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Aussie CDR

The BIS Annual Review for 2019 touches on this, noting that “Another, newer type of risk is the anticompetitive use of data. Given their scale and technology, big techs have the ability to collect massive amounts of data at near zero cost. This gives rise to “digital monopolies” or “data-opolies”.

The BIS go on to warn that big techs can exploit market domination to engage in price discrimination and extract rents. An example given is that they may use their data to identify the highest prices that customers will pay for different financial services. The concern stems from that fact that price discrimination does not just have distributional effects (ie, raising big techs’ profits at customers’ expense without changing the overall amounts produced and consumed) but could also have adverse economic and welfare effects. 

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The instruments of trade and finance are inventions, in the same way that creations of art and discoveries of science are inventions—products of the human imagination.

From The Invention of Money | The New Yorker.

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But, above all, there will be money to be made from the data generated by all these transactions; after all, data is currency, too.

From Facebook’s Audacious Pitch for a Global Cryptocurrency | The New Yorker.

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US and European banks are steering clear of Libra, Facebook’s project for a new cryptocurrency, for fear of antagonising regulators and cannibalising their own digital currency projects

From Banks in no rush to join Facebook’s crypto project | Financial Times.

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These problems have three remedies. First, governments need to ensure that central banks’ monopoly over coins and notes is not replaced by private monopolies over digital money. Rather than letting a few credit-card firms have a stranglehold on the electronic pipes for digital payments, as America may yet allow, governments must ensure the payments plumbing is open to a range of digital firms which can build services on top of it. They should urge banks to offer cheap, instant, bank-to-bank digital transfers between deposit accounts, as in Sweden and the Netherlands. Competition should keep prices low so that the poor can afford most services, and it should also mean that if one firm stumbles others can step in, making the system resilient.

Second, governments should maintain banks’ obligation to keep customer information private, so that the plumbing remains anonymous. Digital firms that use this plumbing to offer services should be free to monetise transaction data, through, for example, advertising, so long as their business model is made explicit to users. Some customers will favour free services that track their purchases; others will want to pay to be left alone.

Last, the phase-out of cash should be gradual. For a period of ten years, banks should be obliged to accept and distribute cash in populated areas. This will buy governments time to help the poor open bank accounts, educate the elderly and beef up internet access in rural areas. The rush towards digital money is the result of spontaneous demand and innovation. To pocket all the rewards, governments need to prepare for the day when crumpled bank notes change hands for the last time.

From Rich countries must start planning for a cashless future – The dash off cash.

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The Bank of England’s excellent report on the future of finance, released earlier this year, has plenty to say about the Bank’s role in that future. To help finance serve the digital economy, the Bank should:

1. Shape tomorrow’s payment system

   Our payment habits are shifting as we increasingly use our cards, phones and electronic wallets instead of cash. The underlying infrastructure will need to adapt to these changes. As these payment habits shift, we need a national payments strategy to improve our payments infrastructure and regulation. Bearing in mind what has happened in Sweden, where the slide into ceaselessness was not planned, we need a strategy which doesn’t leave anyone behind.

   This isn’t, of course, about the technology. Regulation also needs to be updated to reflect how risks are shifting within the payments system and to reduce complexity of that system.

2. Enable innovation through modern financial infrastructure

   The next generation of financial firms will likely widely use public cloud technology. Firms should be able to benefit from the agility, cyber-security and platform for innovation that this technology offers. If they are to do this, then less costly and more reliable digital identification (my emphasis) will be essential to harness the benefits and opportunities of the digital economy for UK households and firms.

3. Support the data economy through standards and protocols

   Financial services’ use of data is already highly regulated, but businesses, policymakers and regulation have to keep pace with new techniques and alternative data sets. In particular, automated decision-making based on machine learning is one of the most important trends in technology today and will become widespread in financial services. Ensuring artificial intelligence (AI) is used responsibly will be an important task. The responsible, explainable and ethical use of machine learning/AI will be important to achieve.

