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Thought leadership from Consult Hyperion

Archives for June 2009

Paradigms and pseudonyms

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[Dave Birch] I enjoyed listening to Roger Clarke at the 2nd interdisciplinary workshop on Identity in the Information Society at the LSE because I had read his work (particularly on PKI) over many years and wanted to see how his thinking had evolved. Roger made a number of excellent points, one of them being that the barriers that we need to overcome (if we are going to do anything practical about identity management) is that the models that we technologists are using, the implicit mental models of the decision-markers and the reality of the situation are all different (I’m paraphrasing greatly, obviously). Having had the chance to think about this some more, I think that I agree with his diagnosis but disagree with the treatment.

So far as the treatment goes, Roger proposed a way to deal with this some time ago and explained this in his presentation. His model is to have get around the problem of the mappings — that is, the mappings between real and virtual entities and their attributes — by separating out elements of the mapping, distinguishing between identity and entity, between identification and entification.

If I’ve understood what Roger meant, then I think I don’t quite agree with him, because I think replacing the N:N mappings between real and virtual identities by 1:N mappings to digital identities is a simpler way to model the complexity of the boundary between real and virtual in the identity space. So I don’t think about identity and entity but about the real and digital identities and stuff, and some of that stuff happens to be people, if you see what I mean.

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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.

Whispers

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[Dave Birch] I think I’ve spotted a meme. The second serious story in a month talking about the economic benefits of getting rid of cash. First Willem Buiter, a former chief economist of the European Bank for Reconstruction and Development and former external member of the Bank of England’s Monetary Policy Committee said that we should

Abolish currency. This is easy and would have many other benefits. The main drawbacks would be the loss of seigniorage income to the central bank… Advanced industrial countries can move to electronic and bank-account-based means of payment and media of exchange without like problem. [From FT.com | Willem Buiter’s Maverecon | Negative interest rates: when are they coming to a central bank near you?]

I discussed Willem’s article in more detail over at Kashklash, but suffice to say that it seems a plausible strategy. And now I read in The Times that

Japan may start mulling the most radical monetary policy of all — the abolition of cash… Several MPs in the ruling Liberal Democratic Party believe the abolition of cash, though politically radioactive, might be technically feasible.

[From To fight deflation, abolish cash.]

I agree with both sets of commentators that new technology means that we could move whollly to e-payments without a problem, because of technological advances made in the last couple of decades. I’ve written before about the situation in Japan, where the introduction of contactless payments and phones had led to a decline in the use of coins, but it’s also important to point out that cash use in Japan remains high. Nevertheless…

A significant milestone in the penetration of electronic cash within Japanese society has been reached, with this survey conducted by goo Research and reported on by japan.internet.com into electronic cash showing that now over half the population (of internet users) carry some form of credit-card form-factor electronic cash.

[From e-money » 世論 What Japan Thinks]

Let’s imagine that Willem’s version of the future of money is adopted. What would the retail payments landscape look like? Well, not entirely unfamiliar, because he suggests not getting rid of all cash entirely.

As a concession to the poor, we could keep a limited number of 1$ and 5$ bills (1€ and 2€ coins and 5€ bills) in circulation.

[From FT.com | Willem Buiter’s Maverecon | Negative interest rates: when are they coming to a central bank near you?]

I don’t think I agree with him here, as cash isn’t a concession to the poor: it forces them to pay higher transaction costs than their better off neighbours. And if the amount of cash falls, then the cost of the whole infrastructure of ATMs and cash registers, armoured vans and night safes will fall on the poor, thus further raising their transaction costs. Surely it makes more sense to simply switch off cash. Willem summarises thus:

Do we really want to retain cash just because it (1) allows us to hide some of our legitimate financial transactions from the government (as insurance against government abuse of the information), and (2) is a source of revenue to the central bank? These arguments pro are surely dominated by the two arguments against currency, (1) that, as currently construed […] currency imposes a zero lower bound on nominal interest rates and (2) that it subsidises the grey and black economies and makes life easier for the global criminal and terrorist fraternity.[From FT.com | Willem Buiter’s Maverecon | Negative interest rates: when are they coming to a central bank near you?]

