for banks. There is another way of looking at the strategy around APIs: not centred on payments, but centred on identity. Suppose the bank stored your personal information (rather as was suggested by the SWIFT Innotribe in their work on the digital asset grid, or DAG). Then the API would allow third-parties (and these could be a wide range of organisations, not only PSPSs) controlled access to support recognition, relationships and reputation transactions, reducing the overall costs to the stakeholders while giving the the customer control over their own data via their bank. Could the bank be the ideal partner to implement what Greg Meyer calls “The API of Me”:

I believe that we as consumers have a right to control the data we share about and between the services and products we use, and that the economic benefit of using and sharing that information by companies should be more transparent. “The API of Me” is the name I’d like to propose for a system of capturing, sharing, and limiting information about consumers

[From The API of Me « Information Maven: Greg Meyer]

As I said at the Wired Money event, perhaps the role of the bank in the future will change from being a place where you store your money (who keeps their money in a bank these days?) to being a place where you store your identity (surely you’d want to store it with a regulated organisation?).

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.

The post API Blast part 2: ECB, EBA and DAG appeared first on Tomorrow's Transactions.

It’s important to understand why APIs are so strategically important, not only in the payment space but in the financial sector as a whole. I thought I’d put together a few posts on the European banking API environment because it is rather dynamic at the time of writing. So here we go!

The organisers of the International Payment Summit 2014 decided to take a little bit of a risk by turning over half of the Day One program to Consult Hyperion for a Future of Money Unconference to explore the subject in an interactive and (hopefully) fun way. So we set off for the Hilton Tower Bridge bright and early on April Fools’ Day to test the theory.

As you might have expected, mobile phones and social media were the main technologies that the delegates were discussing and I did learn a lot about different kinds of financial services organisations varying approaches and attitudes, but personally the area of discussion I found most engrossing was around third-party access to bank accounts, the so-called “XS2A” consultation. This is rather a hot topic in Europe because of the European Commission consultations underway in this and related areas.

Forum friend Thaer Sabri, the CEO of the EMA, gave a super presentation on “PSD and third-party access to accounts” that provided a valuable update on the situation. He began by pointing out that the European regulatory landscape, over the last decade or so, hasn’t been too constraining and has allowed a reasonable Payment Service Provider (PSP) marketplace to develop and went on to explain how what he called the Technology Service Providers (TSPs) would be developing in the future as well. In the new Payment Services Directive (PSD), PSP’s will be divided into two categories, as I’ve written before, so that there will be the Account-Servicing PSP’s (ASPs) and the Third-Party PSPs (TPPs). The TPPs come in two flavours: Payment Initiation PSP’s (PIPs, that might be someone like Nutmeg) and Account Information PSP’s (AIPs, that might someone like Mint).

Thaer went on to talk about some of the additional provisions: that ASPs will be compelled to provide information on funds availability; that PSPs will have to provide a common API under the auspices of the European Banking Association (EBA) – and we’ll be coming back to this “euro-API” in future posts; and that new payment instruments (e.g., decoupled debit) will allow third parties to create payment products on top of that API.

There are of course a great many unanswered questions about the legislation, as there always are with this sort of thing, and the answers will shape some aspects of the business model. For example: are end-user contracts sufficient or will TPPs be required to have contracts with banks? And the obvious question of where liability rests in the event of unauthorised transfers, which is the sort of thing will need to be sorted out before any of this can go anywhere near consumers. Thaer did the audience (and me) a great favour by sketching out some of the likely business impact of these changes and pointed out something that I think is likely to require some significant thoughts on behalf of participants: what is going to happen when bank apps can use the euro-API to access the bank accounts of competitor banks?

He was kind enough to stay in joining the discussions on the “regulators table” (several people had put regulatory questions on their post-it notes for discussion even before he had started talking so we set aside a whole table just for this) and I’m sure everybody will join me in thanking him for his time.

This is the sort of thing that makes unconferences rock, and one of the reasons why I love them so much. I look forward to seeing all of you at our next unconference, which is the 3rd CHYP/NYPAY Tomorrow’s Transaction Unconference at Google in New York on Monday 22nd September where you’ll be able to get round the table with some of the leading thinkers in the FinTech space, including Brett King from Moven and Matt Harris from Bain Capital Ventures. Oh, and I’ll be there too, conference bombing them.

