Programming bank accounts

I’ve been reading an interesting paper from Northumbria University called “Recipes from Programmable Money“. The paper looks at what customers of the UK challenger bank Monzo have done with its integration with IFTTT (the “if this, then that” automation software) to draw some early lessons that may have wide applicability to post-PSD2 financial services infrastructure. This is fascinating to me (even though I think the title is wrong, because it’s not the money that is being programmed but the bank accounts) because it is natural to wonder what, once third-parties are free to build on banks’ interfaces because of PSD2, customers will want from the new product and service providers.

The paper goes about examining how real users (albeit savvy early adopters in the UK) used the ability to automate a selection of Monzo account actions. Since these automations are a small window into what users might want from from more general third-party API-based interactions, I think the researchers have uncovered useful insights about just how important XS2A will be. After all the speculation about what API access to accounts might mean for Europe’s banks, there’s no substitute for looking at what consumers actually do with the new technology.

It seems to me that the key finding of the paper is that “some of the most intriguing recipes in our corpus were those that integrated Monzo with applications that ordinarily have little to do with banking”. (“Recipes” are the IFTTT automation scripts.) That is, in general, consumers use banking services as integral to other services, which is what you might expect on reflection because users don’t want to do banking, which is boring, they want to do other more interesting things that happen to be facilitated by banking.

The authors also observe that “this proliferation of financial data across different platforms, and channels, highlights the way in which programmable money may cut across services” and that “we are seeing how money and transactions are potentially just another form of data, to be pushed and pulled around integrated services”. I am sure they are correct about this, which is why it will be so hard for banks to find effective strategies to compete with other providers of those integrated services. It may well be that only the lower margin “‘pipe” services are available to them, in which case they need to focus on operational efficiency to compete.

All very interesting, and wholly congruent with earlier analyses from informed industry observers (eg, me). But it’s another point made in the “programmable money” paper that caught my eye. It’s impossible to disagree with it when it concludes that technologies such as machine learning, AI and smart contracts “foreground the delegation of significant financial power to automated systems and agents”. As I wrote last year, in the context of competition in retail banking, the future choice of banking services provider (the AS-PSP, in the euro-jargon) will be made not by customers, but by bots. It seems to me that the early indications from the real world are that this is correct, and that it has many ramifications.

I’ll give you an example. If you live in the UK and are over the age of around 30, you may have seen an advertisement with a man in a spacesuit in it.

To the Mooooooooon!

No, not that one. I mean an advert on TV, the sort of thing that no-one under 30 ever sees any more. It’s an advert for a bank. It doesn’t matter which one. The point is that it’s about brand and image. But what will be the point of it a world where an AI-powered child-of-IFTTT is doing the heavy lifting? Consumers may neither know nor care who their bank is. This will pose a challenge to those with a career in marketing, but it may have some positives too. For example, I can assure Barclaycard that my bot will pay no attention whatsoever to their advertisement with Simon Cowell in it, whereas like most normal people I would cancel my card because of it.

My bot will chose your bank on the basis of interest rates, response times, jurisdiction, functionality, service uptimes and other such measurable parameters. Your logo? Your sponsorships? Your history? Whatever.

US cashless backlash: why punish retailers?

The US is behind some other parts of the world, perhaps, but it is trending in the same direction. According to recent research, almost a third of American adults use no cash at all for their weekly purchases (it was a quarter back in 2015). Conversely, a fifth of Americans says that make nearly all of their purchases in cash. Against this backdrop, it is no surprise that some retailers, in some locations, are starting to go cash free. Now, as far as I am concerned, that’s up to them. Writing in the CATO Journal last year — “Special Interest Politics Could Save Cash or Kill It” CATO Journal 38(2): 489-502 (Spring 2018) — Norbert Michel said “it seems risky, at best, to give the government so much control over the form of payment citizens choose, but that is exactly what many policymakers are hoping to do”. He was talking about laws to ban cash, but the argument applies both ways. Should regulators care whether you pay in cash or not and, if they do care, what should they do about it?


Here’s a specific example. In March, Atlanta’s Mercedes-Benz stadium, home of the Atlanta Falcons, stopped accepting cash for sporting events. Now, I imagine the people who run the Mercedes-Benz to be business persons who operate according to the principles of profit and loss. They’re not making this decision because of some idealogical position about notes and coins. They wouldn’t be doing it unless they thought they would be better off without the costs of cash.

So: should they be allowed to do this, just as Tottenham Hotspur have done with their new stadium at White Hart Lane?

There is no US law on the subject. I see in Payment Law Advisor that the US Treasury Department has guidance on the issue, but it states that refusing cash may be allowable “on a reasonable basis, such as when doing so increases efficiency, prevents incompatibility problems with the equipment employed to accept or count the money, or improves security”. Security and efficiency are precisely the factors causing retailers to shift to cashless operators as far as I can see, so the Treasury guidelines seem to be working.

That does not, however, seem to matter to the State and City legislators who rising to the challenge of dragging America back into the 1950s, when the payment card was a notion restricted to future fiction and the concept of a mobile phone so alien as to be unimaginable. At that level there is a patchwork of regulation. Massachusetts apparently has a little-known 1978 law requiring retail stores to accept both cash and credit although it does not seem to be enforced and the legislature has yet to say whether it applies to restaurants. Food and drink are in the vanguard elsewhere, such as in Pennsylvania, where the head of the Pennsylvania Restaurant and Lodging Association says that there are lots of restaurants (as well as other businesses) that want to go cashless because “places that handle cash are less safe than those that don’t have cash on hand” and that in a cash business “taxes aren’t always paid”.

