Snippings

Start with differential pricing, often in the form of a “surcharge” on card usage or a “discount” for using cash. The idea is intuitive enough: why not make users of expensive cards pay for them? Surcharges are popular in Australia. When restrictions on surcharges were lifted in Canada in 2020, a survey of 4,000 businesses by the Canadian Federation of Independent Business found that nearly 20% were considering introducing them. They exist in parts of America.

Many have tried regulation instead. In 2015 Europe capped interchange fees for credit cards at 0.3%, several times less than most American ones. Australia introduced caps for credit cards at 0.8% and for debit cards at 0.2%. It also encouraged surcharges across a wide swathe of merchants so that shops would not have to worry about losing business to competitors if they imposed them. America’s Congress passed the Durbin amendment in 2011, capping debit-card fees at $0.21 plus 0.05% of transaction values for cards issued by large banks. Yet the amendment had unintended consequences. Because debit-card fees fell, rewards associated with them did so as well. Consumers migrated to credit cards, which do not have fee caps. America now props up the global profits of the card networks and issuers. Insiders reckon that half of Visa’s and Mastercard’s revenues come from America.

 

American regulators are unlikely to go the European way. Instead they want more competition. Some hope the Federal Reserve’s FedNow, which will facilitate instant account-to-account transfers when launched in July, will be a game-changer like India’s upi or Brazil’s Pix. Similar hopes exist for other fast systems like Real-Time Payments, launched in 2017, and the existing card networks’ new systems. Mr Siddiqui is optimistic about business-to-business payments. Systems like FedNow are a big improvement on today’s wire transfers, which cost $25-35 as they must be manually checked. Automated clearing-house transfers are cheaper, but they are slow and do not tell senders whether the money has gone through. Businesses are more open to new payment methods and to case-by-case pricing than consumers, so they may switch.

 

Consumer payments are less assured. Although person-to-person bank transfers have taken off in Britain and Europe, they have struggled to make headway with retailers, where the real money is.

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Hence a third strategy, to build an alternative payment method for existing repeat customers, rather like the RedCard of Target, a big retailer. RedCard offers customers 5% discounts on Target purchases, encouraging them to spend at Target over its competitors. Some 20% of the firm’s $100bn annual revenues come through RedCard. The interesting aspect, says Mr Rampell of a16z, is that for its debit cards, Target takes the money direct from a customer’s bank account, sidestepping normal card fees altogether.

The potential gains are large. Target would save around $2bn a year if all its customers used RedCard rather than their normal credit cards. Other companies might follow suit.

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

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The Treasury select committee said in a report that proposals for the Financial Conduct Authority to regulate the crypto industry could create “a ‘halo’ effect” that gives the impression crypto is “safer than it is” and might tempt people to put money into a speculative market they should avoid.

From MPs call on UK ministers to regulate crypto like gambling | Financial Times:

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While the UK leads the region in digital wallet share, it is behind in A2A adoption. A2A accounts for only 9% of the U.K. total e-commerce spend ($319billion in 2022) but is around two-thirds total transaction value in Poland and the Netherlands.

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A powerful cross-party group of MPs has called on the UK government to abandon plans to regulate crypto as a financial service and instead treat it as gambling.

From MPs call on UK ministers to regulate crypto like gambling | Financial Times:

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This supports the view that the crypto market is not a financial market as we currently understand and regulate as such.

From (1) How Should We Regulate Crypto? – by David G.W. Birch:

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The Organised Crime and Corruption Reporting Project (OCCRP) revealed how $2.9bn (£2.3bn) of dirty money – cash stolen from Azerbaijan’s people and economy – had been spirited away by members of the country’s elite. It was largely for their own benefit, but also to bribe European politicians.

From Javad Marandi: Tory donor’s link to massive money laundering probe – BBC News.

