Snippings

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This fast-paced economics involves three big changes. First, it draws on data that are not only abundant but also directly relevant to real-world problems. When policymakers are trying to understand what lockdowns do to leisure spending they look at live restaurant reservations; when they want to get a handle on supply-chain bottlenecks they look at day-by-day movements of ships. Troves of timely, granular data are to economics what the microscope was to biology, opening a new way of looking at the world.

Second, the economists using the data are keener on influencing public policy. More of them do quick-and-dirty research in response to new policies. Academics have flocked to Twitter to engage in debate.

And, third, this new type of economics involves little theory.

From Enter third-wave economics | The Economist:

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The startup is trying to build a network of users for its cryptocurrency, dubbed Worldcoin, by promising people free cryptocurrency in return for scanning their eyes with a special device aimed to verify their identity.

From Charting FTX’s Rapid Rise in Valuation; Worldcoin Is Already a Unicorn — The Information:

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Here in the UK the Treasury has been undertaking a Payments Landscape Review that sets out some high level aims for the sector. One of these is to unlock open banking-enabled payments safely and securely to to allow consumers to pay for goods and services both in store and online directly from accounts. They expect that this will provide an alternative to credit and debit cards, creating competition for the existing infrastructure and players to give consumers and businesses more choice between payment mechanisms. It will also (and personally I am more interested in this agenda) create new opportunities for fintechs to build a new generation of payment products (ie, rather than attempting to emulate 70 year-old card products that combine authentication, authorisation, credit, convenience, cash replacement and so on in a single bundle).

I’m not smart enough to know exactly what these products will be, but I can see the retailers and others are looking to develop and evolve their apps and wallet products and that account-based payments can find a home with them. Rita Liu, formerly of Alipay and now of Mode (and someone with a deep understand of payment innovation), links open banking and QR codes by saying that “QR codes can revolutionise the front end as they have in the East, while Open Banking can revolutionise the back end”. This is a characteristically accurate analysis of the opportunities for bringing added value to merchants. As she highlights, the direct flow of information between consumers and merchants creates a simplified, cost-effective value chain, and it can transform merchants’ relationships with their customers by leveraging data to offer a truly personalised experience. This is precisely what Australia’s domestic debit network Eftpos hope to achieve with their launch of the eQR service. It has signed up Commonwealth Bank, National Australia Bank, Azupay, Beem It and Merchant Warrior to support the rollout of the new platform. It also has the biggest retailers on board, Coles and Woolworths, As with other retailers, one of the attractions for such chains is that their app can combine payments, loyalty and spend tracking in one and a simple quick QR scan is all that is needed to get everything done.

The A2A back end for these new propositions is coming together. As McKinsey point out, the introduction of applications capitalizing on instant payments infrastructure in recent years (such as PhonePe and GooglePay in India, PayNow in Singapore) has driven growth and sharpened competition between national and regional solutions and the global schemes. A good illustration is the building of the European Payments Initiative (EPI) that exploit the Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT Inst) scheme for point of sale as well as online usage.

The US is moving forward as well. Plaid is making a move into this space with a set of strong payment partners in North America and Europe — including Square, Dwolla and Currencycloud (recently acquired by Visa) — that will integrate Plaid into their processing systems for payments direct from bank accounts. This means we will soon see “pay from your bank account” options being presented by merchants, billers and wallets. Those organisations would present this alongside conventional payment card options, option alongside other payment methods, such as credit or debit cards. I can imagine, however, that many organisations will start tender steering toward this lower cost, more secure option: It won’t be long before merchants are offering double points or whatever to encourage consumers to send money directly from their bank account to the merchant’s bank account.

Not Good Enough

I think the emergence of direct from accounts alternatives to card is an important evolution in retail payments. Driving down the cost of payments and reducing the margins available across the value chain is a good thing. Here’s one reason why: credit cards are unfair. Joanna Stavins, a senior economist and policy adviser at the Federal Reserve Bank of Boston is the co-author of a recent paper from that looked at the cost of credit card rewards and, as she notes, central to the dynamics of their use is that consumers who use credit cards “tend to be cross-subsidized by consumers who use cash or debit cards”.