Yet US legislators seem to be in favour of maintaining this costly and inefficient state of affairs. The New York Times reports that the New Jersey Legislature and the Philadelphia City Council have already passed measures this year that would ban cashless stores and New York City, Washington, San Francisco and Chicago are consider doing something similar. Their objection is that cashlessness marginalises low-income communities. If this is true, and I have no reason to doubt the sincerity of these lawmakers, then it is a problem with the financial system not retailing. Penalising retailers by forcing them to accept cash because the financial system does not make a reliable, secure electronic alternative available to low-income (or, indeed, any other) communities is peverse.

I don’t want to discuss the causes here – that’s for another time – but the specifically US problem around financial inclusion is the root cause of the problem and that’s what should be tackled. If low-income people in Somalia can buy produce in the local market using their mobile phones, you can’t help but wonder why low-income people in Philadelphia can’t do the same, much to the benefit of society as a whole.

FaceCoin or FacePESA, Zuckbucks are a winner

Around a decade ago my son was, as is rather the fashion with teenagers, in a band. With some friends of his, he arranged a “gig” (as I believe they are called) at a local venue. There were five bands involved and the paying public arrived in droves, ensuring a good time was had by all. All of this was arranged through Facebook. All of the organisation and all of the coordination was efficient and effective so that the youngsters were able to self-organise in an impressive way. Everything worked perfectly. Except the payments.


When it came to reckoning up the gig wonga (as my old friend Paul Pike of Intelligent Venues would call it), we we had a couple of weeks worth of “can you send PayPal to Simon’s dad” and “he gave me a cheque what I do with it?” and “Andy paid me in cash but I need to send it to Steve“ and so on. Some of them had bank accounts, some of them didn’t. Some of them had bank accounts that you could use online and others didn’t. Some of them had mobile payments of one form or another and others didn’t. I can remember that at one point my son turned to me and asked “why can’t just send them the money on Facebook?”.

As I wrote at the time, I didn’t have a good answer to this because I thought that sending the money through Facebook would be an extremely good idea and I can remember discussing with some clients at the time what sort of services they might be able to offer to Facebook or other social networks that were empowered through an Electronic Money Issuing (ELMI) license and Payments Institution (PI) licence. The rudimentary business modelling was quite positive, and so I naturally assumed that there would be some sort of Facebook money fairly soon, especially because I am something of a proponent of community monies of one form or another.

I also wrote at the time that Facebook money, or Zuckbucks ($ZUC), could easily become the biggest virtual currency in the world given that there are so many people with Facebook accounts and the ability to send value instantly from one account to another via Facebook would be so attractive. You’ll remember that Facebook launched “Facebook Credits” so time ago but they weren’t really a currency, just a way of prepaying for virtual goods with the service. A virtual currency is something more, it’s true electronic money that you can send from one person to another. Well, it looks as if this is coming, as I read in the crypto press that Facebook “is talking to exchanges about potentially listing a cryptocurrency” [CoinDesk]. It looks as $ZUC might be just around the corner, and people are getting excited.

As I understand things, Mr. Zuckerberg has already decided integrate the social network’s three different messaging services — WhatsApp, Instagram and Facebook Messenger — on a single unified messaging platform and, according to the New York Times, have that platform implement end-to-end encryption. This would naturally be an ideal platform for a universal currency so it’s no surprise to hear that the company is now looking at just such an enterprise. Even if Facebook couldn’t read the details of a transaction, it would know that I just paid a car insurance company and might find some use for the data in the future.

My suspicions that a Facebook money might me rather successful were further strengthened while listening to one of my favourite podcasts, Pivot with Kara Swisher and Scott Galloway, on a plane last week. Scott said that his biggest friction in the physical world is charging (I couldn’t agree more – battery life is the bane of my road warrior existence) and that his biggest friction in the virtual world is payment. He cited the example of trying to buy wifi on a flight and having to mess around typing in card numbers like it was 1995 and pointed out just how much Facebook could gain by adding payments to their platform. Scott is surely right, and since the people at Facebook are smart, they must be looking at the potential to develop a new revenue stream that is separate from advertising with some enthusiasm.

Barclays equity research note on the subject (Ross Sandler and Ramsey El-Assal, 11th March 2019) reckon that a successful micro-payment service could add some $19 billion to Facebook’s revenues, so clearly I’m not the only one who is a little surprised that they haven’t already leveraged the technologies of strong authentication to get something off the ground already. It also notes that one of the problems with the original Facebook Credits business was the cost of interchange, a problem that has a very different shape now with interchange caps in place in various parts of the world and open banking giving the potential for direct access to consumer bank accounts (so that exchanges between fiat bank accounts and $ZUC would be free).

Facebook Marketplace has just added card payments [91Mobiles], as shown in the screenshot below, so that marketplace users can pay for goods directly without having to come out of Facebook. I think this is, frankly, a window into a one possible future for financial services!

