Snippings

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Signal: India’s Paytm launches a $12 hybrid PoS and soundbox
Paytm, India’s largest digital payments company, announced yesterday (4 August) that it is launching a new point-of-sale (PoS) device, combining contactless and card payments with a soundbox.

From Signal: India’s Paytm launches a $12 hybrid PoS and soundbox – GlobalData.

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Consumers of pornography do not want to go to the trouble of proving their age and identity to view content that is protected under the U.S. Constitution. Some are worried about future government interference and reprisals as well as their biometric data being stolen and sold.

From Texas law paused. Age verification for porn sites put on hold | Biometric Update.

I strongly support age verification for adult services, and yet I also firmly agree with all of these statements. First of all, proving your age to view content that is protected under the U.S. Constitution should not be “trouble” (for U.S. citizens, at least). Secondly, the government should be able to “interfere” in such a transaction (unless you have broken the law, for example).  Thirdly, there should be no possibility of the consumers of adult services having their biometric data stolen. So how do we achieve all of these goals?

Well, technologically, the solution is trivial. When you go to an adult site, the adult side should demand verifiable credentials that show you to be over 18 and and a U.S. citizen. Note that there is no reason for either of these credentials to contain any personally-identifiable information (PII). Let us imagine that you have a digital wallet on your smartphone that contains any number of credentials, but in particular has a credential issued but your bank that says you are over 18, are a U.S. citizen and have had an account at the bank for more than one year.

The wallet pops up on your phone and says “hey I see you are logging in to XXX site, the site wants to know if you are over 18 and a U.S. citizen, is it OK to tell them?” and you hit “OK”.

The credential goes from your wallet to the adult site. The credential includes the digital signature of the issuer. Let’s say the issuer is Bank of America. The adult site knows Bank of America’s public key (so does everyone else, as it is… well, public) so it can check the digital signature and check that the credential really does come from Bank of America and not from your brother.

At this point the adult site needs to know that you are the subject of the credential and that you didn’t kist copy if from your older brother’s phone. Now, the credential contains a public key, so the adult site encrypts something using that public key and sends it over to your smart phone. The only way to decrypt the message is by using the associated private key, which is in secure tamper-resistant memory in your phone. The requires you to authenticate yourself before it will use the private key,  so it uses FaceID or FingerID or whatever. With the authentication complete, the message is decrypted and sent back to the adult site.

Now the adult site knows that you are over 18 and a U.S. citizen.

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A thief who stole more than $470m (£383m) in cryptocurrency when FTX crashed is trying to cash it out while the exchange’s founder is on trial.

Sam Bankman-Fried’s high-profile court case began last week. The former crypto mogul denies fraud.

After lying dormant for nine months, experts say $20m of the stolen stash is being laundered into traditional money every day.

From: FTX thief cashes out millions during Bankman-Fried trial – BBC News.

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There are two constituencies, united in their suspicion of central bank digital currency (CBDC), who are working to stop a digital euro. One group is working from without, the other from within. On the one hand there are the conspiracy theorists who begin with legitimate concerns about privacy and quickly shift to a broad agenda involving (as far as I can tell) Bill Gates, the World Economic Forum and black helicopters. Central banks, normally used to deploying technical or economic arguments, find it difficult to deal with them. On the other hand there are the commercial banks, and they are far more likely to succeed in derailing the digital euro.

In a paper for the Centre for Economic Policy Research (CEPR), Cyril Monnet and Dirk Niepelt identify an implicit and unspoken objective for the digital euro, which is to do no harm to banks and protect their business model. As they point out, this objective dominates all others and means that requirements favoured by the Governing Council — which include holding limits for consumers (a few thousand euros), even lower ones for merchants (zero) and negative interest rates during periods of financial stress — make the digital euro really rather unattrative. The ECB appears to view these features as permanent, which means that the digital euro will never be anything more than a footnote.

It is easy to understand the opposition from the legacy payments world, because there is no getting around the fundamental dynamic: a useful, functioning, well-designed digital currency will eat into bank profits. There it is. Black and white. A recent paper from the Bank of Canada on “Central Bank Digital Currency and Banking Choices” looks into the issue of CBDC substitution for bank deposits and, taking into account the key fact that commercial banks provide financial products that are complementary to their deposits and cannot be provided by a central bank, through some detailed modelling find that

First, we find that the impact of a CBDC is much lower after taking into account that households enjoy the complementarity between deposits and other financial products within the same bank, which gives banks a competitive advantage over the CBDC.

Second, the impact of a CBDC depends crucially on its service location network. A CBDC that has no service location can barely gain any traction. A CBDC that uses Canada Post offices as service locations would lead to a take-up that is similar to the market share of cash and benefit rural households more than a CBDC that uses bank branches as service locations.