Do we really want to retain cash?

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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.

Touch and gone

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[Dave Birch] I ran a workshop on mobile proximity security day, and one of the things we touched on in the group is the EU’s publication of their recommendations on the “identity of stuff” last week. They’ve published a 14-point action plan.

The European Commission has announced plans for Europe to play a leading part in developing and managing interconnected networks formed from everyday objects with radio frequency identity (RFID) tags embedded in them – the so-called “internet of things”.

[From EU lays out plans for the “internet of things” – V3.co.uk – formerly vnunet.com]

These are real issues, and although I’m not making any comment on the value or otherwise of the specific recommendations, there’s no doubt that the subject deserves more attention. There’s an “identity of things” problem that came up (again) in a meeting I was in last week that I think is worth sharing. It comes from the world of NFC, where the problem revolves around contactless stickers, tags, posters and that kind of thing. It’s the same problem that we looked at before, and it’s worth reviewing because there’s been no industry progress toward a solution.

A little background. The NFC Forum have announced their “N mark” which is a standard symbol to be applied to adverts, magazines, posters and such like. The idea is to show consumers (none of whom have ever even heard of NFC, let alone seen an NFC phone) where they can “tap” their phones to get some kind of service.

The NFC Forum has developed the “N-Mark” trademark so that consumers can easily identify where their NFC-enabled devices can be used. It is a stylized “N” and indicates the spot where an NFC-enabled device can read an NFC tag to establish the connection.

[From NFC Forum : N-Mark]

If you haven’t seen it, it looks like this. A simple ecosystem in the offing: you put the N-mark on things, consumers come along and touch them with other things.

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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.

Heavy weather

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[Dave Birch] One of the very first projects that Consult Hyperion worked on was the Bank of England Central Gilts Office (CGO), way back in the days of “Big Bang”. We were subsequently chosen by the Bank of England to work on the Central Moneymarkets Office (CMO) and then CREST, the equity settlement system that they created when the Stock Exchange’s TAURUS project collapsed. These are now part of Euroclear, which makes the card scheme networks look like loose change: it currently handles an average of HALF-A-TRILLION pounds per day in gilt, equity and money market trades. At times of stress, these systems are critical to the economy.

There’s also the interesting fact that on separate occasions during September and October 2008, the UK’s Continuous Linked Settlement system broke its previous record daily volume by over 35 per cent; ‘Crest’ saw a 33 per cent increase in the highest value settled before September 2008; and ‘Swift’ saw new record volume days on four occasions. Essentially, a lot of people moving a lot of money in a very short period of time. [From FT Alphaville » Blog Archive » Financial crisis, UK payment system edition]

All of the systems stayed up, which is a testament to the designers. These systems generate a huge amount of data as a by-product of their operations and I wonder if this data is captured and used effectively? I mentioned before about using the data from payment systems to create a kind of weather map for regulators and supervisors so that they can pick out major “fronts” and see storms brewing. Perhaps the web 2.0 way forward is to anonymise the data in some way and then just put it out on the Internet so that people can see (and mash up) the financial weather for themselves: a picture of where the moving is moving through Europe in real-time might be fun. By the way, we talked about the money forecast, but here’s a money map of Europe that I just love.

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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.

Data shrinkage

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[Dave Birch] There are a flurry of stories about the British government abandoning the ID card scheme, a course of action to my mind as bad as continuing with it. What we need is a better ID cards scheme, not no ID card scheme. But who knows what might happen now that there is a new Home Secretary, but earlier in the year the Home Office made some more announcements about the introduction of ID cards in the UK. As I’ve mentioned, they’re going to start in Manchester. I was more interested in what the Home Office said about enrollment though, because as we all know this is the critical phase of an ID project from the point of view of security. A number of people expressed concern that the government was going to use high street retailers for the enrollment process, to save the cost of building specialist enrollment stations in suitable premises in major population centres in the UK (otherwise known as Post Offices). One area of concern is security, but here the retailers were quick to reassure:

High Street retailers have rejected security fears about giving them the job of fingerprinting and photographing people applying for identity cards… Trade bodies representing chains such as Boots and Snappy Snaps told the BBC they can be trusted with the data.

