Snippings

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Given that a press officer from my own bank told me “You know, I’d never thought about using contactless abroad”, we clearly still have some way to go on this one. It’s a relatively new phenomenon and one that won’t have crossed many people’s minds until they’re confronted with a locked toilet door and a £1.50-per-transaction charge on the next bank statement.

From The rise of contactless payments: Or, how Brexit could make it more expensive to go to the loo on holiday | CityMetric

Actually, having been abroad once or twice recently, I’ve been using my reasonably splendid Curve card contactlessly all over the place precisely because it doesn’t add a foreign currency transaction fee. Oh, and remember boys and girls, never ever accept direct currency conversion (DCC) at point of sale. If the terminal says “do you want to be charged in your home currency £” or similar, always say NO. It is much better to be ripped of by your own bank that has at least a pretence of interest in keeping your business rather than a foreign bank that couldn’t care less.

The article does raise an interesting point though. Surely the solution is for your phone to generate a domestic debate token wherever you go and use that in the shops. So if I get off the plane in Australia, for example, my Apple Pay might cleverly contact eftpos and get a temporary eftpos card, in essence, funded from one of my existing payment accounts.

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Alex Wrethman, owner of the Charlotte’s Group restaurant business, decided to make his most recent opening, W5, an entirely cashless affair. “We are entirely cashless, it’s cards and Apple Pay only. There’s no going to the bank. There’s no cash on site which takes about two and a half hours a day to count. We reduced our insurance as we don’t have cash handling and the opportunity for theft is not there,” he says.

Are fintechs helping banks evolve – or planning a revolution? Read more Wrethman is passionate about cashless businesses and believes it is the way forward. He also says most customers “don’t care” as most use their cards or Apple Pay regularly anyway and prefer better prices as a result of cuts in administration.

From Welcome to a cashless future where retailers recognise our faces | Guardian Small Business Network | The Guardian

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No.

Could bitcoin technology help to ameliorate the conditions for some refugees in some circumstances? Well, that’s a very different question, and some people think yes.

With a blockchain distributed database, when a Syrian refugee arrives in Greece, border authorities could check her identity on their copy of the ledger housing her ID and even her biometric data.

From Can Bitcoin Technology Solve the Migrant Crisis? – WSJ

So could anyone check her identity in this way? People traffickers? Warlords? Mafia hit men? Vigilantes searching for people who have posted rude comments about the King of Thailand? I presume not, which means this has to be a permissioned blockchain. But what would this permissioned blockchain store? Let’s continue thinking about loud about identity…

The refugee is picked up by an NGO, NGO97. They take some biometric and register her in their database, unless she is already in it. The refugee now has a database entry REFUGEE97. The NGO writes a record to the NGO LEDGER saying we have REFUGEE97.

The same refugee is now picked up by another NGO, NGO1. They take some biometrics and register her  in their database, unless she is already in it. The refugee now has a database entry REFUGEE1.

Now, let’s imagine there is a food ration or something else that the refugee needs to show an identity for me. She turns up and claims to be REFUGEE1.ze2000

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From the border district of Murshidabad, Jewel and his gang were able to get thousands of pre-activated SIM cards, which were used to open 2000 bank accounts, and which in turn were used to open 18,000 digital wallets. These wallets were then used to siphon off money from the bank… Innocent villagers from the nearby cities were given incentives to open bank account using the fake SIM cards; and these formed the base of the whole scam.

From Digital Wallet Loophole Inspires 5 Engineering Students To Steal Rs 8.6 Crore In Kolkata

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The National Retail Federation has flagged anti-trust concerns with the FTC, slating the PCI for allegedly enforcing standards that serve to cement the power of the major card schemes.

From Retailers flag PCI anti-trust concerns with FTC

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The most common online payment method in the vigorous and innovative Polish market is “Pay-By-Link”.

Online e-payment: a commonly referred to as “e-transfer” or “Pay-By-Link” among Polish payment service providers; it is similar to Bank Transfer Initiated on the Internet but with added convenience and functionality for both merchant and customer.

From Crossborder-Ecommerce | Payment Methods Poland | The Paypers

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He says Apple Pay is appealing, but he wouldn’t switch banks just to access that one feature. “Not over that. There’s too much work involved just for tap-and-go,”

From Early days, but Apple Pay struggles outside U.S. | Reuters

You can see his point. If you already have a contactless card that works everywhere, it’s not that exciting to be able to tap your phone instead of the card.

America is a strange country to foreigner such as myself. And one thing that is particularly strange about it is the constant demand for identification in a society that lacks an identity infrastructure. The most obvious manifestation of this, as I’ve written before, is that when I am asked for identification (in order to get into a building in America, for example) I can present documents that the security guard cannot conceivably verify or validate (e.g., my UK driving licence) or documents that are not identity documents at all (e.g., my expired building pass for our office in New York) and gain entry. This is, as is often remarked, security theatre not security. It’s like a play about security where we all say our lines and play our parts but there’s no actual security involved at all. When it comes to identity, there’s definitely something odd about America.