Third, banks with larger market shares tend to respond more to the CBDC and hence retain more deposits.

In conclusion they find that the substitution ranges from 1% in some cases to more than a third in other cases, with the most likely case being a 12% loss with the reduction skewed towards the smaller banks.

I tend to think that the substitution would be limited, because that is what has been observed when consumers have the option of fariyl frictionaless shifting to CBDC (eg, in China).

At a macro level, it is reasonable to think that the goal of digital currency policy should be to do the right thing for society as a whole and not to maximise the revenues of commercial banks at the expense of all other stakeholders. So, why would it benefit society? Well, remember the crucial distinction between electronic money of the kind we have now and the electronic cash of the future, of which a digital euro should be an exemplar: Electronic money moves between accounts and through banking networks (eg, FedNow) whereas electronic cash (eg, the currently non-existent FedCoin) moves between devices and not through accounts, banks, banking networks or indeed any other intermediary at all. Since there is no clearing or settlement (the money is the message, so to speak) this will of course be much less expensive for users and much less profitable for intermediaries.

It is not all about transaction costs though. There are other benefits, of course. Back at the dawn of central bank digital currency, the Bank of England Staff Working Paper No. 605 says (amongst other things) that 

we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilise the business cycle.

GDP growth aside, the Bank was also interested in the fact that cash has no Application Programming Interface (API). Writing in the Bank of England’s “Bank Underground” blog, Simon Scorer from the Digital Currencies Division made a number of very interesting points about the requirement for some form of digital Sterling. He remarked on the transition from dumb money to smart money, and the consequent potential for the implementation of digital fiat to become a platform for innovation (which I have always seen as being one of the most important reasons for driving forward with digital currency), saying that “other possible areas of innovation relate to the potential programmability of payment”. 

(Programmability is actual rather complicated, so let’s not get sidetracked on it here.)

If the requirements for digital currency are reset in a somewhat utilitarian context then they would point toward a digital currency that is based on unintermediated device-to-device value transfers, pseudonymous digital wallets and permissionless innovation. In such an environment, value transfers between wallets would be instant and free.

Does this mean that there would be nothing for banks to do in such as digital euro world? No, of course not. Even if digital euros were the only currency on Earth, I would still need to borrow some of them from Barclays in order to buy a new Jaguar.

In fact, I might argue that removing the narcotics of interchange and other transaction fees from banks might well wake them into significant innovation in artifical intelligence and financial health, in digital identity and reputation protection, in custodial wallet provision and management.

 

Marshall McLuhan famously said, with a towering prescience that we have yet to fully appreciate, the medium is the message and predicted the “global village” that gave us Wikipedia and social media, online banking and Pornhub. Well, I’m saying that the money is the message and there is nothing that banks can, or should 

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AOG Technics is believed to have invented employees with fake profiles to boost its image and also rented ‘virtual’ offices near Buckingham Palace to give it an exclusive address.

From EXCLUSIVE: Founder of firm accused of selling bogus aircraft parts used by American airlines, forcing dozens of planes to be grounded, is one-time DJ from Venezuela who recently married wife at wedding in Mallorca – where they wore matching Rolexes | Daily Mail Online.

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What the ecosystem needs for the concept of tokenized real-world assets to make a significant impact on traditional markets, is for a way for all the various walled gardens to talk to each other. Wit this, a tokenized fund on Onyx can be used as collateral in a DeFi application on Base. A tokenized fraction of a shopping mall can be swapped for a tokenized fraction of a marina on a DEX built by Deutsche Bank.

We also need some standards set on the information needed, AND how it is extracted. Reporting is a huge sunk cost on most financial systems, and blockchain systems can streamline that while enhancing transparency.

But how? Will hosts of these platforms still have to compile periodic reports? Will information be pulled via an API? How would that be structured? Information is stored differently on Avalanche vs Corda vs Fabric vs Ethereum. Who bears the cost of this development? Will regulators have a node? What requirements will these nodes need to fulfil? What will the bankruptcy rules look like? How can the potential cross-border nature of these assets be handled, when securities rules differ from region to region?

From (7) Friday, Oct 13, 2023 – by Noelle Acheson.

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The situation is more complex when it comes to “large quantities of high-quality data”… Even a technology as remarkable as AI can produce results no better than its inputs.

From New Technologies Arrive in Clusters. What Does That Mean for AI?.

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Singapore’s digital economy has expanded to about $77 billion, or 17.3% of gross domestic product, and should continue to drive growth in coming years, according to a new government report.

From Singapore Sees $77 Billion Digital Economy as Key to More Growth – Bloomberg.