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.

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The bank will change from being the place that looks after your money to being the place that looks after you identity.

The nice people at the Financial Times invited me along to take part in their first “Camp Alphaville” event in London. I took part in a panel discussion with David Galbraith (a co-founder of Yelp), Jamie Macintosh (Director of the Institute for Security and Resilience at UCL), Sean Park (Anthemis) and the Assistant Governor of the Reserve Bank of Australia, Guy Debelle. The ostensible subject of the discussion was whether the conventional bank model is broken or not, and so I made some notes on the interaction between changes in technology and post-crisis changes in financial services and tried to draw a few conclusions.

How I did this was to build on some work that I’ve been doing recently one of our banking clients looking at the technological impact on the different functions within banking. For this I’d used a fairly standard model of banking in the economy, one that divides banking into a number of economic functions and makes the obvious and long-standing observation that while the economy needs these functions to be performed it doesn’t necessarily need banks. Therefore the assumption is that the institutional arrangements around these functions will change but that the functions themselves will not. This seems reasonable to me. My key observation was going to be that post-crisis the assumption that some of these core functions such as what economists call the “transfer” functions (savings and loans) and (in particular) the SME lending areas were surrounded by an insurmountable regulatory moat that rendered the banks impervious to competition. However this has turned out not to be the case and technology has introduced new players such as Zopa, Funding Circle and Wonga.

Therefore it seems to me that one way to look at the changing role of the bank is to see shifting from an organising or directing (or one might even say controlling) role to more of a coordinating role reinforcing what economists call the “incentive functions” around banking, the functions that enable transactions to take place. I imagine I’m a fairly typical middle-class want-to-be saver in the UK market and I already have more money in my Zopa account than I do in my ISA. I can see that in the future my bank might find it more useful and convenient and a means of delivering a better service to me to provide access to my Zopa and my Funding Circle accounts through my banking services and to facilitate transactions between these different kinds of accounts.

If this is even vaguely true then one of the key central coordinating roles of the bank will be to manage the know-your-customer (KYC) and related customer-due-diligence (CDD) issues and to federate identity in a well-defined way between all of the function providers. I tried to sum up this point of view using a conference soundbite that actually got retweeted fairly frequently, not that that necessarily means that I was right, and said that the bank might shift from being a place where you store your money to being a place where you store your identity. This is the paradigm shift that I refer to in title and it reinforces the view that the banking sector as a whole ought to be developing a convincing narrative around identity before it loses even that co-ordinating role.

Anyway, as it happened, we never really got round to talking much about this sort of thing, instead focusing on prostitution and broccoli, because we got a bid side-tracked around cash.

Speaking at the Financial Times’s Camp Alphaville event, a panel of experts said empirical statistics show that the majority of cash in circulation in places like the UK goes towards funding prostitution, drugs, and tax evasion.

[From Physical Cash Economy Propping Up Drugs and Prostitution, say Future of Money Experts]

But that’s the fun of live discussion. Thanks again to Izabella Kaminska at the FT for putting together such a terrific panel for the discussion. I learned a lot.

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.

The post Bank camp appeared first on Tomorrow's Transactions.

APIs will certainly revolutionise the services the banks provide, but they will also revolutionise the way banks work.

The lovely people at Finextra kindly invited me along to their FutureMoney event at Level39 in Canary Wharf this year and asked me to moderate the panel about banking app stores, which I loosely interpreted to mean about financial services app stores and APIs. Luckily for me, I had a great panel to work with:

Edward Budd from Deutsche Bank, Udayan Goyal from Anthemis Group, David Pope from Jumio, Simon Redfern from Open Bank and Jose Antonio Gallego Vázquez from BBVA.

[From Finextra: Live: Finextra Future Money, day two]

After some initial confusion about the relationship between the colours of the chairs and the colours of the pictures behind them (!) I made a few introductory comments about APIs in this sector and why I felt this was a strategically important discussion.

Picture: Roberta Profeta

Following that, we began to examine some of the questions that I had prepared to challenge the panel and brought in questions and observations from the floor to follow. Though I say so myself, it was a terrific session and I would like to broadcast my sincere thanks to the other people who said so too, including Richard Brown from IBM.