4. Champion global standards for finance

   Emerging markets will likely play an ever greater role in the international economy and global financial system as they continue to grow (faster than advanced countries) and open up their economies. The Bank needs to work intensively with others to create, develop and implement the global standards and deep supervisory co-operation that are crucial to ensuring open and resilient international financial flows.

5. Promote the smooth transition to a low carbon economy

   Climate change poses risks to financial stability and threats and opportunities for firms. An earlier and smoother adjustment to a low-carbon economy can help mitigate this. Better disclosure of climate-related risks is necessary to steer investment towards initiatives that reduce the world’s dependency on fossil fuels and promote investment in energy efficiency.

6. Adapt to the needs of a changing demographic

   As our population ages, it is becoming clear that policy changes will be needed to facilitate greater security in retirement. Finance will also need to support major changes in demographics and working patterns as well as the evolving needs of savers and borrowers.

7. Safeguarding the financial system from evolving risks

   Financial stability supports innovation, prosperity and sustainable growth. New entrants and “unbundling” of the financial services business model may change market structures. Open Banking gives consumers more control over their data. But authorities need to address concerns around liability and operational resilience.

   Market based finance has bought welcome diversity and choice in funding options. But possible vulnerabilities around liquidity mismatches and investor behaviour need to be understood and managed, particularly following a decade of ultra low interest rates. There is an obvious concern that the new finch ecosystem has yet to be tested by shocks of one form or another.

8. Enhance protection against cyber risks

   The financial system is a constant target for cyber criminals. Regulators and the private sector need to maximise their efforts to keep up with this dynamic threat. Finance can help businesses manage cyber risks, build resilience and recover from incidents through wider access to cyber insurance products. But to become widely adopted, cyber insurance needs richer datasets.

9. Embrace digital regulation

   Markets have been made far more transparent in response to the financial crisis. Technology and new techniques are now essential to monitor them most effectively. There is huge scope for the Bank of England to use of advanced analytics for analysis of macroeconomic trends, financial surveillance and supervision. The Prudential Regulation Authority (PRA) needs a long-term strategy for data and regulatory technology. This requires investment and collaboration from firms. Costs may rise temporarily but then transform in the longer term.

I think it is fair to say that Bank is doing a great job 

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A digital identity is a collection of features and characteristics associated with a uniquely identifiable individual — stored and authenticated in the digital sphere — and used for transactions, interactions, and representations online.

From The Digital Identity: What It Is, How It’s Created, and How to Benefit from It.

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Banga said “we are making good progress” on SRC and testing the system with card issuers and merchants. “We are actively working on Masterpass upgrades to SRC with partners like Tickets.com, Expedia Group, Saks Fifth Avenue, and Norwegian Cruise Lines, and we expect to launch in the United States in the next few months,” he said.

From Mastercard’s Transaction Volume Jumps 18%; Secure Remote Commerce and Contactless Payments Gain – Digital Transactions.

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“In the case of Capital One, the hacker largely tapped the personal information of consumers and small businesses that applied for credit card products between 2005 and 2019, collecting names, addresses and phone numbers, self-reported income, credit scores and payment history, among other personal information.

About 1.1m Social Security Numbers and 80,000 linked bank account numbers were also accessed, Capital One said.”

From “Capital One reports massive data breach after hacking | Financial Times”.

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“Outside the financial sector, I particularly enjoyed the keynote on the third day from Colleen Manaher from the US Customs and Border Control. She was talking about the use of biometrics and spent some of the time talking about the specific use of biometrics in airports as an interesting example of how to use biometric technologies for security but at the same time deliver convenience into the mass market.

The point of her talk, was partnerships around identity. In this case, she was talking about quite complex public-private partnerships in travel. The investments made in biometrics to allow paperless travel have obvious benefits in terms of security but, as we have found in our other work about the cross-sector exploitation of digital identity, intelligent use of these new capabilities can also transform the customer experience. The same biometric system that scans your passport picture on entry to the airport and then checks you in for your flight can also be used to direct you through the airport and implement smart departure boards that as you approach them switch from displaying a list of all flights to displaying your flight only.”

From “Know 2019 Vegas | Consult Hyperion”.

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