These are boring old Visa and Mastercard payments, but presumably $ZUC can’t be far behind. Unfortunately, since there are no details that I can find on what exactly “Facebook Coin” is going to be, I can’t really offer any informed comment on the chosen implementation. If, however, it is something along the lines of JPM Coin then it will be a form of electronic money and governed by the appropriate rules and regulations (which is good, and since they have very smart people at Facebook I’m sure they’ve already spotted the advantages of providing a trusted, regulated global payment service). You can kind of see the idea: your Facebook account sprouts an automatic, opt-out, wallet. You can buy coins for this wallet using a debit card and then send them to anyone else with a wallet (why this needs the blockchain is not entirely clear, by the way, but that’s another discussion).

Wallets that have been KYC’d (put to one side what exactly this might entail) could store up to say $ZUC 10,000, wallets without KYC would be limited to say $ZUC 150. I think this might be a great opportunity for banks to use their federated and standardised digital identity infrastructure* to provide an attractive service to Facebook that might relieve them of onerous regulatory burdens. All Facebook has to do is get me log in to my bank and have them return some cryptographic token (with no personal information in it) to Facebook to indicate that the bank has done KYC and knows who I am. A bit of a win win.

This, at a stroke, would provide teenagers with a means to settle gig wonga, provide online retailers with instant payment across borders and provide brands a mean to reward consumer behaviour. If Facebook make it free to buy ZUC$ and guarantee to redeem at par for consumers, they could be on to a real winner. In Europe, if the Facebook wallet is combined with PSD2 to deliver instant load and instant payout, it delivers a serious play that will give people are reason to use the Facebook platform to organise their gigs, lay out their online wares and promote their brands instead of messing around with Snapchat or Youtube or email or blogs or whatever else they are using now.

* Note: does not exist. Images not from actual gameplay. 

Davo Polo

I set off for Hangzhou  and Money2020 China as a modern-day Marco Polo, intent on coming back home to regale the subjects of Her Majesty with fanciful tales of a far-away place where people use their mobile phones to pay for things and nobody uses paper money any more, much as Marco Polo himself would have regaled the inhabitants of Venice with his tales of (as it happens, the same) far-away place where people used paper money to pay for things and nobody used copper bars, cowrie shells or coins any more.

Money2020 China 18 - 22 of 28

Hanging with Tracey Davies, the President of Money2020.

My travels were a lot easier than Marco’s because for one thing I was able to fly directly to Shanghai whereas it took him years to get there and for another thing because everyone (and I mean everyone) has a smartphone, and their smartphones all have translation applications that convert spoken English to written Chinese and spoken Chinese to written English. My first experience of this was at Shanghai airport when the driver meeting me spoke into his phone and then presented me with a screen saying “do you know this person?” and holding up a sign with “Chris Skinner” on it. Naturally, I took the phone and said into the microphone “no, I’ve never heard of him and I’ve never read any of his books either” but it was too late as the driver had just seen him in arrivals.

Money2020 China 18 - 3 of 28


Flying the flag for Brexit Britain

My first step on the road to amazing my peers back home was to get a working AliPay or WeChat account. I’d forgotten my AliPay password so I decided to sign up for a new account. Unfortunately you can’t get an AliPay account with a UK phone number. An American phone number, yes. An Australian phone number, no problem. A Burkina Faso phone number, Bob’s your uncle.

Money2020 China 18 - 2 of 28


Alipay options

As it seemed like a UK phone number was beyond the pale, I decided to get WeChat instead. I activated my WeChat money function by linking my account to a couple of my credit cards.

Money2020 China 18 - 9 of 28

Activiating WeChat Money

None of my cards worked in this context, but it didn’t matter because once the money function is activated you can just give people cash and ask them to send the same amount via WeChat, thus topping up via a system of human Qiwi terminals. One of the women that kindly agreed to do this for me, on being handed a couple of RMB 100 notes, told me that it was the first time she’d touched paper money for at least a year.

Money2020 China 18 - 5 of 28

Woot! You can pay me using WeChat right now if you want to.

(China was the first in to printed means of exchange and they are close to being first out, close to being the first nation-state where notes and coins are economically irrelevant and post-functional cash will be the only kind most people ever possess. It looks as if China’s 800 year experiment with paper money will soon be over.)

Actually, it turns out that my stories of mobile phone payments are almost completely uninteresting – I wish you’d told me before, frankly – because everyone has now heard about WeChat and AliPay, everyone understands the transformational nature of their payments platforms and everyone has seen the ubiquity of QR  codes. The one time we tried to use NFC, ApplePay and that totem of Western Civilisation, the iPhone (which is, of course, made in China) to pay for something, it didn’t work. App and pay, frankly, is beating tap and pay.

Money2020 China 18 - 20 of 28

A payment expert witnesses the failure of tap-and-pay

(China was early into NFC, with China Mobile doing plenty of experiments in the field. Further back, Hong Kong was the birthplace of the contactless mass transit card, the Octopus scheme. I note that the Hong Kong MTA has just awarded a contract for QR code ticketing. It looks as if China’s 25 year experiment with contactless will soon be over.)

Money2020 China 18 - 14 of 28

Ron Kalifa talking about value-added merchant services

As for the conference itself, I particularly enjoyed Worldpay vice-chairman Ron Kalifa’s fireside chat. He said that in general people were underestimating the impact of open banking and I am certain that he is right. He also presented Worldpay’s annual report on payment trends worldwide, which was very interesting as you might expect.