A masterclass from @dgwbirch on how to moderate a panel that is both entertaining and informative #FutureMoney

— Richard Gendal Brown (@gendal) May 1, 2014

It was a one hour session and we were still going strong with questions and debate at the end, which I think is the only effective barometer of both the moderator and the panel. Modesty forbids me from quoting Zilvinas Bareisis of Celent on the session but… oh, wait, no it doesn’t…

Given that here both his topic (banking apps and APIs) and panelists were genuinely interesting, it is no surprise that it was perhaps the best session over the two days.

[From Celent Banking Blog » A “Shout Out” to Finextra Future Money]

Richard and Zilvinas are very kind. The reason that the session was such a joy, and was much appreciated by the audience, was that the panelists had exactly right mix of expertise and experience to tackle such a hot topic. I had a bit of an inside track as well, since Consult Hyperion carried out an extensive study of the financial services API world for one of our US customers last year, so I had a pretty good overview of the space in my head to help to shape the discussion. You can read the liveblog for yourself at Finextra, but I want to highlight a couple of what I thought were key points here.

First of all, the importance of the app store and APIs was reinforced. As I said in the introduction, this isn’t some obscure technical discussion about parameters and tokens. I think Craig Burton and Steven Willmott capture this nicely with their “Five Axioms of the API Economy”. These are:

1. Everything and everyone will be API enabled.
2. APIs are core to every cloud, social and mobile computing strategy.
3. APIs are an economic imperative.
4. Organizations must provide their core competence through APIs.
5. Organizations must consume core competences of others through APIs.

Secondly, APIs are not all about organisations connecting with other organisations. They are also a way of restructuring the way that bank systems connect internally. This was referred to as “Amazonisation”, the idea that every single corporate function should expose its APIs, because other functions within an organisation might be able to do something useful with them. Uday used the excellent example of Fidor Bank as an organisation that has taken those axioms to heart internally.

We decided from the beginning to build our own middleware, because there was no suitable offer in the market. This is what we now call “Fidor operating system”… fOS is an “open” System. Via standard interfaces we integrate 3rd party offerings into our account.

[From FIDOR Bank |]

In our Consult Hyperion “hot five” for 2014, we highlighted the importance of APIs as part of an electronic transaction strategy and this panel confirmed, to me at least, just how central that API strategy should be to organisational strategies. And they also underlined one of my key messages to our clients: this is business strategy, not technology strategy.

APIs are, at their core, not a technical device. Instead, they are a means of delivering or providing access to a service or a product.

[From The Five Axioms of the API Economy, Axiom #3 – APIs are an Economic Imperative | Craig Burton]

So thanks again to Liz and the rest of the Finextra crowd for giving me the opportunity to learn so much from a terrific panel.

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.

The post APIs and app stores and the future of banking appeared first on Tomorrow's Transactions.

People spend a lot of money to send financial data faster and faster.

The US Postal Service launched its New York to Chicago service in September 1919 but it was often interrupted by bad weather and so letters continued to go by rail. In 1925 a group of Chicago bankers petition for a more reliable service on the grounds that if they could fly checks overnight between Chicago and New York instead of sending them by rail then they would clear a day sooner giving the banks quicker access to the money. They were quite prepared to pay a premium for such a service.

The solution seems to me astonishing, but it happened. As Hiawatha Bray explains in his excellent book on the history of navigation, “You Are Here“, the Post Office was building a series of 50 foot tall towers, three miles apart, to provide gas-powered flames capable of guiding planes over long distances. So they built a series of towers all the way between Chicago and New York and the mail could be carried overnight and the banks cheerfully (well, I’ve no idea whether they were cheerful or not) paid a premium in the region of four times the rate the standard mail. That Chicago-New York route continues to drive innovation today.

No wonder that Spread Networks, the company building the fibre-optic connection, proudly boasted: “Round-trip travel time from Chicago to New Jersey has been cut to 13 milliseconds.”

And HFTs were willing to pay through the nose to use it, with the first 200 to sign up forking out $2.8bn between them.

[From High-frequency trading: when milliseconds mean millions - Yahoo Finance UK]

That was then. This is now and, because as you can imagine, 13 milliseconds is to just far too long for data to get between the major financial markets in Chicago and New York, money is driving further development.

