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Campaign group Axe the Card Tax, which includes trade bodies such as the British Retail Consortium, the Federation of Small Businesses and the Retail Charity Association, estimated that in total, scheme fees — which go to the card networks — and processing fees could cost businesses in the UK £1.9bn annually.

From Fintechs say UK credit cards restrict access to consumers’ own data | Financial Times:

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A blockchain linked to Binance, the world’s largest crypto exchange, has been hit by a $570 million hack, a Binance spokesperson said on Friday, the latest in a series of hacks to hit the crypto sector this year.

Binance CEO Changpeng Zhao said in a tweet that tokens were stolen from a blockchain “bridge” used in the BNB Chain, known until February as Binance Smart Chain.

From Binance-linked blockchain hit by $570 million crypto hack | Reuters:

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The Bank of Canada recently published a note (Staff Analytical Note 2022-14) on what they call the archetypes for a retail CBDC in which they point out that a direct model — in which transacting parties directly provide their own oversight and communicate between themselves to exchange and record settlement information — is the only model that deliver cash-like person-to-person transactions, where counterparties can settle a transaction without involving a third party.

The direct model that they refer is the maximally distributed model: Each participant (well, each participant’s device) can store digital assets and exchange them with other devices. offline. The Bank of Canada definition of offline refers to the ability of counterparties to transact when connected only to each other and no other party. This means that they can connect over a local interface (eg, Bluetooth) and execute transactions in the absence of mobile connectivity, the internet or even electricity. The Bank of Canada suggest two forms of offline capability: extended offline (i.e., offline clearing and settlement) and intermittent offline (offline clearing only). In an intermittent offline system, transactions clear instantly, but funds do not settle until the payee resumes connectivity with a remote service. In extended offline, the funds transfer completes so that the payee can spend the funds received right away without connectivity to a network service.

There are three main reasons why this “direct” model makes the most sense: inclusion, scale and resilience. 

The reach of a cash alternative must be universal. Every nook and cranny. Citizens

The scale of a cash alternative must greatly exceed the scale of either cash or any current electronic alternatives. Why? Well because in addition to having every citizen using the system at the same time, it is highly likely that machines and bots will be executing vast numbers of transactions at the same time.

The resilience of a cash alternative is greatly enhanced by offline device-to-device transfer. There is no central system to take down, no switches to knock out, no network to paralyse. Look at what has happened to the Shetland Islands, north of Scotland. There were two undersea cables connecting the islands to the world. Both are out of action, having either been dredged up by fishermen, bitten through by sharks or blown up by specially-trained dolphins acting on behalf of a foreign power. Now, no-one can buy anything in the shops.

 

Hardened

This lack of third-party oversight has obvious security implications, though. The Bank of Canada say (and I agree) that such a model would need secure, tamper-resistant hardware to maintain and update the state of the decentralised ledger. As they go on to note, such solutions have been deployed at a relatively small scale and they then says that it is “unknown whether their security can be hardened sufficiently to support a general-use fiat currency system” at the scale of a national population. The clear danger is that should such hardware be compromised then a device could to issue CBDC fraudulently at scale.

Now, I have to say I am more optimistic about the ability of technology to deliver here. Too explain why, let me begin by picking up something that John Kiff pointed out on the International Monetary Fund blog recently. John observed that as most of the world’s central banks rush to develop digital currencies, almost all the research and trials focus on internet-based technology, whether it be Hyperledger Fabric in Nigeria or R3’s Corda in Sweden. He then goes on to ask the obvious question: What will happen when the web goes down in a war? What if there is a natural disaster? And what about the three-quarters of the world’s adult low-income population that doesn’t even have internet access?

He concludes, as the Bank of Canada did, that for a digital currency to be useful, it must work offline. And here, John says, the future of offline CBDCs may lie in the technological past. That’s where his nod to a distant past and a push to develop offline digital payment systems (eg, Mondex) comes in. Some of the very valuable work done in this space goes back a generation, to that long ago time before smartphones, but it remains valid and it is important that the lessons learned then are not forgotten.

Mondex, for one, did think that the tamper-resistant hardware, when combined with intelligent audit, was adequate to support population-scale electronic cash. And when their provably-secure design is transplanted to today’s hardware (particularly secure elements), I think it can indeed deliver.

In other words, a retail CBDC that is going to function as a viable cash alternative must function offline and the technology to deliver this at population scale already exists. Let’s do it.