One of the factors central to the evolution of payments is security and so I always enjoy presentations around fraud. In China, these have scary large numbers attached to them, but you have to take into account the size of the Chinese economy. According to the back of my envelope, Chinese cybercrime losses are lower than in many other countries.

Money2020 China 18 - 26 of 28

Real, and scary, fraud numbers

Given the widespread use of scores of one form or another to determine trustworthiness it is no coincidence that China sees a rise in frauds relating to the manipulation of these scores. Without commenting on the benefits or otherwise of such models (most Brits, myself included, can only think of Black Mirror when social scores are discussed) it is worth making the point that preventing “gaming” of these scores while preserving individual privacy means dealing with paradoxes that might well be resolved through the use of cryptographic techniques that have no conventional analogues and are therefore difficult for policymakers to bear in mind.

Money2020 China 18 - 27 of 28

Reputation fraud in action

Most of what I found thought-provoking, both in the presentations and the water cooler discussions, was to do with business models rather than new technologies. The new technology that fascinated me most was the toilet in my hotel room. The lid opens automatically when you walk into the smallest room and once you have settled onto the warmed and padded seat you are faced with a control panel (shown below) that gives access to a variety of functions, all of them wonderful. Next time someone tells you that a cashless economy is as likely as a paperless bathroom, tell them that I’ve experienced both, and they are both awesome.

Money2020 China 18 - 1 of 28

Toilet 2.0

The new business models emerging in a regulated, platform-centric, dynamic market are what we should be studying. We might choose to implement some of these models in a slightly different way taking into account the varying cultural norms around security and privacy, but the idea of separating payments from banking and then turning payments into platforms, and then using these platforms to acquire customers at scale for other businesses is certainly very interesting.

Money2020 China 18 - 18 of 28  

This is what a smartphone-centric platform looks like

These new models, of course, centre on data and value-adding using that data. When people pay for everything with their mobile phone, they lay down a seam of data that is waiting to be mined. Despite this, the convenience of the mobile-centre platforms is so great that people are clearly willing to put privacy concerns to one side. I chaired a great session on privacy with CashShield, Symphony and eCreditPal with, I think, gave out a very comforting message: if you build services with privacy in the first place, then actually complying with GDPR and other global regulations is actually not that much of a problem.

Money2020 China 18 - 25 of 28


One more thing that struck me about the context for these developments that it seems to me that China is making its e-money regulation more like the EU’s. With an EU electronic money licence, the organisations holding the funds must keep them in Tier 1 capital and are not allowed to gamble the customer’s money, whereas in China there was no such restriction. Now the People’s Bank has said that from January 2019 the Chinese operators will have to hold a 100% reserve in non-interest bearing deposits at a commercial banks, a decision that will likely cost the main players (Tencent and Alipay) a billion dollars or so in revenue.

Anyway, a big thank you to the Money2020 for giving me the opportunity to take part in this event! It was lovely to meet so many new people and see so many new perspectives, even if I did have to spend some of the time in a jazz bar.

Money2020 China 18 - 21 of 28


All in all, I wouldn’t change my job for all the tea in China, much of which you can see in this picture of the plantations outside Hangzhou.

Money2020 China 18 - 28 of 28

Looking forward to next year already.

Internet giants will be the banking front-end

A few months ago I wrote about the idea of an Amazon bank and expressed a certain amount of scepticism that Amazon would want to become a regulated financial institution, especially give the alternative of becoming the higher return-on-equity distribution mechanism for the lower return-on-equity heavily regulated financial products. At the time, I noted that almost half of US consumers surveyed said that were “open” to the idea of Amazon as the provider of their primary bank account. Now I see a survey from the management consultants Bain that says that two-thirds of Amazon Prime respondents would be willing to try a free online bank account offered by Amazon and a third of people who don’t buy from Amazon at all would do so.

The Prime figure is especially important because Amazon customers control three-quarters of US household wealth, which is quite an incentive for Amazon to step in between the banks and their customers. But I think my original point stands, which is that Amazon can do this without becoming a bank. Alex Brazier from the Bank of England put it clearly in a speech earlier this year, noting that “by allowing customers to connect to a range of banks and service providers through a single point, Open Banking could open to the door to the ‘unbundling’ of banking”.

I don’t think there’s any “could” about it. In fact, it could be argued that that’s a good thing – assembling optimal (for the customer) bundles of services from different providers is actually quite an appealing vision of the banking front-end of the future. The problem, from the banks’ perspective, is that that the front-end neither needs to be a bank nor wants to be a bank. Quite the reverse, in fact. The people who are good at front-ends (eg, Amazon) are perfectly happy to take control of the interface with the consumer and leave the banks as heavily regulated, low margin pipes sitting out of sight as the equivalent of utility companies but for money rather than gas, water or electricity.

Bain talk about a “a cobranded, mobile-friendly, checking-account-like product” which may well be what is achievable in the US market but in other markets around the world where the regulators are pushing through open banking to force more competition into the financial sector, I don’t see why Amazon would cobrand. My guess is that things will go the other way: customers want the Amazon brand, they couldn’t care less whether their Amazon Account is actually held by Santander or ING or Danske or anyone else. They’ll probably never read the small print to try and find out.This is why, I imagine, that a few months ago Bain said that in the UK the banks could see between one and two billion of annual pretax profits vanish because of open banking disintermediation unless they take some pretty dramatic action.

