Snippings

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Competition from fintechs and Big Tech companies such as Amazon, Apple, Facebook, Google and Walmart is “here to stay” and banks must get more aggressive to handle the threat, Dimon said.

From 6 takeaways from Jamie Dimon’s letter to shareholders | American Banker:

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In addition to announcing public preview of the Azure AD verifiable credentials platform, we’re excited to share with you a new solution based on this approach. Usually, highly regulated interactions, such as pre-employment checks or applying for a loan, are expensive and time-consuming. Microsoft is partnering with industry leading identity verification service providers to make it possible to verify an identity once and present it to anyone.

From Announcing Azure AD Verifiable Credentials – Microsoft Tech Community.

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This was one of the first blog posts I ever wrote. It was originally published on the Tomorrow’s Transactions blog at Consult Hyperion on 1st March 2006 and was eventually re-written into a subsection for my book “Before Babylon, Beyond Bitcoin”. I was reminded of it because of a tweet from Mike Chambers and I though that since it’s now 15 years (!!!) since I wrote it, it would be a fun piece to report as an experiment here on LinkedIn. Anyway, here it is with a couple of small edits to adjust for the times.

I’m very interested in the history of the card business, because I can’t help but feel that an understanding of how it got to where it is should provide some insight into where it is going next, so I am always on the lookout for old references to non-cash retail payments. In particular, I’m always curious about the first reference to the credit card in literature. The oldest I’ve found so far is in a long-forgotten text from 1886 called
“Looking Backward, 2000-1887” by one Edward Bellamy. I picked up a 1947 edition from the Amazon marketplace, which suggests it must have been reprinted a few times. Indeed, the dust jacket claims it to be one of the best selling utopian fantasies of all time.

It’s a fairly standard “guy falls asleep under hypnosis and awakes 114 years later to find a model society, then finds it’s all a dream” kind of book. It’s difficult to read with modern eyes, because the
perfect society that Bellamy imagines is a communist superstate that looks like Disneyland run by Kim Il Sung. The central conceit is “the industrial corps”. Everyone is drafted into the army, essentially, but the army runs the factories instead of fighting wars. Since everyone works for the government, and since government planners can optimise production, all of the “inefficiency” of the free market can be removed. If I accidentally put it next to my copy of Hayek’s “The Road to Serfdom” , I imagine the tomes would immediately be annihilated in a burst of pure energy.

Yet the book has special place in my canon because the time-traveller is told by his host, the good Doctor Leete (who has a daughter called Edith: E. Leete, geddit?), that there is no such thing as cash in the year 2000. Instead, he says, the populace use “credit cards”. He then goes on to describe what are in fact offline pre-authorised debit cards (which ruined the book for me: to a payments nerd that’s as big a blunder as the highlanders wearing kilts was in
Braveheart to, well, anyone really). Hey, if someone can run a web site complaining about typographical mistakes in movies , I think I’m going start my own version of Movie Mistakes called Money Mistakes.

Anyway, an amount is taken from your account (there’s only one bank, of course, and that’s run by the government too), and you are given a card that is good for that amount. Shops accept this card in payment: Dr. Leete explains how they are used at the point-of-sale (POS):

“The value of what I procure on this card is checked off by the clerk, who pricks out of these tiers of squares the price of what I order”.

That’s a pretty imaginative prediction a generation before the Western Union charge card. In fact, given that Bellamy failed to predict television, computers, airplanes and the knowledge economy, he makes a couple of other really insightful predictions about the evolution of money. When talking about an American going to visit Berlin, the future sage notes how convenient it is to use cards instead of foreign currency:

“An American credit card,” replied Dr. Lette, “is just as good as American gold used to be”.

He also reflects on the nature of the currency itself (anticipating the end of the Gold Standard and the post-Bretton Woods world) by saying that:

‘“You observe,” [Dr. Lette] pursued as I was curiously examining the piece of pasteboard he gave me, “that this card is issued for a certain number of dollars. We have kept the old word, but not the substance. The terms, as we use it, answers to no real thing, but merely serves as algebraical symbol for comparing the values of products with one another.”’

The most fascinating question on the topic comes later in the book, when Edward asks his 21st century host

‘“Are credit cards issued to the women just as to the men?”

and is told

“Certainly.”

This is a wonderful example of how science fiction isn’t really about the future, but about the present: the retort “certainly” is clearly intended to surprise the Victorian reader as much as the glass tunnels that surround pavements when it rains.

So are we on track to Edward’s payment utopia? Actually, we may be, now that the Peoples Bank of China has launched a digital currency that can be used offline with mobile phones or contactless smart cards.

An outage of several hours at Microsoft’s Azure cloud operation, which affected services such as its Teams workplace collaboration platform and Xbox Live, occurred just a few days after news of Microsoft’s $22 billion deal with the U.S. Army for 120,000 AR headsets, supplemented by Azure. Reports suggest that the cloud component is the biggest part of that deal, which does make me wonder (again) about World War III and the movies we will be watching in the future. I can picture it now! A group of highly trained US troops move across a battlefield in the dead of night

The enemy troops are not really there, of course, and the US troops are actually shooting each other because an intelligent and technologically-aware adversary has attacked the cloud service powering the troops AR headsets rather than bothering to go to the expense and inconvenience of training and deploying actual human beings (or even drones) to the theatre of conflict.