One new hot market for microwave providers is between New York and Chicago, both cities with many financial services firms… Based on the speed of light, the theoretical limit for sending information between New York and Chicago is 7.96 milliseconds. Right now, the state-of-the-art among microwave service providers is about 8.5 milliseconds,

[From Microwave vies with fiber for high-frequency trading - Computerworld]

So, right now, folk are investing in communication links that will cut 4.5 milliseconds from the time it takes to send information between the markets. Pathetic! There’s still a further 540 nanoseconds to go, you sluggards! A lot can happen in 540 nanoseconds! The speed of modern communications is astonishing. You can send financial services data at almost the speed of light. Incredible. Meanwhile…

We just need Amazon’s bank to send money electronically to a checking account at Chase bank. It’s just information traveling over wires. How long could it take: A minute? An hour? It took five days.

[From Episode 489: The Invisible Plumbing Of Our Economy : Planet Money : NPR]

That’s longer than it took to send money between Chicago and New York in 1925, before the airmail service launched. Hhhhmmm…

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.

The post Speed is just a question of money (except when it comes to payments) appeared first on Tomorrow's Transactions.

Perhaps I’ve been reading this wrong, but I think that the British government is recommending suitcases full of cash as an alternative to using the international banking system.

I was talking to a client about some of our work in Africa (at the absolute leading edge, I am proud to say, of the mobile payments sector) and he asked me about Barclays “problems” with remittance payments to some countries. I realised that I hadn’t blogged on this interesting topic, so here’s a quick overview of where we are. In a Parliamentary debate on the subject on 22nd January 2014, Kevin Brennan (the Labour MP for Cardiff West) made extensive reference to the problems caused specifically by Barclays’ decision to withdraw banking facilities from a number of remittance businesses who send money to Somalia.

Anthony Jenkins, the chief executive officer of Barclays, said that it was stopping offering bank services to such business because they “don’t have the proper checks in place to spot criminal activity and could unwittingly be facilitating money laundering and finance terrorism”.

[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]

As I said at the time, don’t blame the international payment system and don’t blame Barclays. Blame American regulators. Barclays doesn’t want to be hit with a $2 billion fine because one of the customers of a remittance business that it provides services for turns out to be chief cook and bottle washer for Al Qaeda in Somalia. Rushanara Ali (Labour MP for Bethnal Green and Bow) made exactly this point.

Companies such as Barclays, HSBC and others have said that they will be fined. Companies will have their motives, reasons and deep concerns about being clobbered with a big fine by US regulators.

[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]

Once again, the law of entirely predictable consequences has been proved accurate. It is the poorest people who are hit the hardest, while the rich will find other ways to flash money around the globe using SWIFT or Bitcoin or suitcases full of $100 bills.

Banks and money transferrers say that the new remittance rules have created the biggest compliance challenge ever faced by the industry. Many have described them as unworkable and some companies have threatened to stop providing international wire transfers altogether.

[From US banks warn on money transfer rule - FT.com]

Despite the Financial Action Task Force (FATF) putting forward largely sensible recommendations on risk-based approaches (which I wrote about at dreary length three years ago), unless the regulators act to either exempt low-value transfers from CDD entirely, or at least limit liability arising from CDD problems with low-value payments, there is no way out of this. No business is going to try and make money on a £100 transfer if they risk punitive damages. The remittance business will be driven underground and money laundering, terrorist financing and the proceeds of crime will go with it. As Sir Peter Bottomley (Conservative MP for Worthing West) pointed out later in the debate:

Nearly everything that goes outside the ordinary banking system has a much higher cost and no audit trail.

[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]

So, in other words, not only does this make crime worse, it also pushes up the costs for the honest. Why is this government policy?? Somalia is a poor country and it depends on the slightly more than $2,000 per annum that the average Somali emigre sends home. Well, as Sajid Javid (Financial Secretary to the Treasury) noted:

The Government cannot prevent UK banks from facing supervisory and enforcement action from other jurisdictions. Hon. Members know that this is not just about rules in the UK, because European Union rules, and especially rules in the US, affect many money transfer businesses

[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]

He went to say

First, we believe that cash couriers, if structured properly, can play a sensible and legitimate role in expanding provision for MSBs. That can work if it is done in a certain way.

[From House of Commons Hansard Debates for 22 Jan 2014 (pt 0001)]

This sounds rather like the government recommending Hawala over the international banking system. Get your uncle to stuff as holdall full of $100 bills and put him on plane so he can hand it out to the family back in Addis or Dacca or Nairobi. Well, not Nairobi because you can use Barclays PingIt to send money from the UK down to M-PESA in Kenya.

