Snippings

I couldn’t help but notice a heartfelt plea from someone on Twitter looking for quarters to put in a coin-operated laundry machine in America.

today i walked to 6 banks trying to get quarters so i can do my ****ing laundry. only @WellsFargo had quarters and they only gave them to people who had accounts. they denied me at the door. how are renters supposed to clean their clothes during a national coin shortage?

— Erin Nelson | femmes can be thems (@erin_k_nelson)

July 6, 2020

It may seem surprising to many people that you still need coins for this sort of thing because the costs of messing around collecting coins and so forth would surely direct laundromat owners to upgrade to contactless or something. But then I remembered that when the US government was considering changing their coins a few years ago, these owners were most reluctant to spend any money on updating their machines, so perhaps they need a much stronger business case to put transactions on the books.

I’m so curious about this particular payments use case because way back in 1999, I wrote up a case study on laundromats for the sadly long-gone
Financial Times Virtual Finance Report. I’ll reproduce part of it here, slightly edited for brevity:

There was one area where Mondex and VisaCash [electronic cash pilot schemes] were received warmly and that was in coin-operated washing and drying machines. These accounted for almost one third of total card usage. This illustrates an interesting trend not only in New York, where the Clean Rite chain has gone over to smart cards, but in the U.S. (the world’s most supposedly most smart card-unfriendly market) as a whole. Mac-Gray Corp recently announced that it will convert half of the 105,000 laundry machines that it has in apartment buildings and college dormitories to smart cards. At every level, the installed base is increasing: Laundromax, for example, already has three smart card-based laundry outlets in Florida and plans to open 20 more such outlets this year.

I can remember calling up some of the people involved in these chains as part of some work I was doing for NatWest and being really surprised to learn that the main element of the business case was not (as I had imagined) the cost of machines getting jammed or the cost of coin collection but the increased sales through the differential pricing. Turned out that the business case was very sensitive to utilitisation, so the ability of digital money to support differential pricing was by far the most important factor in moving them away from coins.

Super Wash, a laundry chain based in the southwestern U.S., has gone the same way. The e-purse has freed the company from fixed prices and quarter increments. Vending machines now load e-purses for use in the laundry machines. With the purses, Super Wash charges $1.89 for a family-size load (drying included) and offers large discounts on washes between midnight and 6 a.m. The discounts have raised the number of loads each machine handles daily to nine (double the industry norm) generating on average 50% more revenue per location. With no coin slides to jam, Super Wash has reduced maintenance costs by 70% and slashed machine downtime (a jammed machine generates no revenue). Super Wash downloads transaction data from the laundry machine readers every few weeks and then mines the data to see, for example, how the placement of machines affects revenues.

What really did puzzle me though, as a deputy under-assistant junior consultant, was why were the operators of the laundromat were prepared to spend between $30K and $60K per outlet (yes, sixty thousand dollars per outlet) on installing something for which the banks ultimately decided there was no business case. Or, to put it another way, how could the members of the U.S. Coin Laundry Association afford to issue cards (at a cost of $3–$5 each) when banks couldn’t see a reason to. Why, I wondered, weren’t the banks actively pushing them into the marketplace to displace cash? Why did people think that there was no real demand for a physical cash substitute, nor any profit to be made from providing it when the folks at Super Wash in Phoenix (who paid $35,000 for the equipment to convert their outlet to stored–value smart cards) and the folks at Schlumberger Danyl (who sold it to them) could clearly see the way forward.

The answer probably had something to do with bank channels into the marketplace. The digital money of the 1990s was marketed like a card product, managed like a card productnand taken to market like a card product. The impact of this was that the products pushed into the market through inappropriate channels. In particular, since the card services departments of banks have had primary relationships with merchants for whom they acquired credit and debit card transactions, they relied on the same relationships for electronic cash acceptance. This explains why in the pilot schemes consumers were able to go into a bridal wear shop and buy a wedding dress with digital currency (which, unsurprisingly, none of them ever do) but could not use that same currency in the parking meter outside the shop.