But what can they do? Well, they can become technology companies. Now, I know that the “meme” that banks are, essentially, a special kind of technology company (special because they are granted special privileges that other companies do not have, such as the ability to create money) is not mainstream, it deserves attention. It means, apart from anything else, that bank boards will need to include switched-on technologists and take a strategic view of technology, as Christian Edelmann and Patrick Hunt said in the Harvard Business Review: “Technology specialists will play a greater role in allocating investments, working alongside senior management from a more traditional background”.

From my early experiences as an advisor to boards in the FinTech space, I can see the dynamics at work here. To pick an obvious topic, some financial organisations’ early response to open banking was to see Application Programming Interfaces (APIs) as something to do with technology and therefore not strategic. This left them on the back foot against those organisation who saw the real context. All of which points to the future signposted by my old friend Brett King in his new book “Bank 4.0”, in which he says that the foundation of banking in the coming era is “being great at technology”.  In his closing chapter on “The Roadmap to Bank 4.0” Brett quotes Francisco Gonzalez, the Executive Chairman of BBVA, as saying that sooner or later it will be the internet giants (including Amazon) who will be his main rivals rather than other banks. This is why BBVA is reinventing its processes to being new products and services to the markets. Other banks are, of course, trying to do the same.

But can banks really become technology companies? Many observers think not. Instead they posit a future for banks as financial factories who have to accept the new order and partner with Amazon and others. Lenders would manufacture financial products, and tech giants would serve as distribution and servicing channels. In other words, Amazon’s future is to do with financial products what Amazon already does with other products. What’s more, as that Bloomberg article notes, because Amazon wouldn’t have to pay to lure customers — it already has millions of them — it could afford to set up digital accounts without “all the nuisance fees and relatively high minimum balances” that lenders impose. The Wall Street Journal says similarly that banks “face pressure to build relationships with big online platforms, which reach billions of users and drive a growing share of commerce” when reporting on Facebook’s request to banks to share detailed financial information about their customers, including transactions and balances, “as part of an effort to offer new services to users”.

(Remember, in Europe the banks won’t be able to say no to this.)

This transition for banks, the transition to operationally-efficient manufacturing of financial services while others take care of the distribution, will undoubtedly have casualties. It is no exaggeration to say that it is not clear that all of today’s retail banks will survive it.

Happy Birthday Credit Card Industry

Today is a very important day for us payments nerds. It’s the 60th anniversary of the “Fresno Drop”, the birth of the modern credit card industry. On 18th September 1958, Bank of America officially launched its first 60,000 credit cards in Fresno, California, setting in motion an experiment that changed the American way of borrowing, paying and budgeting.

And, in time, changed everyone else’s way of doing those too.

If you want a good introduction to the history of the credit card, from the Fresno Drop up to the Internet, I’d recommend Joe Nocera’s “A Piece of the Action“, which I read many years ago and still pick up from time to time.

If you want to spend five minutes having a quick look at where the modern credit card business comes from, here’s the short version (courtesy of CNN Money)The most extraordinary episode in credit card history is the great Fresno Drop of 1958. The brainchild of a Bank of America middle manager named Joe Williams, the “drop” (which is marketing-speak for “mass mailing”) was an inventive tactic to give Americans their first highly addictive taste of credit card living. Keep in mind that charge cards in those days–like Diners Club or American Express–were mainly used by jet setters, businessmen on expense accounts, and ladies who lunched… Williams wanted to change that. In September 1958, he mailed out 60,000 credit cards, named BankAmericards, to nearly every household in Fresno. Mind you, these cards arrived in the mailboxes of people who had never seen–let alone applied for–a card like that. But now thousands of ordinary people suddenly found that thousands of dollars in credit had literally dropped into their laps…

There you go. Now you can go ahead and bore at least one person today with the story of the Fresno Drop. I know I will.

As you might expect, I cover this episode in my book Before Babylon, Beyond Bitcoin, where I point out that what is sometimes overlooked from our modern perspective is that the evolutionary trajectory of credit cards was not a simple, straight, onwards-and-upwards path. For the first decade or so, it was far from clear whether the credit card would continue to exist as a product at all, and as late as 1970 there were people predicting that banks would abandon the concept completely. What changed everything was a combination of regulation and technology: regulation that allowed banks to charge higher interest rates and the technology of the magnetic stripe and Visa’s BASE I online authorisation system. This changed the customer experience, transformed the risk management and cut costs dramatically while simultaneously allowing the banks to earn a profit from the business.

It looks more than a decade for the Fresno drop to turn into the mass market business, integral to the economy, that we know today. So what financial technology experiment of our days will be of similar magnitude a decade because of regulatory and technological change a year from now? My guess would be something to do with tokens, but I’d be curious to hear yours.

Tokens and Twincoins

For some time – since when I first began jotting down an outline for my last book, in fact – I have been boring clients, colleagues and carvings senseless with my mantra that while Bitcoin isn’t the future of money, tokens might well be. What’s more, as I have presented more than once, those tokens will have an institutional relationship with “real world” assets. Now I see that none other than noted cryptocurrency investors the Winklevii have launched just such as product. Gemini Trust, their cryptocurrency exchange, has won approval from New York finance regulators to launch Gemini Dollars.

