Snippings

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Today, nearly half of payments through the bank-to-bank Automated Clearing House network are originated by just two financial institutions, while over 93 percent are originated by the top-50 banks. Past research on the 25 largest bank holding companies found that “payment services bring in from one-third to two-fifths of [their] combined operating revenue.”

From: The Case for Payments Modernization – Milken Institute Review.

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What should be done in the US? Patrick Collison, the co-founder of Stripe, told the House Financial Services Committee that “Stripe strongly supports the concept of some sort of federal payments charter”. I do too, not that it matters. But what could such a Federal Payments Charter (FPC) look like? And what would it achieve.

Well, let me begin by stating clearly that Collison is absolutely right about this and I simply do not understand why his suggestion is not already US policy. I have long thought that some kind of  OCC federal charter that would allow regulated institutions access to payment systems, but would not allow them to provide credit, is a straightforward way to improve American financial infrastruture and bring more competition into the world of payments. Such a charter would separate the systemically risky provision of credit from the less risky provision of payment services but creating a new kind of financial institution, rather like the European “Payment Institution” or Indian “Payment Bank” that does nothing more than hold customer money in accounts that can be used to send and receive payments.

I am far from the only person who thought this, by the way. Mihir Desai and Sumit Rajpal, wrote in the Harvard Business Review other countries have begun exploring ways forward and note in particular that the US can learn from what the United Kingdom, Australia, and Singapore have all been doing. They identity two broad solutions: Allow nonbanks to access the payment system as the UK and others have allowed, or create banks that do nothing more process payments. They focus on the latter, but I think we want Federal Payment Institutions (a regulatory category that I just made up) that do both. Such institutions could then issue stablecoins in a sound and well-regulated manner to the great benefit of consumers and businesses around the world.

J. Christopher Giancarlo, former chair of the U.S. Commodity Futures Trading Commission, Daniel Gorfine of Gattaca Horizons and Brian Peters from Stripe put forward an detailed (and excellent) exposition of the issues in a article on “The Case For Payments Modernization” in the Milken Institution Review. They point out that under both Republican and Democratic administrations, the US Treasury recommended the establishment of a federal payments framework and are clear than the kind of FPC envisaged would be limited to providing payments and related technology services, avoiding traditional banking activities such as lending. An obvious one of those “relatred technology services” is stablecoins. 

 

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In his recent book, Beyond Banks, Dan Awrey similarly seeks to answer a basic question: “why the United States was able to send 24 men to the moon, but seems chronically incapable of delivering a cheap, fast, secure, and universally accessible system of money and payments.” His work explores a fundamental conflict embedded within the structure of our financial system:

This tension is a product of the fact that we rely on banks to perform three critical and, at least as presently constituted, intertwined functions. The first is the provision of loans and other types of financing to people, businesses and governments, thereby necessitating that banks hold risky and often illiquid longer-term assets. The second is money creation, with short-term and highly liquid bank deposits representing by far and away the largest source of money in the modern economy. The third is payments, where banks serve as both the gatekeepers and custodians of the vast and sprawling network of financial plumbing that moves money across time and space in satisfaction of our financial obligations. As economist Matthew Klein recently put it, this essentially makes banks “speculative investment funds grafted on top of critical infrastructure.”

From: The Case for Payments Modernization – Milken Institute Review.

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Today, it is not gold or silver content that determines the intrinsic value of money, but laws and institutions that underpin it. At the same time, payments utility is determined by technological advances that can outpace changes to these laws and institutions. As a result, bad money often gets bundled with good payments. People are offered cheaper, faster, more convenient, more secure, and more accessible ways to send and receive money at the expense of the underlying money being less sound. In times of relative stability, bad money may offer a comparative advantage.

Awrey calls this Gresham’s New Law and lays out a blueprint to address it.

From: Gresham’s New Law – by Marc Rubinstein – Net Interest.

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Now it is quite understandable that the incumbent banks are not happy about this. Generally speaking, the big banks earn about a third of their revenues from payments and every payment provides invaulable data that the institutions can use to learn more about their customers.

Sveinn Valfells

Co-founder & Chair, Monerium, Reykjavik, Iceland

 

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For incumbent banks and fintechs, stablecoins do not herald a gold rush because their infrastructure and business models are built on old paradigms.