[From BBC NEWS | Politics | Retailers reject ID security fear]

Now, I don’t want to be the one in the glass house throwing stones, because I don’t doubt that I’ve left the odd memory stick around here and there, but I was sure I could remember seeing Boots’ name last year in connection with looking after personal data. A quick bit of web browsing and my imperfect memory was rendered perfect by the World Brain (aka Google):

Major U.K. chemist (drug store) chain Boots has joined the growing list of organizations suffering an embarrassing storage snafu after tapes containing personal details of thousands of customers and employees were stolen… The records reportedly include the bank details of 27,000 customers of Boots’ dental service, which is operated by Medisure, as well as the personal details of some 8,000 Boots employees.

[From Tape Loss Stuns UK Retail Giant – Data Security News Analysis – Byte and Switch]

Whoops! Still, it’s not like the tapes had fingerprints on them or anything like that. Hold on a second: tapes? I thought it was puzzling that in the age of SSL and the interweb, HMRC were still posting unencrypted CDs full of personal data around the place. But tapes?

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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.

Payment revolution needs identity revolution

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[Anthony Pickup] To get an up-to-date understanding of the context for m-payments, I went along to the Mobile Retail Show at the Institute of Engineers (which reminds us what the UK engineers have done for the world) and Monetising the Mobile Internet at the Royal Statistical Society covered similar issues around how to extract value from users of the mobile internet, from advertising, m-commerce and so on. They both had some discussion of the payment methods available.

Let’s look at the mobile internet – shall we start by thinking about the device interface. Well there is the size, the variability of functionality from text-only through to near full colour and functionality with all being in use. I do remember devices that were non-colour but I am old and the majority of these devices were the human interfaces into large computer systems – indeed the computer workers of the world may still use ‘TSO’ screens to access ‘REAL’ computers. Interesting there are now similar band width issues on the communications channel from GPRS through to HSDPA. (This is not quite as bad as dial-up / PSTN through to broadband / ADSL and beyond.)

So what, you may ask. I see this as the creation of another digital divide created by market forces and the speed of mobile technology development. I ask you who changes their laptop or desktop computer more often than their mobile phone? We will create a market where some people are able to access information and services on the move and others that can not. One area where the opposite is occurring is mobile network delivered internet access (the world of dongles). This technology is reaching a tipping point where it is easier, quicker to get working and for some users cheaper to access the Internet this way than over the classic ADSL (fixed line) technologies. I have had my dongle now for 15 months, during which time it has gone from a niche ‘3’ product to a core service for all operators, and now I think I will pass my device up to my mother-in-law to replace her dial-up access. It took my wife four years to teach her to text and boy does she text now – even though severely disabled with arthritis. I doubt it will take that long to get her on Skype messaging, voice and then video calls with her daughter – who does not know what Skype is yet. This I believe will be cheaper easier to use and probably more reliable that here current dial-up even though she is North of Stirling.

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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.

Help! I can’t stop posting about SEPA

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[Dave Birch] I saw a very good talk by Gerard Hartsink, Chairman of the European Payments Council. He was talking about SEPA and the evolution of the European payments sector. The context isn’t important, but I did want to highlight one comment he made — which caused some passionate discussion — about the future of payment cards. He said that he could see a situation in 2011 or 2012 when magnetic stripe transactions would be banned in SEPA and only chip transactions would be allowed at ATM and POS. Now, before we launch into a debate on this, let me point out that he is not the only person of influence who is thinking this way.

Tony Chew, head of the technology risk supervision division of the Monetary Authority of Singapore, is advocating for a concerted global effort to phase out magnetic stripe technology entirely. “We can all go chip and PIN which will be a more effective method of combating counterfeit card fraud,” says Chew.

[From Vendor Articles: 12/6/2009 Credit card fraud rising]

It’s the rise in fraud that is causing this kind of thinking. Far from shrinking card fraud, the introduction of chip & PIN in the UK has multiplied a thousandfold the number of places where people use PINs and therefore where PINs can be stolen from. So long as there are places where easy-to-copy magnetic stripes can be used, the incentive for criminals is clear. Things are getting worse.