So what are the appropriate channels? Looking back, the experience of laundries in the US, car parks in Leeds and vending machines in Brussels demonstrated a quarter of a century ago that digital cash has a competitive advantage at unattended points of sale. But banks back then didn’t acquire from unattended points of sale: they didn’t have any relationship with train station parking meters, chocolate bar machines on Underground platforms or drinks dispensers in corporate headquarters. In time, though, they did: and as telecommunications costs fell the debit card took up the slack.

Now you can’t even use debit cards at the car park at my local station. They never went to contactless, they went to contact-free.

So, what does all of this tell us about how Digital Sterling (e£) should work?

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Mobile phone shops are fuelling a rise in bank fraud by selling multiple Sim cards without conducting any identity checks, a Money investigation has found.

How phone shops fuel the Sim swap crimewave | Money | The Sunday Times:

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The thought of having to go for four days without readily available cash shocked Americans. Around the country, businesses began issuing IOU-style notes or ersatz dollars—often called scrip currency—in the form of metal or wooden tokens so that everyday transactions could continue even when retailers couldn’t easily issue change to customers. In Pismo Beach, however, locals turned to a different resource: the shells of the Pismo clam, a large, edible clam once plentiful in the coastal waters of central California.

Clamshell Currency | Hakai Magazine:

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Here is my firm prediction based on 23 seconds of detailed reflection. They should have forgotten about cards and gone for app implementing RTP, a pan-European iDEAL with knobs on. Competiing with cards in places where cards work well (ie, shops) is a waste of energy. Go after the places where cards are not optimal: mobile and online, person-to-person. In which case, what’s the point of using cards?

This reminds me of that time when Europe decided to implement the best possible offline payment system at the exact moment that the whole world was going online. Card fraud was UP again last year. The only solace for Europeans is that they’ve managed to send a lot of it to America (the US is a fifth of the volume but a third of the fraud).

Cards? What is the point? We’re not going contact-less, we are going contact-free! If you want to inspire European super-apps and super-ecosystems around them, then you need to give them a new plaform. Here’s my three point plan:

1. Digital identity (with privacy-enhancing architecture)
2. Digital currency (peer to peer, no clearing or settlement)
3. Request-to-pay (push payments only, no pull)

https://buff.ly/2ZufOQv

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Walt Disney World to become twin town of Swindon

BBC News – Walt Disney World to become twin town of Swindon:

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Ride-hailing app Didi Chuxing has signed on to trial China’s central bank digital currency on its transportation platform.

From Ride-hailing app Didi tests China’s digital currency:

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Research Discussion Paper

RDP 2018-12

 

 

Where’s the Money‽
An Investigation into the Whereabouts
and Uses of Australian Banknotes

Richard Finlay, Andrew Staib and Max Wakefield

 

 

The techniques that we
employ suggest that, of total outstanding banknotes: 15–35 per cent are used to facilitate legitimate
transactions; roughly half to three-quarters are hoarded as a store of wealth or for other purposes,
of which we can allocate 10–20 percentage points to domestic hoarding and up to 15 percentage
points to international hoarding; 4–8 per cent are used in the shadow economy; and 5–10 per cent
are lost.

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. A new forecast from International Data Corporation (IDC) estimates that there will be 42 billion connected IoT devices, or “things,” generating 80 zettabytes (ZB) of data in 2025

From The Growth in Connected IoT Devices Is Expected to Generate 79.4ZB of Data in 2025, According to a New IDC Forecast:

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We’ve just had an important anniversary. I’m sure you are all thinking of July 4th and, of course, who can forget it! It’s a date that is very important to many people because it is the anniversary of the birth of The Clash, who played their first live gig on 4th July 1976. But for me, there is a much more important and personal anniversary. Here is the front page of the Swindon Evening Advertiser from 4th July 1995, the day I finally made the front page of my home town newspaper. Got to see my picture on the cover, got to buy five copies for my mother…

 

Yes, I was there on 3rd July 1995 in Swindon town centre when the Swindon Evening Advertiser vendor Mr. Don Stanley (then 72) made the first ever live Mondex sale. And here is the photographic evidence of same — in case you don’t happen to have copy of that Swindon Evening Advertiser (which I had delivered as a boy, buy the way) — as I emerge Zelig-style from the crowd to watch Don take the e-cash. It was a very exciting day because by the time this launch came, my colleagues at Consult Hyperion had been working on the project for some years (and for the first three or four years it was entirely in secret).

