Snippings

Despite the fuss about it, the global gold standard only lasted for a century and it collapsed before World War II. Britain had created the standard in its modern form in 1821 and left it in 1931.

Ernest Harvey, the Bank’s deputy governor at the time, wrote to Ramsay MacDonald, the prime minister, and Philip Snowden, the chancellor, on September 19, 1931, saying that reserves worth more than £100m were close to running out.

“‘Gentlemen, His Majesty’s Government have given the most serious consideration to your letter of the 19th instant in which you inform them of the grave difficulties with which you are faced in meeting the obligation placed on the Bank of England by the Gold Standard Act… ‘His Majesty’s Government are of the opinion that the Bank of England should place such restrictions on the supply of gold as the Bank may deem requisite in the national interest.’”

From “How the Bank of England abandoned the gold standard – Telegraph”.

 

As Ed Conway points out in his excellent book “The Summmit“, which is about the 1994 Bretton Woods agreement and the foundation of the modern monetary system, the run on the reserves was because of the Invergordon Mutiny, which was an industrial action by around a thousand sailors in the British Navy that took place on 15–16 September 1931. For two days navy ships at Invergordon were on strike (one of the few military strikes in British history). This mutiny caused a panic on the London Stock Exchange and a run on the pound, bringing Britain’s economic troubles to a head and finally forcing it off the gold standard for good on 21 September 1931.

The United States left on 5 June 1933.

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“This Technology Quarterly will take a more sceptical view. It will point out that, despite a decade of development, bitcoin has failed in its stated objective: to become a usable currency.”

From “What to make of cryptocurrencies and blockchains – The pot of gold at the end of the rainbow”.

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I’m sure that by now you are all familiar with the major data breach that occurred at British Airways earlier this month. It was a “Magecart” attack on the scripts running on the BA web site (the booking page at BA runs 30 scripts, and remember that many of these are minified scripts spanning thousands of lines of code). The breach was pretty serious: 380,000 customers were affected. In fact, it was so serious that “shares of British Airways’ parent company IAG fell around 4% as markets opened” the day after it was reported. The stolen data included customers’ names, e-mail addresses, billing addresses and payment card information (including CVVs) but not passport details. 

Since I had booked a fair few flights during this period, which included arranging for family members to attend a funeral, I didn’t for one moment that my card details had been hijacked by cyber-criminals. I don’t really care though. If the Magecart miscreants do have my card details and use them to buy something, then it is Amex’s money that has been stolen, not mine. Thanks to a combination of consumer protection legislation and Amex terms and conditions, when the transaction shows up on my bill I’ll just call up and cancel it.

(Incidentally, the last couple of times I’ve attempted to charge things back to Amex, it was for transactions that were actually correct. Due to the ancient ISO 8583 protocol, transactions don’t carry enough information for consumers to recognise them. So when I see a charge of £35 to “BA.COM” with no explanation of what it’s for, I of course automatically click on it for more details only there are no more details, so I charge it back only to discover it was for a change to a family member’s flight that I’d completely forgotten about. But I digress.)

Now, to be honest, I’m pretty unsympathetic.

This sort of breach of card data may not be around for much longer though. Earlier in the year Deutsche Bank announced a pilot project with the International Air Transport Association (IATA), the trade association for the world’s airlines, to test a new payment model using account-to-account payments enabled by PSD2. I’m sure my BA app will sprout a new button to pay directly from my bank account (in return for double Avios or whatever) fairly soon and the very notion of storing payment card details to pay for travel will seen almost quaint. The reason that I say this so confidently is that I remember an interesting comment from last year’s Google I/O conference, referring to the opening up of the European payments marketplace under PSD2 in a discussion with Bank Innovation. Talking about Google wallet Daniel Döderlein, the CEO for payments systems provider Auka, said that the service is linked to a user’s credit card, but not for long (at least for European users) because “once Google’s able to go to direct to account they will cut out the cards companies and to some extent, the bank,”

This resonated with a story that I heard more than a year ago and mentioned to a few clients in seminars and workshops. A friend of mine was on a study tour of the US during which he visited a number of different technology companies as well as a number of different technology users in a group of related industries. He told me that the whole time he was in the US, the only people who had asked him about PSD2 came from Facebook and Google. Not from banks, not from retailers, not from payment processors and not from card issuers. From the internet giants. Giants who control platforms and devices that can tie together authentication and authorisation using modern cryptography that does not involve entering sensitive personal information into web forms and then posting it through the internet tubes.

Tired: Card Present and Card Not Present; Wired: Cardholder is Present and Cardholder Was Present.