It is my belief – and feel free to come back and tell me that it’s me that is the idiot – that after a number of years of declining card present fraud (magnetic stripe cloning is so much easier, and a gift from the card issuers), we are now going to see a dramatic increase, and there is nothing we can do about it!

[From 2009 – is that the year we all went online?]

I happened to be reading this month’s Fraud Watch, and one of the front page stories is “ATM fraud threatens global acceptance”. The story says that “several issuers are considering blocking major cities and possibly whole countries where international card fraud is high, because there is no chance for reimbursement for those losses even though the original cards are EMV chip and PIN compliant”. (There are, as I understand, no plans for a liability shift to rectify this, particularly in the USA.) Oh dear. Incidentally, the top three destinations for ATM fraud on UK-issued cards last month were…. 1. Canada, 2. Italy and 3. the USA.

Suppose Gerrard is right? What will happen in 2012 when travellers from the USA arrive in Paris and discover the shops, hotels and ticket machines won’t accept their cards any more?

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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.

Not a template, but some inspiration

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[Dave Birch] I’ve been reading a report on “Recent Developments in Electronic Money in Japan” from the Payment & Settlement Systems Department of the Bank of Japan. (The report, from last October, says essentially that electronic money in Japan is small but growing quickly.) The reason I’d picked it up again though was because wanted to check on something I’d told one of our clients about the fall in coins in circulation in Japan because of e-money. I’d remembered correctly: the volume of small coins in circulation has been falling in absolute terms since 2003 and the fall has been accelerating in the last two years, the volume of all coins started falling in 2005, then grew slightly in 2006 but has been falling since. The fall is still only at the rate of 0.5% per annum, but it is a real and noticeable effect. E-money in circulation is Japan accounts for only 0.1% the total value of the notes and coins in circulation but it is already 2% of the value of coins in circulation, in an economy that is less plastic-oriented than, for instance, the UK.

Statistics from Nomura Research Institute show that the amount of electronic money transactions in fiscal 2007 reached 844.4 billion yen, about five times the previous year’s figure. In fiscal 2012, that amount is expected to balloon to 3.3 trillion yen. Most of the transactions are handled by railways, supermarkets and convenience stores, but e-money functionality is also starting to be added to student and company ID cards. As a result, the number of users looks likely to increase.

But in spite of the major growth of electronic money, the service is predominantly used for small transactions, with the total transaction amount reaching only about 2 percent of the figure for credit-card transactions.

[From E-money use growing rapidly in Japan – Mainichi Daily News]

Small, but growing. And not driven by, or under the control of, retail banks.

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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.

Camp community

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[Dave Birch] There was another thought-provoking BarCampBank in London last month. Many thanks indeed to Frederic and the gang for pulling it together and a special mention for Sun’s super hospitality. As well as catching up with friends and meeting new people, I got to sit in on a series of fascinating discussions. Some of the ideas being kicked around were fairly mainstream, but some were really out of the box (I particularly liked the lunar phase model for hedge fund investment). All I ask from such an event is to go away with more ideas than I came in with, and once again the format and the audience delivered. But what I’ve been reflecting on since the event is one specific thread: community. During the day there were some excellent discussions about community banking, community currencies and community enterprise. Now, obviously, I tend to look at these through a very narrow prism — which is: how can my customers make money from this? — but I’m also aware and in many cases enthusiastic about the link between the business case and the social case.

In Canada, there’s a branch of CIBC that already sells “Toronto Dollars”. I’m going to be in Toronto next month so I’ll see if I can check them out report back. What I’m curious about is the relationship between “conventional” banking and “unconventional” money. Although it’s hard to put a finger on it, there’s clearly an opportunity for the mainstream to take advantage of a number of trends but is it as a distributing and marketing channel or is it at a more fundamental level? There are clearly opportunities for banks to integrate with alternative payment mechanisms, although that’s not to say that the opportunity will come to them automatically.