Buying an assault rifle is easy. You need not show formal identification… Opening even the most basic bank account is far more arduous. The process begins with a rigorous ID check…

From It’s easier to buy an assault weapon than open a bank account. Really. – The Washington Post

Now, I don’t want to get into the madness of KYC/AML here as that’s not the point I want to make, although I will flag up the fact that America has something in the region of a hundred million unbanked people. The point I’m making here is that I don’t understand why we can’t implement a universal risk-based approach for “small” accounts in order to get people into the financial system (not necessarily through a bank account, of course). In Europe, we have a very interesting case study unfolding in front of us right now.

When Anas Albasha arrived in Germany after fleeing Syria in late 2014, one of the first things he tried to do was open a bank account. “In Germany you need a bank account for everything,” he says.

From Without German bank accounts, refugees are stuck in limbo – FT.com

Indeed. Rich Germans might and people smugglers might well keep their cash in 500 euro notes, but poorer law-abiding Germans use debit cards and direct debits. If you don’t have an account, you have no access to the infrastructure of daily life. And, in my opinion, if you keep everyone out because one or two of them might be terrorists, then you don’t get to track, trace and monitor the terrorists anyway. Hence the German plan to give refugees a sort of provisional identity so that they can enter the financial system makes complete sense.

But it has been a struggle to persuade banks, which have to verify their customers’ identities, to open accounts for refugees. The heart of the problem is documentation. “Many refugees arrive in Germany without a passport or ID card; that’s just the way it is after the journeys they have been through,” says Katharina Stamm, an expert on migration law at the charity Diakonie.

From Without German bank accounts, refugees are stuck in limbo – FT.com

In September 2015, the Federal Financial Supervisory Authority (“BaFin”) relaxed the KYC requirements for refugees so that they could gain access to formal financial services.

With immediate effect and for a transition period, refugees will be able to open a basic account even if they cannot produce a document satisfying the passport and ID requirements in Germany.

From BaFin – News – BaFin makes opening bank accounts easier for refugees

Later last year, in October, the German government went further and passed a law requiring banks to offer these basic bank accounts to refugees. Unfortunately, and despite that law coming into effect in June of this year, “

Germany’s anti money laundering law still contains a clause that effectively requires a passport or ID card to open an account.

From Without German bank accounts, refugees are stuck in limbo – FT.com

Incidentally, we have the same problem here in the UK because the only ID document that refugees have is the Biometric Residence Permit (BRP) and many bank staff refuse to accept this as an ID document for opening an account. As the British Banking Association point out, “banks have to undertake thorough checks before opening accounts in order to comply with strict anti-money laundering rules”. Once again, as in Germany, it is AML rules trumping KYC rules. And I don’t want to point the finger as to the origin of the problematic AML rules, but the Centre for Financial Inclusion do note that it might be better for society to have people inside a system where they can be monitored and risk managed.

 

Lower [KYC] requirements also means that governments concerned with international security (particularly the U.S.) must determine how they will mitigate the risk of new financial services innovations.

From Financial Inclusion and Immigration in Europe – Disrupting Identity Norms | Center for Financial Inclusion blog

 

I’m in Ivory Coast for the International Finance Corporation (IFC) and MasterCard Foundation conference on “Partnership for Financial Inclusion”. I’m here to talk about risk management (and how “fintech” and “regtech” can help) but I’ll definitely be hoping to learn more about the relationship between identity and inclusion from the experts here. 

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Yesterday it was reported that members of the European Parliament voted in favour of creating a cryptocurrency “watchdog” to combat money laundering and terrorist financing.

This is misleading. In fact two parallel initiatives have been conflated in the press announcement: one is the creation of a Virtual Currency Task Force, and the other is the inclusion of virtual currency exchanges within the ambit of the European Anti-Money Laundering Directive.

From What the European Parliament vote on cryptocurrency regulation really means

Indeed. Along with many other people I gave evidence to the European Parliament in their hearings on this subject, and I agree with Siân Jones, of the European Digital Currency and Blockchain Technology Forum, one of the other people who gave evidence and who is quoted in that article as saying “why would you say that casinos have to have all these things, or estate agents, but not virtual currency exchanges”? 

Now onto part three of our week of thinking out loud about putting identity on the blockchain. In part one we found a problem that could be solved using some kind of identity infrastructure. In part two we came up with a model of digital identity that we could use to explore a potential solution to this problem. Now, we are going to think about how that model could connect with some kind of shared ledger in general and with a blockchain or, indeed, the blockchain.