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Instant-payments volumes are increasing 40 to 60 percent globally and showing signs of reaching an inflection point on the S-curve.

From Next moves in the global payments ecosystem | McKinsey.

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A2A transaction revenues continued to increase their contribution in most geographies, in total accounting for roughly 29 percent of 2021’s rise in global revenue. The expansion of applications built on instant-payment use cases—such as bill payment, point of sale (POS), and e-commerce—fueled the volume increase.

From Next moves in the global payments ecosystem | McKinsey.

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global revenue per non-cash transaction has gradually declined—from $1.88 in 2016 to $1.30 in 2021—as the pool of electronic transactions has grown faster than absolute revenue.

From Next moves in the global payments ecosystem | McKinsey.

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In some markets the sending of links by banks in SMS and e-mails has been banned outright.  We would welcome such action in the UK.

From Five principles for tackling Authorised Push Payment Fraud.

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A recent SAS-sponsored study from Economist Impact looked at scenarios for the banking industry in 2035. In one of these, they focused on banks using digital transformation to “rehabilitate” their image through strengthened data privacy and cyber fraud safeguards, greater transparency and consumer protections. In this world, open banking is the basis for partnerships that to bring together all of the different facets of customers’ financial lives in personalised offerings. This is, I think, realistic and it aligns with my own view that the sector will shift way from providing individual financial services to delivering financial health.

What caught my attention was the mention of greater transparency though

 

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The impact of encrypted open books and triple entry working together in this way could be huge, because the transparency and automation means that we will no longer need to wait until the end of the reporting period to conduct an audit and produce results with the help of skilled financial professionals. Instead we will find ourselves in an era of ambient accountability, where the technological architecture means constant verification and validation. If you want to check whether a bank is solvent before you deposit your life savings there you will do it using an app on your smart phone not by looking at a year old auditor’s report covering some figures from a year before filtered through levels of management.

(Ambient accountability is a term that I borrowed from architecture to describe this infrastructure. It describes perfectly how transparency can transform the financial services industry and serves as a rallying cry for the next generation of financial services technology innovators, giving it a focus and raison d’être beyond shifting private profits from banks to technology companies and other third parties.)

Since the regulators will be able to use the technology, they will be able to spot unusual or inappropriate activity. What’s more, the information stored in the ledgers in encrypted form has been put there by regulated institutions so should there be a need to investigate particular transactions because of, for example, criminal activity then law enforcement agencies will be able to ask the relevant institutions to provide the keys necessary to decrypt the specific transactions. In this way the shared ledger can bring the technology of open book accounting to bear to exploit the beneficial transparency of the shared ledger in such a way as to preserve necessary privacy.

In a paper I co-wrote a few years ago with Richard Brown, then at IBM, and Consult Hyperion colleague Salome Parulava [published as “Towards ambient accountability in financial services: shared ledgers, translucent transactions and the legacy of the great financial crisis.” Payment Strategy and Systems 10(2): 118-131 (2016).], we borrowed the term “translucent” from Peter Wayner to mean transactions that are transparent for the purposes of consensus (in other words, we can all agree that the transaction took place and the order of transactions) but opaque to those not party to the trade or the appropriate regulators under the relevant circumstances.

From The Transparency Machine | 15Mb.

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In the world of ambient accountability, whether it is Wirecard, Enron, Tether or anyone else, nobody will be required to rely on the word of auditors because they can simply calculate for themselves whether the company is solvent or not. No more relying on tips and whispers to find out whether the money in some remote bank account is sufficient to cover the liabilities in other jurisdictions: cryptographic proofs will replace auditing and apps will replace auditors.

From Most Blockchain Pitches I Hear Make No Sense, Yet I’m Sure That Blockchain Will Transform Business.

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“Credit cards are one of the most expensive means of payment for merchants,” said Luciana Brasil, a partner at Vancouver-based law firm Branch MacMaster LLP, which worked on the class-action lawsuit that led to the settlement.

Canadian merchants may see rebates after fee settlement with Visa, MasterCard deal
Customers love paying with cards because “they get their points, their rebates, their benefits,” she said, “but they rarely ask themselves who’s paying for that.

“In reality, the more benefits those credit cards give the consumer, the more expensive they are for the merchant to accept them.”

From Paying with a credit card? Expect to see a fee when you shop under new rules that start now.

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Meta said in a statement the company was “confident that the metaverse is the future of computing and that it should be built around people”.

From Zuckerberg’s metaverse rush pauses for ‘quality lockdown’ | Financial Times.

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