All these alternative payment methods are showing huge growth, according to Javelin’s consumer surveys, and they present the opportunity to link with specific merchants and generate revenue from business-to-business services, ranging from acquiring to deposits and cash management. But banks must fight harder to make sure these opportunities do not migrate to other companies, and to ensure that the payment alternatives remain bank products.

[From Javelin Strategy and Research » New Opportunities for Banks in Alternative Payment Tools]

What I’m thinking about here, though, is that the Totnes Pound and the Toronto Dollar are not simply an alternative, local payment mechanism that banks (and other businesses, of course) can use as part of broader strategies implemented at local levels. These currencies mean more than that, so banks need more sophisticated strategies to deal with. I’m not a psychologist or ethnographer, but even I can see that alternative currencies have meaning beyond the medium of exchange.

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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 Guildford triangle

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[Dave Birch] What is it with Britain? Digital or otherwise our degraded realm is an international identity scandal. Europe’s no.1 exporters of payment card fraud, we are apparently now the world’s worst for identity theft overall.

INTERNET users in Britain are more likely to fall victim to identity theft than their peers elsewhere in Europe and North America. In a recent survey of 6,000 online shoppers in six countries by PayPal and Ipsos Research, 14% of respondents in Britain said that they have had their identities stolen online, compared with only 3% in Germany.

[From Where your identity is more likely to be stolen | Online fraud | The Economist]

There may be a correlation here between “identity theft” and “card-not-present fraud” (Germans rarely use credit cards, least of all on the interweb), but we’ll return to that in a future discussion. Now, these statistics don’t, I think, mean the Brits are more criminally inclined. After all, fraud is an international business.

The criminals stored much of their data on computer servers in Latvia and Ukraine, and purchased blank debit and credit cards from confederates in China, which they imprinted with some of the stolen numbers for use in cash machines, investigators say.

[From Global Trail of an Online Crime Ring – NYTimes.com]

It’s more likely that Britain is a soft touch: high card penetration and use, lots of internet shopping and other factors that lead to identity theft on an industrial scale. But where does this tidal wave of fraud actually originate? I read in The Telegraph that the top 10 identity theft hotspots in the UK are all in south east England. There’s an area of white collar fraud between London, Reading and that well-known criminal outpost, Guildford. Odd. In the top 10, only St. Albans falls outside of this theft triangle. Yet the government is going to test ID cards in Manchester… Well, as well all know, ID cards won’t have the slightest impact on identity theft for at least the next decade.

ID cards have been touted as the solution to a number of real problems – terrorism, crime and so on – though none of their supporters can ever explain how having an ID card stops a mugger or suicide bomber. But they began as the answer to a classic fake problem, still routinely cited by ministers, the need to “secure our identities” against “identity theft”.

[From The ID card is on its last legs – just let it die with dignity | News]

Now, I wouldn’t call identity theft a “fake problem”. On the contrary, it’s a very real problem. But what is generally meant by identity theft, certainly in the Guildford triangle, is largely to do with payment card fraud (which is rampant in the UK) and account takeover. These are specific problems, not general identity problems. Until retailers demand that you present an ID card when you buy anything, or somehow allow them to read your identity card over the interweb, nothing much will change. Fortunately, someone is thinking this through: the UK ID card scheme may well use chip and PIN technology so that it can be accepted at retail POS. Lots of newspapers reported this, so I’ll choose to point to the report in that august journal of record from my home town, Swindon (or, “Swindon, city of the future”, as have generally called since 4th July 1995):

ID cards could be fitted with chip and pin technology to help combat identity fraud. The head of the Government agency tasked with producing the cards said there were no “technical obstacles” to adding chips to the cards and handing out pin numbers.

[From ID cards ‘could use chip and pin’ (From Swindon Advertiser)]

I rather imagined that the cards already had chips on them, but putting that to one side, the idea of making ID cards work in chip and PIN terminals isn’t totally infeasible, although I’m not completely clear as why you would want to do this. I suppose the thinking is that the shops already have the terminals. But if you are asked to put your ID card into a terminal and punch in your PIN, wouldn’t you then get annoyed at having to take it back out again, then put your chip and PIN card in and then punch in another PIN? Why not just link your bank account to your ID card?

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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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