This is true in the UK as well The government banned credit and debit card surcharges back in 2018, which was great news for me because now I can use my premium cashback rewards card everywhere. Until January 2018, when I had used premium card to book a flight, I had to pay a credit card surcharge. I didn’t mind paying the surcharge because I want the protections that the use of credit cards give me as a consumer and also because I wanted the frequent flier points I get for using this card. Now I get all this stuff for free, and less well off people who can’t afford the annual fee for the premium card are subsidising my free flights to all points of the compass. Thank you, Mrs. May!

Open banking payments are about to get another boost here because of what is known as Variable Recurring Payments (VRP). VRPs allow customers to safely connect authorised third parties to their bank account so that they can make payments on the customer’s behalf (within agreed parameters). Mike Kelly, who was the product lead for VRP, says that they have “huge potential to revolutionise finance” and he is absolutely correct. Right now, if I want to allow a supermarket to push money from account to their account (via their wallet app, for example) then I have to authorise each transaction individually. Doing this through some sort of request-to-payment mechanism is a very good solution in many circumstances (eg, a monthly subscription payment to a gym that keeps trying to charge you even though you cancelled months ago) but it’s not a good solution when you are standing at the checkout in the same supermarket that you have shopped at twice a week for the last decade.

With major players such as Plaid pushing forward the ecosystem, it won’t be long before the decade-old dreams of MCX (the failed multi-retailer attempt to oust the networks a few years ago) are a a reality and your supermarket QR-driven wallet will first give you the option of paying from your bank instead of via a credit of debit and then pretty quickly moves on to put this top of the list and offer you double points for paying that way. People who say that the current payment systems work just fine are just plain wrong, but it seems to me that open banking rather than cryptocurrency will provide an opportunity to make them better.

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A retail CBDC is, in principle, an attractive proposition. But given the system currently in place and the prospects for its near-term evolution, a retail CBDC on its own is, in my opinion, not an essential initiative at this point in time. For consumers, a retail CBDC would mostly replicate what they already have available. As such, the initiative is not likely to attract business away from private-sector PSPs or serve to discipline private-sector pricing protocols and rewards programs. For a CBDC to be successful in this regard, legislation (or moral suasion) designed to alter private-sector marketing behaviour is likely required. But if such legislation were forthcoming, the rationale for a retail CBDC is even further diminished. On the other hand, a wholesale CBDC (together with legislation governing pricing protocols) seems like the most straightforward way to promote competition and fairness in the Canadian payments system. While I see no reason why a CBDC could not work in principle, I also do not see why it is essential in practice. It probably makes more sense to let the Bank of Canada focus on its core competencies — monetary policy, regulation and wholesale payments — and let a regulated private sector manage retail payments.

From Does Canada need a central bank digital currency? FON Commentaries. Vol. 2, No. 12– Finances of the Nation.

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As anyone with an interest in fintech and the future of money has been doing, I have been following the development of what was Libra and is now Diem with some interest.

I was listening to the “Pomp” podcast in which he interviewed David Marcus, who leads Facebook’s financial services drive. It was an interesting discussion but I was surprised when at one point in the interview Mr. Pompliano says that he thinks that people have underestimated the importance of the wallet. I have certainly never fallen into this category and my analysis of the launch of Facebook’s “Libra” initiative, as it was initially called, was that the play was all about the wallet: the day that it was announced I said that “identity is at the heart of the Libra proposition, if you ask me“.

 

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Mr. Marcus, 48, a longtime Silicon Valley executive in payments and digital finance, worked on many projects during his seven years at the social media company. Most recently, he spearheaded Meta’s push into a global digital currency that could be used by Facebook and WhatsApp users to transmit payments across borders. The project, initially called Libra, was later rebranded Diem after facing pushback from regulators.

From Head of Meta’s Crypto Efforts, David Marcus, Is Leaving the Company – The New York Times:

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David Marcus (the executive who drove the initiative) has now left Facebook, work continues.