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Hackers posted an initial data sample on the platform BreachForums earlier this week, claiming that it contained 1 million data points exclusively about Ashkenazi Jews. There also seem to be hundreds of thousands of users of Chinese descent impacted by the leak. On Wednesday, the actor began selling what it claims are 23andMe profiles for between $1 and $10 per account, depending on the scale of the purchase.

From: 23andMe User Data Stolen in Targeted Attack on Ashkenazi Jews | WIRED.

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When payment cards were first invented, there was no network that automatically connected together the retailers, the customers and their banks. It was not easy for the retailer to talk to the bank to find out if the customer had any money and it was just as difficult for the bank to talk to the retailer, to tell them that the customer was good for the money and that they would get paid. Since there was no network to connect together the interested parties, it made sense to build one. That’s how we ended up with VISA and MasterCard and American Express and Discover and JCB and so on.

Given that we live in a world where the Internet now exists, however, you have to wonder why things are still done that way. Why did I just give my payment card details to an airline so that the airline can give them to its bank and get charged a fee which another bank then uses to reward me with miles from a different airline? That seems like a lot of work (and a lot of intermediaries) to get money from my bank to my airline’s bank.

Wouldn’t it be easier, if the airline just said to me “hey Dave it looks like you’re buying another ticket – here’s really no need to bother Visa or MasterCard, after all they’re so busy processing all of those transactions, so why don’t you just let us our bank take the money from your bank instead?”/. And I wonder if convenience isn’t enough, they might sweeten the deal by saying “Oh and by the way, if you do that, we will give you triple miles as a thank you” with them oney they saved.

I would do that unhesitatingly.

There’s two ways that might work in practice. The airline could send me a bill there and then, a bill that pops up in my banking app and so I can okay it using my finger or face. Then my bank sends the money to the airline’s bank in milliseconds and its job done. That’s what you might call the “customer is present” account-to-account payment, generally known as the request to pay, or R2P, solution. That would make life easy when the plumber needs paying for fixing the broken tap or my sister needs paying for the gig ticket.

Alternatively, for places where I buy often, when I am part of a loyalty scheme, I could set up an arrangement with the merchant to automate payments completely. In athe case of me buying flights, I could set up an arrangement with bank and the airline so that money could move between them automatically, provided that the amounts are within certain limits and certain frequencies defined by me. So, for example, I could tell my bank if this airline comes to ask you for money from my account, that’s okay, go ahead and give them the money provided it’s not more than $10,000 and it’s not more than four times per month. 

Then next time I book a ticket, I don’t have to do anything. The airline is using some form of strong authentication (passkeys or whatever) so that they knows it’s me, the bank knows that it’s the airline and the payment falls within the preordained bounds, so the money moves instantly and everyone is happy. This is what we refer to in the UK as “variable recurring payments, or VRP, which is the “customer was present” alternative to the R2P solution.

VRPs in particular are a great payment option when there’s a need for increased speed, transparency, and control as they provide instant payment confirmation, as opposed to a two- to three-day wait with direct debits. In the UK, the regulators set out two kinds of VRP: sweeping and non-sweeping. Sweeping VRPs move money in between a customers own accounts (this is how I move money from my bank account to my pre-paid travel card acccount, for exampke) where as non-sweeping VRPs (often referred to as “commercial VRPs”) cab be embedded into a wider range of customer journeys including utilities, subscription services, retail and financial institutions.

(VRPs offer a number of specific benefits when it comes to subscription services, by the way. In a YouGov survey, more than half of the respondents said they would sign up for more subscriptions if they had one easy way to cancel them and I’m definitely in that category.)

Retailers are very keen to see VRP in the market and they’ve been waiting for awhile. And not only retailers. This time last year, the UK payment sector was getting very enthusiastic about R2P and VRP. UK payment providers reported that they expected over half of their payment flows to convert to such open banking-based payments in the next three years and one in ten ISVs expected more than three quarters of their flows to convert in the same timeframe. In fact, these payment flows are expected to treble the use of open banking in the UK by 2027.

So what has to happen to realise the benefits? Well, we are awaiting kick-off later this year (although some people are saying that this may be delayed until early 2025). The Payment Systems Regulator (PSR) consultation suggested that UK banks will have to provide commercial VRPs for free in the first instance, but if commercial VRPs are to deliver real increased competition in the market, the fact is that banks must be incentivized to invest to deliver VRPs to their customers and merchants must be incentivized to accept VRPs, meaning fees should be lower existing options (including cards).

UK Finance, the industry trade body, recently published a report on “Commercial Variable Recurring Payments Model Clauses” in created in collaboration with a dozen institutions, including banks and fintechs, so hopefully agreement on business model is not too far away. I think that R2P and VRP are a desperately needed secure and interoperable “Layer 2” for bank payments and the payments industry should be preparing to use them to share the benefits of innovation and make them the default for many use cases.