Stalemate. Let them eat Bitcoin! Actually, I’m just joking about that – it isn’t a solution.

But on a worldwide basis, despite the technical suitability for Bitcoin to disrupt remittance, most recipient countries don’t have enough local demand for Bitcoin to sustain a meaningful remittance business.

[From Bitcoin isn’t ready for prime time as a world wide remittance replacement. — Tech News and Analysis]

I think there are both moral and financial imperatives on us (ie, the payments industry, in this case) to do something and we should start by putting forward a consistent position to the regulators that is based on the FATF recommendations. Exempt low-value transfers from full CDD immediately.

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.

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Why do my UK card issuers insist on putting magnetic stripes on my payments cards? Why are they still embossing them? Where do they think I’m going to go on holiday? 1972?

I think it is important to understand what the general public think about things, no matter how ignorant or uninformed their views are, so I often read the comment threads under newspaper articles with more interest than the articles themselves. Take, for example, a recent Guardian piece on chip and PIN in the US (not!). In the comment thread, someone asked in passing as to why their (French) payment card had a magnetic stripe on it. This made me think, because two of my UK payment cards have been recently cancelled and reissued (at a cost of £godknowswhat each time). In both cases they are UK issuers bearing the cost of US fraud. In both cases they have been reissued with a pointless stripe. Is this really sustainable?

One of the cards, that I sometimes use for business expenses, was replaced a couple of weeks ago. My issuer called and told me that the card had been counterfeited and used (of all things) in a car wash in North America. I doubt that international criminals were after high-limit cards to use in car washes, so I assume they’d used it in the car wash to see if it had been cancelled yet. I asked the nice woman on the phone if they could reissue the card without a magnetic stripe on the back and automatically decline further magnetic stripe transactions. She said (in essence) that that option wasn’t in her script, so no.

Then I had a call from another issuer, saying that another of my cards was being cancelled and reissued because it had been reported compromised in a US data breach. I don’t remember shopping at Target in the last year (although I may well have done) so it must be another retailer. I don’t actually use that card much in the US so I suppose I could go back through statements, but hey, I’ve got client work to do today. The two other UK credit cards that I use from time to time (but don’t take overseas) are so far safe. The only other UK card I take to the US is my debit card, and that also remains safe because of my heightened security.

“I would never use my debit card… in a shop or online – only in an ATM,” Mr Birch says. “…mobile is far more secure than cards.”

[From Mobile apps boost payment security - FT.com]

I did indeed tell the FT that I only ever use my debit card in ATMs. This is because my debit card, although it has a highly secure chip on it and that chip contains a highly secure EMV application, is undermined for transactional purposes. For unfathomable reasons by bank has chosen to glue a trivially-counterfeitable magnetic stripe to the back of my debit card, added embossing to it and even put my bank account and sort code details on the front. Bizarre. I don’t want the stripe, and I want my bank to automatically decline all stripe transactions whether at POS or ATM. Nor do I want embossing, and I want my bank to automatically reject any “zip zap” transactions. Nor do I use the card online, so I want my bank to decline all CNP transactions except those made with UK merchants (personally, I don’t really want to use it online at all but some merchants such as the DVLA surcharge credit cards by more than the useless Avios or minimal cashback is worth). By and large, unless incentivised otherwise, I’d rather use credit cards because of the combination of rewards and protections that they bundle. I am genuinely mystified as to why people use debit cards, but they do. MCX will have to deal with this as well.

Without offering consumers something equivalent, MCX Retailers will find it exceedingly difficult to convince customers to switch.

[From Lessons from a breach | Drop Labs]

I can easily imagine that retailers will (successfully) bribe consumers to opt for ACH-based transactions with less consumer protections in return for loyalty points, coupons and the like. I wonder if the potential for reduced hassle because of increased security might also be factor?

This was brought home to me in ironic fashion because of the second call. They asked me to verify that certain transactions had, indeed, been made by me or my good lady wife. The transactions I was asked to verify included a chip and PIN transaction in a local petrol station. If I were a normal member of the public, and someone called to asked me to verify a chip and PIN transaction, then I would either conclude that something had gone horribly wrong with the chip and PIN system and that my chip had been cloned or that I was not talking to my issuer at all but sophisticated Eastern European fraudsters.