 

Writing in the Harvard Business Review, Christian Catalini (the Chief Economist of the Diem Association) and Jai Massari suggest that CBDCs and private-sector stablecoins are strong complements, not substitutes. This makes a lot of sense to me. Their view that the public sector could focus on issuing digital coins while the private sector builds rails and applications is practical, and as they point out, competition with legacy networks (rather than building on top of them) would ensure a better resilience and more innovation.

 

I noticed that, for example,

 

Today Facebook’s Novi announced a ‘small’ pilot of its digital currency wallet in Guatemala and most of the United States. The initial phase will use the Paxos stablecoin rather than Diem, which Facebook founded in 2019 but has not yet received regulatory approval. Coinbase is providing custody.

 

From Facebook’s Novi wallet launches pilot with Paxos stablecoin not Diem – Ledger Insights – enterprise blockchain.

 

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Facebook has launched a long-awaited pilot of its digital currency wallet Novi in the US, but has chosen to use the Paxos Dollar stablecoin after its own cryptocurrency Diem failed to get backing from regulators.

From Facebook launches digital currency wallet Novi | Financial Times.

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Paxos has positioned itself as a more responsible currency, and received “preliminary conditional approval” for a US bank charter from the Office of the Comptroller of the Currency in April.

 

one feature being trialled only in Guatemala, is the ability to exchange the wallet amount for physical cash.

 

 

There was an immediate reaction from politicians, with Democrat 

Senate Democrats called on Facebook to end its digital wallet and cryptocurrency project in a letter to chief executive Mark Zuckerberg Tuesday, saying that the company “cannot be trusted to manage cryptocurrency.”

From Senators call on Facebook to shelve Novi cryptocurrency project – The Verge.

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SEATTLE–(BUSINESS WIRE)–Remitly Global Inc. (NASDAQ: RELY), a leading digital financial services provider for immigrants and their families, today announced a partnership with Novi, a next generation digital wallet. To support its pilot launch, Novi is leveraging Remitly’s custom-built global network to enable cash pickup in Guatemala. Remitly’s global payments network spans over 1,700 corridors, serving customers in 17 countries, sending to over 115 receive countries.

From Remitly Announces New Partnership With Novi For The Pilot Of Its Digital Wallet | Business Wire.

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If you have two-factor authentication on, you will usually get a verification code sent to your phone in order to get into your accounts. That authentication process is the reason most hackers will SIM swap, because it’s an easy way to get into people’s email and bank accounts once they have the phone number.

From The FCC wants to stop this form of identity theft | Popular Science.

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In the wake of a failed takeover by Visa, open banking platform Plaid is making a move into account-to-account payments.

The firm has put together an ecosystem of payment partners in North America and Europe – including Square, Dwolla and Currencycloud – that will integrate Plaid’s connectivity technology into their processing systems for bank payments.

This means that companies can add a pay-by-bank option at checkout, with the funds transfered by the ecosystem partners.

From Plaid launches A2A payments programme.

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Ian Bremner, writing in Foreign Affairs, says the most important question in geopolitics today might be whether countries that break up or clamp down on their biggest technology firms (see, for example, what has been happening in China) also be able to seize the opportunities of the digital revolution’s next phase. It is certainly reasonable ask how the dynamism of Big Tech might be used to the advantage of society while society retains some form of control.

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To understand how the struggle for geopolitical influence between technology firms and governments will play out, it is important to grasp the nature of these companies’ power. The tools at their disposal are unique in global affairs, which is why governments are finding it so hard to rein them in. Although this isn’t the first time that private corporations have played a major role in geopolitics—consider the East India Company and Big Oil, for example—earlier giants could never match the pervasive global presence of today’s technology firms. It is one thing to wield power in the smoke-filled rooms of political power brokers; it is another to directly affect the livelihoods, relationships, security, and even thought patterns of billions of people across the globe.

From How Big Tech Will Reshape the Global Order.

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Even with these limitations, however, true stablecoins have utility as a medium of exchange. They would be optimized for efficiently moving value as opposed to storing value or earning interest. Their cost structure makes them viable when their coin velocity is high and can support a large volume of payments with a small reserve.

From Stablecoins and the Future of Money:

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