Snippings

As I wrote many years ago M-PESA didn’t create a new payment system, it created a new financial sector.

 

M-PESA didn’t create a new payment system, it created a new financial sector.

I simply do not believe that a bank-led solution would have triggered the innovation revolution that M-PESA clearly did

From Book corner – “Money, Real Quick – The Story of M-PESA” – Consult Hyperion:

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Why are payments so expensive? Well, as The Economist noted in a special supplement on digital payments recently, “all payment systems come with trade-offs“. I rather liked their framing of the problem, which is that “all that is needed is a spreadsheet” but (and this is a big but, as I a, sure that you will be aware) to prevent fraud, manage disputes, ensure privacy and offer credit, well… the costs can add up.

I rather like this formulation, and have used it myself. For example, a couple of months ago I was interviewed by Debbie Gamble, Chief Officer Innovation Labs & New Ventures at Interac, and I said the same thing to her: That in my view a lot of the problems and challenges of the payments industry — from onboarding to fraud prevention — are really identity problems. In fact, I told her that “If you know who all the counterparties to a transaction are, payments are just a bit of [math on a] spreadsheet somewhere.”

Or, to put it another way, once you know who everyone is, payments are easy.

There are many sectors of the economy, not only fintech, that depend on getting something done about identity in order to bring their costs under control, which is why I was happy to see that when the The White House released the new United States Government National Standards Strategy For Critical And Emerging Technology (May 2023) to set out their eight key areas where the Federal Government wants to help to accelerate standards efforts led by the private sector to facilitate global markets, contribute to interoperability, and promote U.S. competitiveness and innovation, one of these was Digital Identity Infrastructure and Distributed Ledger Technologies. The strategy says that these “increasingly affect a range of key economic sectors”.

(While I am second to none in my increasingly strident calls for a digital identity infrastructure, it is not entirely clear to me why this has been conflated with shared ledger — I prefer to use the term “shared” because it suggest purpose while “distributed” implies technical architecture — which led to media reports about the U.S. government wanting to standard “blockchain”.)

The National Institute for Science and Technology (NIST) has already done some great work around standards for identification, authentication and authorisation, but we are still some way away from being able to create an account at American Airlines using government digital identity or create an account at Twitter using proof-of-personhood from Well Fargo.

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Why are card fees so high, especially in America? One answer, says Mr Rampell, is that “If I’m a bank, I’d rather issue a card with the network that is going to charge higher fees because then I get paid more.” That causes card networks to compete to offer more expensive products.

From The old bank/card model is still entrenched in the rich world:

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The second big change is that emerging markets have developed open payments systems. They provide an alternative to both the bank/card model in the rich world and the closed fintech giants of China. Indeed, it is possible that through instant bank account-to-account transfer systems in Europe, and the roll-out of the Federal Reserve’s FedNow instant-payments service in America, the rich world may come to copy the best systems from the emerging world.

From As payments systems go digital, they are changing global finance:

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The momentum around Bluesky comes as Musk, who bought Twitter in October, continues to alienate some users over his changes to the platform, which include charging $8 for the blue ticks that used to denote celebrity, and relaxing its moderation rules. The platform has also suffered from increased outages and glitches.

From Jack Dorsey’s Bluesky emerges as latest challenger to Elon Musk’s Twitter | Financial Times:

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Here in the U.K. we are having something of an issue with the economy. In order to get nice things, such as pay rises and trains that work, we have to improve productivity. And when it comes to productivity, we are behind. We are about a sixth less productive than our G7 friends and compared with them the contribution of capital deepening to labour productivity growth in the UK has, according to the Office for National Statistics (ONS) “been weak”. This is not new. When Philip Hammond was Chancellor of the Exchequer he pointed out that “the productivity gap is well known, but shocking nonetheless” and went on to lament that it takes British workers five days to produce what German workers produce in four, meaning that  too many British workers work longer hours for lower pay than their counterparts.”

There are obviously many reasons for this sorry state of affairs. The economy is complex. Nonetheless, there are a couple of factors that stand out. In France (and to a lesser extent Germany) restrictions on working hours, industrial pay bargaining and limits on redundancies make hiring workers more expensive and risky than in the U.K.m which in turn encourages French and German firms to invest in technology.

There is a rather useful case study to illustrate how we diverge from our continental neighbours, and that is the car wash. Car washing is a big business (around half a billion pounds a year on commercial car washing) but instead of using the high-tech car washes at our local garages we (me included) pay people to wash our cars using the most inefficient means available: a hose, bucket, water, soap and sweat. The hand car wash has grabbed around half of the commercial car wash market in the U.K. (there are now 20,000 hand car wash sites in Britain) and the number of car wash machines has more than halved. We have successfully reversed industrialisation, which was the source of our rising prosperity of 7th last couple of hundred years.