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People often refer to Bitcoin (and cryptocurrency in general, actually) as being like tulips, a reference to the oft-discussed events in what is now the Netherlands in the 17th century. If you take the time to read up on this episode, what you discover is not a mass market mania that devastated the economy but speculation by a small group of rich people who could well afford to lose money. And you will also see that it led to the creation of a regulated market that played a role in the financial revolution leading to a Dutch golden age which meant that balances at the Bank of Amsterdam became a pan-European currency and, as noted in this paper from the Atlanta Fed, which in turn meant that the florin (the unit of account for those balances) came to play a role “not unlike that of the U.S. dollar today”.

If you look at a crisis, is my point, then it is good to draw the right conclusions from it. But if you are going to try and spice up a talk about cryptocurrency with reference to a ludicrous bubble, then tulips are not even the most fun choice. Pet rocks and Madonna’s holy water to one side, surely the best example to use on a conference stage is the Japanese rabbit mania of 1873. Following the Meiji Restoration (which ended the shogunate and put emperor in charge), samurai warriors found themselves at a bit of a loose end. As a reward for giving up endless slaughters, they were given compensations which they decided to invest in rabbits because at that time adopting Western culture was considered a way to improve social status so owning a rabbit became a status symbol like a Louis Vuitton.

The European rabbits Oryctolagus cuniculus were imported from Europe and a speculative bubble blew up until specimens were changing hands for something like 100 times the salary of average person. The number of people who kept rabbits soared and rabbit fairs were held where the price for rabbits with unusual fur, color, and ear shape soared. The most popular type of rabbit at the time was the “chintz” rabbit which had black spots on a white background. Breeding fees were in region of $400 per cover or so at today’s prices, so you could make bank if you could obtain a male chintz.

As the mania got out of hand cases of rabbit theft (no such thing as cold wallets for rabbits) and rabbit-induced murders new. Just as in the case of the tulip mania there were lurid tales of people swapping their daughters for rabbits. The bubble finally burst with imposition of a rabbit tax. Owners of rabbits were required to notify the authorities and pay a tax of around $100 per month in today’s dollars. Naturally this led to people keeping rabbits in secret, but a system of informing on surreptitious bundy handlers were instituted and the forces of law and order raided the homes of the miscreants with hidden hutches.

Perhaps Bitcoin will go the same way. At leasr you can eat rabbits. Actually, I am led to believe that in certain parts of Japan, people breed jumbo rabbits for the table.

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So, I would like to propose another metaphor for the risks of artificial intelligence. I suggest that we think about A.I. as a management-consulting firm, along the lines of McKinsey & Company. Firms like McKinsey are hired for a wide variety of reasons, and A.I. systems are used for many reasons, too. But the similarities between McKinsey—a consulting firm that works with ninety per cent of the Fortune 100—and A.I. are also clear. Social-media companies use machine learning to keep users glued to their feeds. In a similar way, Purdue Pharma used McKinsey to figure out how to “turbocharge” sales of OxyContin during the opioid epidemic. Just as A.I. promises to offer managers a cheap replacement for human workers, so McKinsey and similar firms helped normalize the practice of mass layoffs as a way of increasing stock prices and executive compensation, contributing to the destruction of the middle class in America.

From Will A.I. Become the New McKinsey? | The New Yorker.

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Britain’s leaky outsourcing behemoth Capita is warning investors that the clean-up bill for its recent digital break-in will cost up to £20 million ($25.24 million).

At the end of March, the business was blindsided when criminals broke into its tech infrastructure and stayed inside for more than a week before Capita realized it was the victim of a “cyber incident.”

From Capita admits cost of March breach will be up to £20M • The Register.

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The boss of the banking industry body UK Finance has called on social media companies to reimburse victims of online fraud, accusing them of “profiting” from scams taking place on their platforms.

From Social media firms should reimburse online fraud victims, say UK bankers.

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By comparison, TfL said its cost of fare collection was 14.3% in the year ending in March of 2006. That’s a drop of 7.4 percentage points. It means that TfL cut its fare-collection costs as a percentage of fare revenue by a little more than half over 14 years.

From How Much Has Open-Loop Payments Reduced Transport for London’s Cost of Fare Collection? – Mobility Payments.

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