China’s “belt and road” initiative is quite an interesting area to explore. The World Bank has estimated that belt and road projects in transportation alone will increase trade in the recipient countries by somewhere between 3% and 10% and, as we all now, increased trade means increased prosperity. Thus just these project by themselves with raise 30+ million people out of moderate poverty.

I had intended to write to our Prime Minister and suggest that we counter “belt and road” with a British-led “belt and braces” initiative, but fortunately the US has begun to react. The US Council on Foreign Relations (CFR), which is an influential Washington think-tank, recently published a detailed report on “China’s Belt and Road: Implications for the United States” which notes that the Belt and Road Initiative (BRI) creates “significant risks for the United States’ economic and security interests” and recommends that the United States should respond by first becoming more competitive with China.

This appears to be happening. As part of his plan to create an alliance of democracies to counter China’s growing power, President Biden proposed to Prime Minister Johnson that the west begin setting up a rival infrastructure effort. This turned into the “Build Back Better World” scheme (B3W) announced at the June G7 summit in UK. The scheme doesn’t have an actual budget as far as I can see, and it has only the vaguest goals.

But I wonder if fintech might be able to contribute here?

Infrastructure doesn’t only mean bridges and airports, it also means financial inclusion and trade.

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“Anything that threatens the dollar is a national security issue. This threatens the dollar over the long term,” Josh Lipsky of the Atlantic Council told the Wall Street Journal, in a feature that described the digital yuan as “a re-imagination of money that could shake a pillar of American power.”

From Will China’s new digital yuan threaten King Dollar’s reign? – MarketWatch:

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U.S. policymakers, convinced of the dollar’s enduring role as the dominant global reserve currency, fail to see that digitization may rebalance reserves enough to secure China greater influence in Asia and endow the People’s Bank of China with new advantages. China does not need global reserve status to realize the benefits of increased reserves within the region. It will gain many of the accompanying geopolitical and economic benefits—exerting greater control over neighbors, bolstering Chinese companies in competing markets, and damaging regional U.S. interests—by simply expanding adoption within the current yuan bloc.

From Digital Currencies: A Building Bloc for Chinese Regional Power? | The National Interest:

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Morgan Stanley’s chief economist Chetan Ahya and his colleagues entitled an April 19 report “Digital Disruption: The Inevitable Rise of CBDC.” They observe:

“Even though central banks will try not to disrupt the banks, CBDC accounts will increase competition for customer deposits.
“Direct access to central banks will allow tech-enabled non-banks to offer payment services and digital wallets, capturing customer transaction data in the process.
“In combination with advances in AI, big tech will be able to use transaction data for credit assessment and cross selling.
“In the most disruptive case, banks lose deposit base, credit creation needs to be funded wholesale or by central bank.”

From China’s digital yuan displaces the dollar – Asia Times.

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Many developing countries lack 

My good friend Jim Marous wrote about this in the Financial Brand recently. He was interviewing Hossein Rahnama, CEO of Flybits, who said that “In the past, you would go to your local branch to deposit a check. In the future, you may still go to your local branch, but you’re going to deposit your sensitive data. You won’t give up the data. The data will belong to you as the deposits were owned by you, but the bank now has the responsibility to manage that data on your behalf”.

I couldn’t agree more. Back in 2014, I wrote a book called “Identity is the New Money” in which I said that 

 

 

So, I definitely see that banking institutions are in a perfect position to play this role if they innovate right. They can be the perfect data vaults for managing the privacy and also the data of their customers on their behalf, and use that data to drive healthier behavior in their community.

 

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Mark Cuban

likes Ethereum, but it’s for a very different reason than why he likes bitcoin. He thinks ether is the closest coin to being a digital currency because of the smart contracts that run on the Ethereum blockchain. CNBC explains that smart contracts are collections of code that follow certain rules while running on the blockchain.

Cuban said smart contracts changed everything by creating decentralized finance and nonfungible tokens. He added that the technology is why he is excited about cryptocurrency and why he thinks it is “a lot like the internet.”

From Mark Cuban sees bitcoin as better than gold, likes Ethereum:

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This also leads to the problem of front-running, the illegal practice of purchasing a security. Once a DEX transaction is broadcast to the network, even before it’s included in a block, it’s possible that another user, or more commonly, a bot, will spot the same opportunity. They swoop in, bid a higher gas price so that a miner will include their transaction in a block first, and take the profit away from the trader.

From En Crypto: Ethereum´s Privacy and Front-Running Challenges and How Zero-Knowledge Proofs Can Solve it:

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Ng said that checks with other e-hailing groups found that the culprit had registered fake accounts on e-hailing apps to approach drivers and lure them with supposed long-distance trips.

From 10 e-hailing drivers conned by same man | The Star:

Now, when you look at the details, this is quite a clever scam and I can’t help but admire clever scams just as I admire other kinds of clever business ideas. But the specifics of the fraud (which was about using the mark’s account to buy credits for mobile gambling) aren’t important. The general point is this: virtually all of the “payment” scams that I read are actually identity scams.

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Official data show the nation’s mobile payment platforms, led by Alipay, reported Rmb295tn ($45.2tn) in transactions last year. That compared with Rmb117tn for bank card purchases in the same year

From Jack Ma’s Ant demands bigger fees to rebuild valuation after pulled IPO | Financial Times:

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