So for those of you who don’t remember what all of the fuss was about:
Mondex was an electronic purse, a pre-paid payment instrument based on a tamper-resistant chip. This chip could be integrated into all sorts of things, one of them being a smart card for consumers. Somewhat ahead of its time, Mondex was a peer-to-peer proposition. The value was transferred directly from one chip to another with no intermediary and therefore no cost. In other words, people could pay each other without going through a third party and without paying a charge. It was true cash replacement, invented at National Westminster Bank (NatWest) in 1990 by Tim Jones and Graham Higgins. Swindon had been chosen for the launch because, essentially, it was the most average place in Britain. Since I’d grown up there, I was rather excited about this, and while my colleagues carried out important work for Mondex (e.g., risk analysis, specification for secure transfer, multi-application OS design and such like) I watched as the fever grew out in the West Country.

 

Many of the retailers were quite enthusiastic because there was no transaction charge and for some of them the costs of cash handling and management were high. I can remember talking to a hairdresser who was keen to get rid of cash because it was dirty and she had to keep washing her hands, a baker who was worried about staff “shrinkage” and so on. The retailers were OK about it. For example here’s a quote from news-stand manager Richard Jackson: “From a retailer’s point of view it’s very good but less than one per cent of my actual customers use it. Lots of people get confused about what it actually is, they think it’s a Switch card or a credit card”. That’s if they thought about it all.

It just never worked for consumers. It was a pain to get hold of, for one thing. I can remember the first time I walked into a bank to get a Mondex card. I wandered in with 50 quid and had expected to wander out with a card with 50 quid loaded onto it but it didn’t work like that. I had to set up an account and fill out some forms and then wait for the card to be posted to me. Most normal people couldn’t be bothered to do any of this so ultimately only around 14,000 cards were issued.

So, why I am wallowing in this nostalgia again? Why do I think more people should be celebrating the Mondex Silver Jubilee? Well, look East, where the first reports have appeared concerning the Digital Currency/Electronic Payment (DC/EP) system being tested in four cities: Shenzen, Chengdu, Suzhou and Xiong’an. DC/EP is the Chinese Central Bank Digital Currency (CBDC).

with the kind permission of Matthew Graham @mattysino

The implementation follows the trajectory that I talk about in my book The Currency Cold War, with the digital currency being delivered to customers via commercial banks. The Deputy Governor of the People’s Bank of China, Fan Yifei, recently gave an interview to Central Banking magazine in which he expanded on the “two tier” approach to central bank digital currency (CBDC). His main points were that this approach, in which the central bank controls the digital currency but it is the commercial banks that distribute it, is that is allow “more effective exploitation of existing business resources, human resources and technologies” and that “a two-tier model could also boost the public’s acceptance of a CBDC”. 

He went on to say that the circulation of the digital Yuan should be “based on ‘loosely coupled account links’ so that transactional reliance on accounts could be significantly reduced”. What he means by this is that the currency can be transferred wallet-to-wallet without going through bank accounts. Why? Well, so that the electronic cash “could attain a similar function of currency to cash… The public could use it directly for various purchases, and it would prove conducive to the yuan’s circulation”. How will this work? Well, you could have the central bank provide commercial banks with some sort of cryptographic doodah that would allow them swap electronic money for digital currency under the control of the central bank. Wait a moment, that reminds me of something because… yep, that’s how Mondex worked.

 

That was the big difference between Mondex and other electronic money schemes of the time, which was that Mondex would allow offline transfers, chip to chip, without bank (or central bank) intermediation. Offline person to person transfers. Just like cash. That’s huge. Libra can’t do it, and never will be able to because, like Bitcoin, it needs to be online to check for “double spending”.

Mondex was a window into the future of money.

That’s why this week’s special Tomorrow’s Transactions Webinar is a Mondex reunion! Tim Jones, one of the co-inventors, will be joining us along with Debbie Gamble who was head of Mondex North America and a couple of other friends to reminisce and have a bit of fun but much more importantly, to talk about the lessons learned from that incredible experiment and to share ideas for the coming generation of digital currency regulators, innovators and entrepreneurs.

Those who cannot learn from history are doomed to repeat it!