As the economist commentator Duncan Weldon said “It’s more like the people are taking the robots’ jobs.”

One analysis of our productivity nightmare concluded that outside of London and finance, almost every British sector has lower productivity than its Western European peers. While the economy is not built on car washing, it does serve to illustrate what may be a core problem. According to the International Federation of Robotics (IFR), U.K. manufacturing industry is less automated than in just about any other similarly rich country. With barely 100 installed robots per 10,000 manufacturing workers in 2020, the U.K.’s robot density is below that of Slovenia and Slovakia. 

In the robot league table, our old rival France currently ranks 2nd within the European Union ( and the U.K. would be in 10th place were it still part of the club). No guesses for who is in first place, of course. What does the mean for the economy? Well, look at the German automobile sector, which has twice the robot density of the U.K.and “As a result of the ongoing trend to automate production, employment in the German car industry rose by about 93,000 jobs to 813,000 during the period 2010 to 2015.”

That’s right. More spending on robots increased employment!

What’s the global trend? Well, half a million new robots were installed around the world last year – but only a couple of thousand of those were in the U.K. and the automotive sector has traditionally led in robotics, installations in that sector actually reduced by 42% in 2021. That wasn’t true on the continent where demand in the automotive sector was steady (and demand from general industry was up by a half). Things are going from bad to worse, because five years ago the U.K. had already slipped down the world rankings to 22nd place for industrial robot density and the most recent figures show that we continue to lag behind. While installations of general purpose robots in Europe increased by 24%, uniquely in Britain the number fell by 7%.

The problem has deep roots. Twenty years ago the British Automation and Robot Association (BARA) was greatly concerned by U.N. figures showing that in 2002, robot investment in the United Kingdom fell by two-thirds while across the world as a whole robot orders were up a quarter. That U.N. report showed that for every 10,000 persons employed in the United Kingdom manufacturing industry at the end of 2002, there were 36 industrial robots, compared with 135 in Germany, 109 in Italy, 67 in France, and 66 in Spain. It’s a long way back.

Let’s not make the same mistake in financial services. The City needs to go all in on this. As Professor Scott Galloway said, you’re not going to lose your job to AI, your going to lose your job to someone who uses AI better than you do.

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Cross-border retail spending (including tourism) and remittances will hit $5trn this year; business-to-business payments are worth eight times that.

From The fight over the future of global payments:

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Information from 160 of 230 councils where polls were held this year shows 26,165 voters were initially denied ballot papers at polling stations.
Of these, 16,588 people came back with valid ID, whilst 9,577 did not return.

From Local elections 2023: Thousands didn’t vote due to ID rule, data shows – BBC News.

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Information collected so far suggests the people initially turned away were a small proportion of the overall voter base, generally less than 1% and in many cases less than 0.5%.

This echoes the findings of voter ID trials conducted in 2018 and 2019, which put the proportion of people initially refused a ballot at around 0.4% of the total votes cast.

David Cowling, a former BBC polling expert who is now a visiting research fellow at King’s College London, also says it must be borne in mind that some voters initially turned away later return with ID.

He says evidence from metropolitan borough councils, and the pilots, suggests around 60% of people initially refused a ballot return with valid ID – producing a rough figure of 0.2% refusals of the votes cast.

A dragon is an company that deliver returns equivalent to whole of the fund that invested in it.

 

I spoke to Richard Abrahams at Sprout, one of the several new platforms that helps private investors discover, invest and monitor venture and private fund investments about the “unicorns vs. dragons” debate and he told me that when it comes to mythical beasts, it is the dragons who deliver. So falling numbers of unicorns does not mean the opportunities for funds to find dragons are diminishing! 

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One trial by the Bank for International Settlements (bis), a club of central banks, called mBridge, linked the central banks of China, Hong Kong, Thailand and the uae using a distributed ledger to settle cross-border payments. Overseas trade can be cumbersome because few banks have accounts in other countries. A sender bank must transfer funds to a correspondent bank that has an overseas account, driving up costs.

In theory systems like mBridge could reduce costs. In a trial in 2022, 20 banks across the four places transacted some $22m in 164 payments. The bis has yet to disclose how efficient this was: indeed, it had to turn to traditional markets outside its platform because it did not have enough liquidity. But Mr Sun of hsbc, which joined the trial, says that the system worked technically. The questions left concern alignment of standards and finding enough liquidity.

From Could digital-payments systems help unseat the dollar?:

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