From: Letter: Banks and fintechs will be outcompeted by stablecoins.

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Mesh develops a payments network on blockchain rails, connecting crypto wallets with exchanges payment service providers for merchants. With Mesh, users can pay with crypto assets such as bitcoin (BTC), ether (ETH) and Solana’s SOL, while merchants settle the payment in stablecoins of their choice including Circle’s USDC, Paypal’s PYUSD and Ripple’s RLUSD.

From: Crypto Payments Firm Mesh Raises $82M as Stablecoin Adoption Soars.

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merchants want to see 70% of UK consumer accounts supporting CVRPs before they could commit and adopt themselves.

From: Will Commercial Variable Recurring Payments kill the Direct Debit.

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While Fiserv said it won’t disclose customers’ names to one another, the fact that it’s training the chatbot on enterprise customer data could be of interest to countless companies that would love to do the same.

 

From: $120 Billion Fintech Firm Trains Chatbot—on Customer Data — The Information.

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Fiserv did not respond to further questions about how it managed to obtain permission from those customers to use their data for chatbot training.

The United Nations has proposed a mandatory digital ID system linked to bank and mobile money accounts to enhance social protection programs while addressing online misinformation.

North Korean hackers have successfully cashed out the first $300 million of the proceeds from their record-breaking $1.5 billion crypto theft from the ByBit Exchange. They are getting good at this: crooks linked to North Korea have stolen more than $6 billion in cryptoassets since 2017 (with the proceeds reportedly spent on the country’s ballistic missile program). Elliptic says the incident is almost certainly the single largest known theft of any kind in all time, a record previously held by Saddam Hussein, who stole $1 billion from the Iraqi Central Bank on the eve of the 2003 Iraq War.

That’s the thing about anonymous, untraceable digital assets: the bad guys have them too. This incident nudges the crypto community between the Scylla of crime and Charybdis of censorship. Do you accept anonymity, and accept the societal harms that results on the basis that overall it is better for citizens going about their everyday lives to avoid surveillance or do you accept censorship and accept that not all transactions should be allowed?

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Perhaps surprisingly, most check payments were made by businesses in 2021, 52 percent by number and 76 percent by value. This is the first year for which the FRPS found that the number of business checks exceeded the number of consumer checks. In addition, check use by value increased from 2018 to 2021; the total value of business checks increased by 2.7 percent per year to $20.64 trillion.

From: Business Use of Wires Grew Sharply from 2018 to 2021 – Federal Reserve Bank of Atlanta.

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Our latest report shines a light on what we found, and key highlights include:

Fraudsters target major platforms to commit scams: Social media, technology platforms, and telecoms are frequently exploited by scammers, resulting in losses of hundreds of millions of pounds for UK consumers. 
Over half of scams involve Meta platforms: In 2023, Meta platforms (Facebook, Instagram, WhatsApp) were linked to 54% of scam incidents (119,338 cases) and 18% of total losses (£62.7 million). That’s roughly £1 in every £5 lost in scams. 
Telecoms and emails cause significant losses: Fraudulent calls and texts via telecoms were used in 12% of scam cases (26,975) but accounted for 31.5% of the losses (£107.2 million). Emails, while only involved in 2% of scams, led to disproportionately high losses of £35 million (10% of the total). 
Romance scams are more common on Meta platforms: Meta platforms were used in more romance scams (31%) than all dating websites combined. Facebook, Instagram, and WhatsApp together accounted for 1,590 incidents and £5.1 million in losses. 
Purchase scams dominate on Facebook: The most common scams in 2023 were purchase scams, where victims buy items that never arrive. Facebook was used in 44% of these cases (67,337 incidents), with losses of £19.5 million—more than any other platform. While eBay saw fewer scams (1.6% of cases), the losses per scam were significant, totalling £6.7 million. 
Investment scams cause the biggest losses: Investment scams made up 23% of total losses (£80.3 million) but only 6% of scams (12,500 incidents). Fraudsters often used telecoms (£18.4 million in losses), Meta platforms (£11.6 million), and even friends and family connections (£9.6 million) to deceive victims.

From: Unmasking how fraudsters target UK consumers in the digital age | Payment Systems Regulator.

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