I’d already ruled out the latter possibility. When they first called me and asked me to confirm some personal details, I had naturally assumed them to be sophisticated Eastern European fraudsters, hung up and called back using the number on the back of my card. At this point, I was able to confirm all of the transactions. Anyway, they sent us the new cards. For me this wasn’t terribly inconvenient because I have loads of cards so I just started using one of my other cashback credit cards for the week but for other customers it might have been more of a problem.

When the new card arrived, I signed it immediately. Not in my real name, of course, because I don’t want thieves who steal my card to have a copy of my real signature to practice with. I would never sign “David Birch”, only fraudsters would do that. But what was puzzling was that that card was, once again, embossed and magnetic striped-up. I don’t want either of these fraud vectors on my card. The only place that I would use the stripe is in the USA, and I’m perfectly happy to use other cards while I’m there: in particular my excellent Simple card.

This is all a great waste of everyone’s time and money. Until we get a more secure mobile phone-based card infrastructure in place with working tokenisation, can I make a rather obvious suggestion to UK issuers: please block all stripe transactions by default. Customers who want to pay in at-risk areas such as the USA should be required to take special time-limited insecure magnetic stripe cards with them. Surely it would cost my bank less to give me a one-month magnetic stripe-only companion card a couple of times a year than to keep having to reissue chip cards. I would also like the ability to block all CNP transactions with new merchants unless using 3D Secure until my issuer app works properly to confirm transactions.

Incidentally my favourite comment on The Guardian thread was from the chap who said that the US still uses stripe because the NSA finds it easier to read the data and that it’s the NSA that is blocking EMV. Sounds plausible to me.

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.

The post Why is there a magnetic stripe on my card at all? appeared first on Tomorrow's Transactions.

The British government (inexplicably) want “cheques to have a crucial role in the ongoing success of the UK”. I don’t understand why and I strongly suspect they don’t either.

Cheque fraud in the UK grew 2% last year, although it is still well below its 2008 peak, despite the continued fall in cheque writing. According to the UK Payments Council’s latest statistics for 2013, cheque use is currently falling 12% year-on-year. I can’t remember the last time I wrote a cheque, although I just went and found our household cheque book and I can see that a couple of cheques are missing so we must have written one or two in the last year or so.

Cheque use is falling in the US as well, but according to the American Bankers Association 2013 fraud survey, checks accounted for 37% of the total bank losses to deposit account fraud. The US Association of Finance Professionals 2013 survey says that “checks continue to be the dominant payment form targeted by fraudsters”. It’s surprising to me just how conservative fraudsters can be!

One particular new (and growing) kind of fraud in the US is around remote deposit capture (RDC) and particularly mobile deposit capture (MDC). With MDC, customers use their smart phones to scan a cheque for deposit. The cheque image is fed into the system and the customer can then file or throw away the physical piece of paper. This is very popular with customers.

Mobile check deposit, once a low priority technology for banks, has become one of the most sought out mobile banking app features. But along with popularity and increased use, the potential for fraud is emerging for smartphone check deposits.

[From Mobile Check Deposit Boom Brings Risks - American Banker Article]

When remote deposit was introduced in the United States, I think it was assumed that the stringent legal penalties against check fraud that exist there (for historical reasons) would be a significant deterrent, yet the presentment of duplicate check images to multiple banks is heading toward a billion dollar problem.

Unfortunately, this is just one statistic in a growing wave of duplicate check presentments. In 2006, banks expected five to seven duplicate items per million payments processed. Today, CONIX reports that high-volume banks intercept between 40 to 100 duplicate items per million payments processed, an increase of more than 1100%.

[From New Wrinkle in Remote Deposit Capture: Duplicate Check Presentments]

This is not a counsel of despair. With next-generation fraud detection it should be possible to make mobile deposit very secure: if you authenticate the user, record their location, enter the cheque details in a central register and so forth. In fact, if the mobile deposit system can use new technology to make cheque deposit more secure, they may as well use it in the branches too, because one of the problems in the US is that fraudsters scan a cheque for deposit in one bank then take the physical cheque to another.