These are tokens on the Ethereum blockchain that are pegged in value to the U.S. dollar (in other words, they are kind of digital currency board). State Street Bank will hold the reserve of one greenback for every token issued and, I assume, they will be redeemable on demand and at par.

Now, I know nothing about entrepreneurhip or venture investing or creating cryptoasset trading platforms, but I think they are on to something. Many people will want to hold dollars as digital bearer instruments rather than as a bank balances. When my smart contract sends a Gemini dollar to your smart contract, that’s pretty much that. It’s inexpensive and fast.

This idea of using cryptocurrencies to support tokens linked to something in the real world is hardly new. But it’s becoming something of a focus now. Kevin Werbach published a very good article about tokens on the Knowledge @ Wharton site recently. He set out a useful taxonomy to help with discussion and debate around the topic, saying that

  • There is cryptocurrency: the idea that networks can securely transfer value without central points of control;

  • There is blockchain: the idea that networks can collectively reach consensus about information across trust boundaries;

  • And there are cryptoassets: the idea that virtual currencies can be “financialized” into tradable assets.

I might use a slightly different,  more generalised approach (because a blockchain is only one kind of shared ledger that could be used to transfer digital values around), but Kevin summarises the situation exceedingly well. His perspective is that cryptocurrency is a revolutionary concept but the jury is still out on whether the revolution will succeed, whereas the shared ledger and the assets that might be managed using those shared ledgers are game-changing innovations but essentially evolutionary. The idea of such assets, which I will label digital bearer instruments, goes back to the long-ago days of DigiCash and Mondex, but the idea of implementing them using technology that is (in principle) available to every single person on the planet is wholly new. 

This combination of the revolutionary but unproven and the evolutionary but nevertheless game changing fascinates me and I’ve been exploring it in a number of different areas. One such area is money, of course, and more particularly the notion of central bank digital currency. I feel this is often discussed in a confusing way (not by me). I see articles on the topic that almost randomly switch between “digital currency”, “cryptocurrency” and “digital fiat” to the point that they are essentially meaningless. So I thought it might be useful to build on my work and Kevin’s perspectives to create a worthwhile framework for exploring the topic.

Let’s begin by exploring what the central concept is all about. Ben Dyson and Jack Meaning from the Bank of England discuss a particular kind of central bank digital currency (what some would call  “digital fiat”) with quite specific characteristics.

  1. Universally accessible (anyone can hold it);

  2. Interest-bearing (with a variable rate of interest);

  3. Exchangeable for banknotes and central bank reserves at par (i.e. one-for-one);

  4. Based on accounts linked to real-world identities (not anonymous tokens);

  5. Withdrawable from your bank accounts (in the same way that you can withdraw banknotes).

This seems to me to be quite sensible definition to work with. So, digital fiat is a particular kind of digital money with these specific characteristics. We can now start to fill in the blanks about how such a system might work. For example, should it be centralised, distributed or decentralised? Given that, as The Economist noted in an article about given access to central bank money to everybody, “administrative costs should be low, given the no-frills nature of the accounts”, and given that a centralised system has the lowest cost, that would seem to point toward something like M-PESA but run by the government.

There are, however, other arguments in favour of using newer and more radical technological solutions., not least of which is our old friend privacy. Again, as The Economist notes, people might well be “uncomfortable with accounts that give governments detailed information about transactions, particularly if they hasten the decline of good old anonymous cash”. However, as I have often written, I think there are ways to deliver appropriate levels of privacy into this kind of transactional system and the pseudonymity is an obvious way to do this efficiently within a democratic framework.

Aside from privacy, there’s another argument for moving to new technology rather than a centralised database, and it has come to the fore in the light of the recent Visa Europe systems collapse, which is what to do to make such a digital money system, 99.999% available. Here is where new technologies might be able to deliver the step change that takes us into the realm of practical digital fiat. Such a payment system would be an element of critical national infrastructure, which is why it might be worth looking at some form of shared ledger technology, possibly even a blockchain of some kind, in this context.

Here’s my take on the situation, then, with a diagram that I’ll be showing at Future Tense in Zagreb on 2nd October. It is congruent with Kevin’s taxonomy but adds the “digital identity” layer to show that the token trading might be pseudonymous in most practical circumstances within specified limits. 

Digital and Crypto Layers


In this formulation, we have a digital value layer that may or may not be implemented using a blockchain to create the bearer instruments, then a cryptoasset layer built on top of that (let’s put one side what the different kinds of cryptoassets might be as for this discussion I’m only interested in digital money) and then a digital identity layer on top. My assumption is that cryptoassets will be implemented using what some people call “smart contracts” (I prefer the term “consensus applications”) and the general term for these vehicle used to move these assets is the “token”. So I hope you can now see how the world of Bitcoins and tokens and Initial Coin Offerings (ICOs) and blockchains and digital identity all come together here.

So. If this is sensible way to implement money, as the Winklevii and others seems to think, who will manage the assets that are linked to these tokens? The first and most obvious possibility is commercial banks, as in the case of Gemini Coin. But there are others, as I set out in my most recent paper, and I’ll be exploring all of them in Zagreb. See you there.

The Man Who Tokenised The World

David Bowie was a genius. That is a word that gets bandied around all too lightly these days, but in his case it is entirely justified. And not because of his music, as brilliant as it is. No. Bowie was a genius because he understood the future. When looking at how the internet was developing, he famously predicted the end game: streaming. Indeed, he said at the time that music would become “like water” piped into our homes.