Our starting point is to observe, as my colleague StevePannifer said in his presentation at the Cloud Identity Summit in New Orleans this week, a ledger is a record of transactions. Therefore, we must think about the identity transactions implied by the model that we looked at in part two before we start to think about how to store them in a shared ledger. We start by observing that identity transactions are the “CRUD” (that is the Creation, Reading, Updating and Deleting) of identities. Since our model includes three kinds of identities it admits the possibility of three distinct sets of CRUD transactions that might be stored in the shared ledger as shown in the picture below.

 //embedr.flickr.com/assets/client-code.js

The first category relates to the mundane identity CRUD of people, things and organisations. We could take some physical characteristic of these such as a fingerprint, a photograph or a serial number and store these in a shared ledger. This may be a good thing to do, but my first thought about this is that actually we probably want to avoid storing such things in the ledger or at the very minimum storing them in unencrypted form. I have to spend some time thinking this through, but it’s not immediately obvious to me that storing the binding between the digital identity and the mundane identity on the ledger moves us forwards.

The second category relates to the digital identity CRUD. Remember from part two that I am imagining the digital identity as being, essentially, a key pair. We need to store the private key somewhere safe and provide an authentication mechanism so that control over the digital identity can be asserted. Then we need to provide the public key for a variety of uses. Now, a key pair sounds very much like a wallet on a block chain and it is certainly a plausible hypothesis that this could be an implementation of digital identity. However it suffers from the same general category of problem as does cryptocurrency, which is the problem of the storage and protection of the private key. Either you have to look after the private key yourself, which is a degree of responsibility that I for one am most unwilling to accept, or you have to trust somebody else to look after the private key for you (e.g. your bank).

In practice, this would mean that the key pair is held by some third-party and while the idea of having sovereign control of your digital identity in some sort of blockchain is an appealing prospect if you are a 20-year-old computer science major MIT, I remain unconvinced that is a mass-market solution especially in developing countries. Here, I feel that the example of M-PESA (as we were discussing on Twitter yesterday) is illustrative. M-PESA, which was launched remember by a telco not by a bank, stores cryptographic keys in the tamper-resistant SIM in a mobile phone and this strikes me as being the plausible mass-market solution. In an M-PESA-like system, the SIM generates the key pair and gives up the public key but the private key is never disclosed. Uunfortunately this means that if you lose your SIM you may have messages that you can no longer read so we need a more sophisticated mechanism for a workable mass-market infrastructure! 

The third category relates to the virtual identity CRUD. Remember in the model that I sketched out in part two, I made the assumption that all transactions are between virtual identities. Now the transactions associated with a virtual identity, if they were to be stored in a shared ledger, would then provide a record of that virtual identity’s activities. Those virtual identities need not identify the binding between the digital identity and the mundane identity. So, I could have a digital identity that I use for work and one for home and one for play. I use my play identity to obtain an adult identity from some grown-up website and that identity might well contain attributes that it has obtained from other credentials (that I am over 18, for example) but not my name.

Then the history of that virtual identity is in effect a kind of reputation. If you ask me for my reputation on some sharing economy platform, I can point you to a entry in the shared ledger. This gives you a public key. You can do two things with this key right away. First of all, you can use it to encrypt a challenge for me (because in order to answer the challenge I must have control over the corresponding private key). Secondly, you can look through the ledger to find transactions associated with that public key (to find out, for example, when the virtual identity was created) and whether is has been deleted.

You can also check the digital signature on the virtual identity to confirm who created it (i.e., was it really Barclays Bank or AirBnB or whoever).

 The ability to check the reputation of a counterparty in this way seems to me to one of the fundamental benefits of such an identity infrastructure and central to a functioning online economy.

If I find a seller labelled as John Doe, I really have no interest in discovering their underlying identity: that takes time and effort. If there are positive comments about them from people whose opinion I value then I will do business with John Doe. If there are negative comments, then I won’t. And it won’t matter to me whether John Doe has badge from the local council, the government or some other body’s approval. My decision will be based not on what anyone thinks, but on what everyone thinks.

This comes from an article I wrote for “The Guardian” a fair few years ago (“Reputation not Regulation”, 2nd Nov. 2000, sadly longer online but  you can download a PDF here). On this, I don’t think my opinion has changed much. The ideas that I was putting forward back then we constructed to support economic activity with both security and privacy as priorities. If anything, my views about building security and privacy into the identity infrastructure have become more entrenched since then.

In the model we’ve been building up this week, then, reputation can be interpreted as the history of a virtual identity, the complete list of “CRUD” transactions stored in the shared ledger. Does this seem like a reasonable model to proceed? If so, tomorrow I’ll think out loud about how to implement the shared ledger for identity.