Why am I talking about this dated and expensive technology? Well, it’s because the UK government has announced that in 2014 it will begin a consultation on a technological revolution in cheques — well, two technological revolutions in cheques — that it wants the banks to implement to drag the British payments industry kicking and screaming into the seventeenth century. Yes, you read that right: now that Martha Lane Fox has got everyone online and everyone has a smartphone, the government wants investment in cheques instead of letting them wither away. There is a nuclear-powered robot wandering around on Mars, but in Whitehall the exciting vision of the future is that:

• New technology could mean that your cheque is processed in 2 days in future rather than the 6 days it currently takes under the “2-4-6” scheme introduced in 2007. This was part of the Chancellor of the Exchequer’s vision of the future that he set out in a speech back in February 2013, painting a picture of a future Britain forged in the white heat of new technology (etc etc).
• Consumers may also be able to take a picture of their cheque on their smartphone and send it to their bank with Barclays planning to introduce mobile cheque deposit next year.

The BBC asked me to comment on this on the Today programme, which I did in true fox & hedgehog fashion, and this conveniently gave me the opportunity to correct the government speaker who said (at 1:53:20) that introducing mobile deposit capture in the US had meant that “people start using more checks”. He probably hadn’t had the time to review the most recent Federal Reserve Payments Study, released two weeks ago, which says that:

The number of checks paid continues to decline, falling to 18.3 billion, less than half the number a decade earlier (37.3 billion). Checks are increasingly being deposited as images, with 17 percent being deposited as an image at the bank of first deposit versus 13 percent as reported in the 2010 Study.

[From FRB: Press Release--Federal Reserve Payments Study offers expanded view of U.S. noncash payment trends--December 19, 2013]

The figures clearly show that even in the heavily check-centric US, check use is falling and while MDC is appreciated by customers, it won’t make any difference to the long-term decline in check use. So the big question to me is… why bother?

Sajid Javid, the financial secretary to the Treasury: “We want cheques to have a crucial role in the ongoing success of the UK,”

[From BBC News - Cheques to be paid in via smartphones]

They don’t seem to have a crucial role in the ongoing success of, say, Germany, where cheques account for 0.2% of all non-cash transactions compared with 4.6% in the UK. In fact the only European countries who use cheques more are Ireland, Portugal, Cyprus, Malta and… France, where 15% of non-cash transactions are cheque. France’s heavy use of cheques is why its payment system is so inefficient compared to its neighbours.

I just don’t get it. One of the government’s “goals” appears to be to help small businesses, although what would really help small businesses is getting rid of cheques completely, putting an end to the “cheque is in the post” nonsense. Speaking as a small business owner myself, I couldn’t care less if I never saw another cheque again. Apart from anything else, once you’ve paid in a cheque you still have no idea whether it will clear or not. So much better to get a text message from the bank to tell you that money has arrived in your account. 

The British government have a profound (and odd) love of cheques. What our National Payments Plan should really be doing is managing the decline and withdrawal of cheques, but when the UK Payments Council suggested setting an end date for the cheque clearing system, the government went bonkers. Letters to The Telegraph, along the lines of “how will I be able to pay my gardener” were seen as being more important than economic efficiency or any calculations of total social cost. But as I pointed out at the time, mobile payments were just starting in the UK at that time and the Payments Council were talking about a decade into the future, so it seemed to me entirely plausible that we might go the way of Sweden or Finland, where no-one under the age of 30 has ever seen a cheque.

One of my sons, when he received his first pay cheque a few months ago, was genuinely baffled as to why anyone would send money this way, and mildly annoyed that he had to a) go to the bank to deposit the cheque and b) wait six days before he could spend the money. When I told him about the government’s vision of a Dan Dare world of the future, where you could deposit cheques using your mobile phone and wait only two days before you could spend the money… he was still baffled as to why anyone would send money this way. “Why don’t they just send the money by PingIt?” he asked me (since that’s how we transfer money around in our non-Dan Dare world of now). Good question, and I don’t have an answer.

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.

The post Cheques and checks are both going nowhere appeared first on Tomorrow's Transactions.

I got caught up in Bitcoin media mania. Things are getting out of control. Doesn’t any of the media comment seem, well, just a little, oh, I don’t know, crazy?