(And his music was indeed brilliant: Aladdin Sane was the first album I ever bought with my own hard-earned cash, Ziggy Stardust was part of the soundtrack to my college years and “Heroes” is one of my all time favourite songs.)

Not only did Bowie predict the future, he monetised it. In what I am convinced that future economic historians will surely highlight as one of the weak signals for change to a post-industrial economy, he created the Bowie Bond. This was a 10 year, 7.9% self-liquidating bond backed by the revenues from all of his music prior to 1993. The value of this over a decade was estimated at $100 million and stamped as AAA by credit rating agencies. Then, in 1997, these bonds were sold to Wall Street. Whether Bowie knew that this valuation was nonsense or not I couldn’t say, but he made $55 million from the bond sale. A few years later, the bonds were trading as junk. Bowie, as it turned out, was smarter than the bond market.

Ten years ago I wrote about the Bowie Bonds when I was thinking a lot about private currencies and digital money. It had occurred to me that those $1,000 Bowie Bonds were a shade away from being a form of Bowie Bucks and that if they had been issued as some kind of digital bearer instrument (DBI, or what many people now call “tokens”) then would have been a form of repetitional currency. I said that while it might seem strange to imagine trading in Bowie Dollars that are simply units of Bowie bonds, why not? As I noted at the time, it would be no different to trading with Edward de Bono’s “IBM Dollar” (in that it’s a claim on some future asset) or a similar instruments.

At the time, of course, I did not know that the shared ledger revolution was around the corner, so I imagined that Bowie Bucks would be implemented either in decentralised hardware (a la Mondex) or centralised software (a la Digicash). Now we have another and more appealing alternative to deliver the currencies of the future: tokens trading on shared ledgers. If Bowie were here today, I’m sure he would be discussing a token sale rather than a bond sale. But on what platform? Do the permissionless public ledgers work as a platform? Or do we need institutions to create permissioned ledgers with service-level agreements? How exactly will the money of the future work?

Digital and Crypto Layers 

I’ll be talking about this world of cryptomarkets, cryptoassets and cryptocurrencies at the 3rd Nordic Blockchain Summit at Copenhagen Business School on Friday, so I look forward to seeing you all there. I’m genuinely keen to learn more in this space interested your spectrum of view on tokenisation and such like. Don’t be shy with the question.

Basically, nothing is happening in UK banking

The British newspapers all reported on the latest figures for current account switching. Here’s an example: “Branch closures, IT meltdowns and vanishing cash machines have forced nearly a million disgruntled savers to ditch their bank and move to a rival in the past 12 months”. Wow. Nearly a million. That sounds like a lot.

But I wonder how many disgruntled customers did that last year? Not so wow. Nearly a million. So, basically, nothing has changed.

In fact the number of people switching accounts, while slightly up on last year, is 9% down on 2016. And the number of people switching is still a fifth down on 2012, the year before the banks were forced to introduce the Current Account Switching Service (CASS, a system which cost hundreds of millions of pounds) to reduce the average time to change bank accounts from around 10 days to a week.

Yes, that right. There are still fewer people switching accounts now than there were before the convenient and user-friendly account switching service was introduced.

Frankly, you can understand why no-one bothers switching. Every bank delivers basically the same service as every other bank, so the number of people switching accounts remains at around 3% of the customer base. And in a sector that is so heavily regulated, the cost of innovation is so high that only the most mass market of new products or services can get into production – it is very difficult to go down a more agile, design-led path.

The headline should have been “Despite everything that banks can throw at them, British bank customers resolutely refuse to move accounts”. This more accurate description of the retail banking landscape appeared, as far as I could tell, only in the Pink ‘Un. In a lovely piece titled “What would it take for you to switch your bank account”, Clear Barrett highlights the specific example of TSB and notes that despite the catastrophic failure of their system and weeks of chaos, only a tiny fraction of the customer base blew them off and switched! They had a net loss of only 6,000 customers (26,000 customers left but – astonishingly – 20,000 joined).

What about the “challengers” you say? Well, first of all, “challengers” is a bad name for what are essentially niche banks. Second of all, what about them? According to the FT, when data analytics company Ogury carried out a study of just over 1.5m mobile users in the UK in the second quarter of this year, it discovered that all of the top ten most-used ‘banking’ apps were from the traditional high-street banks.

So, no-one changes their current accounts (or their savings accounts, which the FCA says gives the big banks a cheap way to fund lending and stifles the “challengers”). But in the future, this inertia will be overcome.

How? Well, as the FT noted, and as I have repeated ad nauseam, “UK bank executives probably aren’t losing too much sleep over fintechs just yet. More likely to have them reaching for the Zopiclone are the US tech giants moving into the payments sector who — somewhat perversely — could end up being the biggest beneficiaries of PSD2″.

What does this mean for account switching? I think it could be very significant indeed. Open banking means that banking services will be delivered by these tech giants acting as “third party providers” (TPPs). The TPPs will manage the relationship with the customer and interact with the banks through application programming interfaces (APIs). The banks will be the heavily regulated, low margin, high volume machines sitting behind those APIs, and the will be selected because of service level agreements and cost/capacity calculations, not because of adverts of spacemen floating down beaches while singing.