The US Treasury’s report on “Nonbank Financials, Fintech, and Innovation” prepared in response to Mr. Trump’s “Executive Order 13772 on Core Principles for Regulating the United States Financial System” is, I have to say, most comprehensive. It covers a great many aspects of the financial services market, as you would imagine, and covers a few specific areas that I think are worth detailed consideration and due some real innovation. One of them is digital identity.

The Treasury report says that digital identity systems may rely on various types of technology but generally involve two essential components: (1) identity proofing, enrollment, and credentialing; and (2) authentication. It then goes on to say that they may also involve (3) federation, which is optional, but allows identity to be portable.

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Indeed. This is a reasonable way to think about the problem. I presented this view at the MobeyForum Members’ Meeting in Paris, showing how these three components are used in our “three domain identity” or “3DID” model for digital identity that I have written about before. Here’s the model, along with the US National Institute of Standards and Technology (NIST) draft standards, in a picture from that presentation.

Of course I don’t regard the federation as optional because I’m not really interested in identity solutions that work only for the issuer. What I think the mass market wants is identities that individuals can choose to use in as many or as few places as they like. A Barclays identity that I can only use to log in to Barclays is one thing, whereas a Barclays identity that I can use to log in to all sorts of places in much more desirable. Michael Salmony made this point quite well in his presentation to MobeyForum event, making the point (similar to mine) that existing digital identity efforts were not really producing the results that we want. 

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One point that Michael made 

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The payment service will accomplish this by maintaining a private blockchain that records transactions from Square-managed wallets in real-time

From Bitcoin Accepted [Everyw]here: Square Patents Crypto Payment Network.

So, basically, if you send cryptocurrency from a Square cryptocurrency wallet to another Square cryptocurrency wallet, Square will credit the recipient in near-real time and take the risk that you don’t then go and send the same cryptocurrency to someone else.

(Note: To operate such a system, you don’t need wallets or blockchains. You could just use a database and call it Square-PESA.)

The US Treasury’s report on “Nonbank Financials, Fintech, and Innovation” prepared in response to Mr. Trump’s “Executive Order 13772 on Core Principles for Regulating the United States Financial System” is, I have to say, most comprehensive.

Payments Treasury recommends that the states work to harmonize money transmitter requirements for licensing and supervisory examinations, and urges the Bureau to provide more flexibility regarding the issuance of remittance disclosures. Treasury encourages the Federal Reserve to move quickly in facilitating a faster retail payments system, such as through the development of a real-time settlement service that would allow for more efficient and widespread access to innovative payment capabilities. Such a system should take into account the ability of smaller financial institutions, such as community banks and credit unions, to access innovative technologies and payment services.

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“overdraft and returned-check fees (NSF) [were] $15 billion in 2015… nearly twice what the entire payday lending industry earned in interest and fees in 2015. It also approached the $18.4 billion earned by the entire US banking system on merchant interchange from all debit card and general-use prepaid cards in that year. And it was considerably greater than what banks earned on all other deposit account fees combined.”

From “The Ends of the Month: The Elephant in the Room – CFSI – Medium”.

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“Our cash payments continued to decrease rapidly year on year, so we’ve known for a while that we wanted to go cashless, we just needed the guts to go and do it,”

From How small businesses can prepare for the rise of the cashless economy.

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Banks maintain that contactless is safe, and card cloning is not cost-effective for thieves.

From ‘I went on holiday – so how was my card used for a £600 spree at home?’ | Money | The Guardian.

Not cost effective in the sense that it is not possible. If thieves do find a way to extract the private keys from the tamper-resistant chip on a contactless card, they the entire payment card system will collapse overnight. Don’t panic about it: they haven’t, and they are extremely unlikely to.

 

In 2015 consumer group Which? used cheaply bought card readers, and freely available software, to remotely “steal” key details from a contactless card and use them to buy items online, one of which was a £3,000 TV.

From ‘I went on holiday – so how was my card used for a £600 spree at home?’ | Money | The Guardian.

 

Ah. I see what you’ve done there. You’ve taken the card number and expiry dates, which are in any case printed on the front of the card (and even embossed to that you can steal them quickly but rubbing a pencil over a piece of paper) and used them to buy goods and an online merchant that doesn’t not do either an AVS or CV2 check. The rules about this are clear: the liability is the merchant’s and neither the issuing bank nor the customers should care less. If merchants are happy to accept this risk, then so what.

However, the point is: the cards are not being cloned.

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When economists say that one of the functions of money is to act as a store of wealth and that one of money’s desirable properties is constancy of value (as measured by constancy of average prices), we are entitled to ask: How do you know this? Why should prices be stable?

From cwpe1842.pdf.

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