 A couple of days ago I sat down to look through a document for one of our clients. For couple of hours I didn’t look at Twitter which, given my utterly out-of-control Twitter addiction was pretty unusual. When I stopped for a cup of coffee, I glanced at Twitter and discovered considerable excitement amongst the people that I follow. Apparently one of America’s largest banks, JP Morgan Chase, had been awarded a patent for an “Bitcoin-like” payment system.

JPMorgan files patent for Bitcoin-style payment system – an @tracyalloway story http://t.co/gofGeqXq7o

— Izabella Kaminska (@izakaminska) December 10, 2013

Well! In our corner of the transactions treehouse that counts as big big news so I very excitedly clicked on the link and soon found who bunch of magazine articles about the patent. For example:

JPMorgan Chase has filed a patent with the US patent office for a computerised payment system that has elements that resemble the bitcoin digital currency.

[From JPMorgan Chase files bitcoin-style payment patent - bobsguide.com]

Well! This is certainly big news I thought. Just the sort of thing that my clients will be interested in and therefore very important for me to understand what it’s all about as soon as possible. So I clicked on the link to the patent itself and started reading the introduction. Remember, I was doing this on my phone, so I was only skimming down, but I couldn’t at first glance see anything other than the usual kind of trivial and obvious use of computer software that is characteristic of the broken and dysfunctional US patent system. I didn’t see anything that registered in my brain as novel, interesting, unusual, stimulating or, most particularly, in any way related to Bitcoin or any similar concept. Puzzling.

And yet I was still getting  tweets about this amazing development.  About an hour later when I’d finished doing what I was doing, I thought to myself that I must have missed something and hadn’t understood the magnitude of this breakthrough. When the next tweet pointing to the patent came along, I actually clicked on it, again, and scrolled down my iPhone screen and started reading the actual patent itself. I was struck by two things. First of all, even on second glance it had absolutely nothing to do with Bitcoin. Nothing. There was nothing about coins for one thing, nothing about an open and distributed ledger, nothing about any of the basic characteristics of Bitcoin at all. The second thing I noticed as I was reading through it was that it seemed oddly dated. I wasn’t reading in very much detail but there was something about the language and the claims that I saw as redolent of a great many patents filed in the first great Internet boom. I can say that with authority, because my name is on one of them!

Since I had other things to do, I didn’t look into any further and, as is my “style” I posted something flippant on Twitter about how it lwas uninteresting and looked like a patent from 1997 and went back to work. Imagine my surprise then, when later in the day, I discovered that it is actually was a patent from the late 1990s!

But the filing is actually a renewal of a patent first filed in 1999

[From Debunking JP Morgan Bitcoin - Business Insider]

So it was even less interesting than I’d thought at first and second glance. And yet this morning I’m still getting emails from people saying “wow have you seen what JP Morgan is doing!” linking to stories like this.

US banking major JP Morgan has filed to patent an online payment system that is similar to the emerging virtual currency, Bitcoin.

[From JP Morgan to Patent Bitcoin-Like Virtual Cash [VIDEO] – IBTimes UK]

Please help to spread the word. There is nothing remotely interesting in the JP Morgan patent. It is not for an “anonymous” system since as the patent clearly states, it will maintain a directory that links the payment name to the underlying account. It does not use coins. It does not have an open ledger. It does not mean anything for the Bitcoin community or even for the wider crypto currency community.

So why am I bothering to write this blog post? I think it’s because I see the events surrounding this pattern is being illustrative of a kind of Bitcoin mania that has broken out in polite society. The interesting thing about Bitcoin is in my opinion, and for that matter in other people’s opinion, is the technology of maintaining the open and distributed ledger and the use of cryptographic “proof of work”. But this is technical and complicated and as a consequence, it’s boring to journalists and no one understands it. The only interesting thing about Bitcoin if you don’t understand the technology is the “currency” which has a wonderful creation myth and a devoted following who display a fervour that is extraordinary. Take a look at this comment.

Chase took a swipe (pun intended) at Bitcoin by specifically not mentioning it in the patent application:

[From JPMorgan Chase Building Bitcoin-Killer | Lets Talk Bitcoin]

There must be a DSM V code for this. Bitcoin mania is getting out of control. Perhaps it has become a kind of lightning rod for discontent about the economy, or the modern world in general, but much of the discussion around it is, in my opinion, far from rational.

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.

The post Banks, Bitcoin-killers and the DSM appeared first on Tomorrow's Transactions.