The account switching will be done by bots rather than by those customers, disgruntled or not. When I decide to open my Amazon savings account, I’ll never bother to read the small print and find out that the account is actually provided by Barclays. And when Barclays try to charge Amazon a penny more, Amazon will move the account to Goldman Sachs. I haven’t switched my main bank account for 41 years, but I can imagine algorithms changing it for me every 41 days to get the best possible deal on financial services at all times.

Signatures, Sergio and standardising the payment experience

According to The Daily Telegraph, “written signatures are dying out amid a digital revolution”. I’m going to miss them. Of course I know that when it comes to making a retail transaction, my signature is utterly unimportant. This is why transactions work perfectly well when I either do not give a signature (for contactless transactions up to £30 in the UK, for example, or for no-signature swipe transactions in the US) or give a completely pointless signature as I do for almost all US transactions.

“Fears are growing that this is potentially leaving people open to the risk of identity theft and fraud as their signatures are more easily imitated.”

From “Traditional signatures are dying out amid digital revolution”.

If I do have to provide a signature, then for security purposes I never give my own signature and for many years have always signed in the name of my favourite South American footballer who plays for Manchester City. Now it turns out that this is sound legal advice, since according to Gary Rycroft, a solicitor at  Joseph A. Jones & Co. it is an increasing problem that people people order things online but sometimes they do not show up so to acknowledge receiving something “I always sign my initials, for example, so I could prove if it wasn’t me” (because, presumably, a criminal would try to fake Gary’s signature).


Now the issue of signatures and the general use of them to authenticate customers for credit card transactions in the US has long been a source of amusement and anecdote. I am as guilty as everybody else is using the US retail purchasing experience to poke fun at the infrastructure there (with some justification, since as everybody knows the US is responsible for about a quarter of the world’s card transactions but half of the world’s card fraud) but I’ve also used it to illustrate some more general points about identity and authentication. My old friend Brett King wrote a great piece about signatures a few years ago in which he also made a more general point about authentication mechanisms for the 21st-century, referring to a UN/ICAO commissioned survey on the use of signatures in passports. A number of countries (including the UK) recommended phasing out theme-honoured practice because it was no longer deemed of practical use.

Well, signatures have gone the way of all things. In April, the US schemes stopped requiring signatures.

They were sort of defunct anyway. According to the New York Times, Walmart considers signatures “worthless” and has already stopped recording them on most transactions. Target has stopped using them too. I completely understand why, but to be honest I think I’ll miss signing for purchases in America.

Money 2020 Signature

No more signing Sergio Aquero for US credit card transactions, hello to signing Sergio Aquero for the Amazon lady who calls at my house with monotonous regularity.

If you are interested in the topic of signatures at all, there was a brilliant NPR Planet Money Podcast (Episode number 564) on the topic of signatures for payment card transactions a couple of years ago, in which the presenters asked why were we still using this pointless authentication technique.

Ronald Mann (the Colombia law professor interviewed for the show) noted that card signatures are not really about security at all but about distributing liabilities for fraudulent transactions and called signatures “eccentric relics”, a phrase I love. His point was that the system doesn’t really care whether I sign my transaction Dave Birch or Sergio Aquero: all it cares is that it can send the chargeback the right way (bank or merchant, essentially) when it comes in.

In addition to the law professor, NPR also asked a Talmudic scholar about signatures.

(The Talmud is the written version of the Jewish oral law and the rabbinic commentary on it that was completed in its current form some time in the fifth century. There are two parts to it: the oral law itself, which is known as the Mishnah, and the record of the rabbis arguing about it and what it meant, which is known as the Gemara.)

The scholar made a very interesting point about the use of these eccentric relics when he was talking about the signatures that are attached to the Jewish marriage contract, the Ketubah. He pointed out that it is the signatures of the witnesses that have the critical function, not the signatures of the participants, because of their role in dispute resolution. In the event of dispute, the signatures were used to track down the witnesses so that they can attest as to the ceremony taking place and as to who the participants were. This is echoed in that Telegraph article, where it notes that the use of signatures will continue for important documents such as wills, where a witness is required.

(The NPR show narrator made a good point about this, which is that it might make more sense for the coffee shop to get the signature of the person behind you in the line than yours, since yours is essentially ceremonial whereas the one of the person behind you has that Talmudic forensic function.)

The Talmudic scholar also mentioned in passing that according to the commentaries on the text, the wise men from 20 centuries ago also decided that all transactions deserved the same protection. It doesn’t matter whether it’s a penny or £1000, the transaction should still be witnessed in such a way as to provide the appropriate levels of protection to the participants. Predating PSD2 by some time, the Talmud says that every purchase is important and requires strong authentication.

So, my interpretation of the Talmud is that it is goodbye to contactless and goodbye to stripe and goodbye to chip and PIN and hello to strong authentication (which may be passive or active) and secure elements: we have the prospect of a common payment experience in store, on the web and in-app: you click “pay” and if it’s for a couple of quid the phone will just figure hey it’s you and authenticate, if it’s for a few quid your phone will ask you to confirm and can use your finger or your face and then if it’s for a few million quid you’ll get a callback for voice recognition and a retinal scan. The same purchase experience for everything: the cup of coffee and the pair of shoes and the plane ticket. It turns out that once again we can go back to the future in the design of our next retail payments system.