I remember sitting through a discussion about the security of a proposed new payments security in an online meeting recently when one of the people round the metaphorical whiteboard said something about “John Dillinger’s famous quote” that he robbed banks because that’s where the money is.
Due to my obsessive nature I was forced to immediately halt the proceedings and annoy all participants by pointing out that the pithy maxim is nothing to do with the much-celebrated former public enemy no.1, who was shot dead by the FBI in 1934, but is in fact generally attributed to another noted criminal from the era of bank branches, leather wallets and physical cash: “Slick” Willie Sutton.
That famous phrase “that’s where the money is” dates to 1952, when it appeared in a Southern Californian newspaper. Today it is so commonplace that social scientists have dubbed the process of considering the obvious first as “Sutton’s Law”. In his autobiography, however, Sutton denied ever saying it!
(In fact, and more interestingly in my opinion, in that same autobiography he wrote “Why did I rob banks? Because I enjoyed it”.)Dillinger and Sutton are figures from a bygone age, when the people who robbed banks didn’t work for them. Click To Tweet
Today when most of us think about bank robbery, we think about people inventing complex derivatives and amassing fortunes while the institutions that house them amass fines, bankruptcies and bailouts. But it turns out that your grandparent’s bank robberies are not entirely extinct. American Banker says that violent bank crime has indeed become increasingly less common in recent years (although it ticked back up in the middle of the last decade) but there were still 1,788 bank robberies in the US in 2020, the most recent year for which FBI statistics are complete, compared with 5,546 ten years ago.
(By comparison, in largely cash-free Sweden, there were five bank robberies in 2020, down from the the 2011 peak of 43. Only three of these were armed robberies.)
In the fintech age, there are really only two ways for armed robbers to go. They either have to scale up, or look at adjacencies. So where can look for a glimpse into those strategies? Well, Brazil is a hotbed of fintech innovation (the noted investment outfit Berkshire Hathaway has just dumped shares in Visa and Mastercard and has bought $1 billion in shares of the Brazilian digital bank Nubank) so that seems a reasonable place to look for what economists call weak signals for change. Here are two I found to illustrate the point.
First, scale. Banks branches just don’t have that much money in them, so given the fixed costs of shotguns, balaclavas and hideouts, it makes senses to rob a bunch of them at once. Armed robbers in the city of Araçatuba, a few hundred miles north-west of São Paulo, decided to scale up in this manner. They cut off key access roads to the city with burning vehicles, attacked the local military police station and placed some 40 explosive devices at 20 different locations around the city. Then they robbed multiple banks and escaped by tying hostages to their cars as human shields.
The alternative is to look for adjacencies where core skills and sunk costs can be exploited. This appears to be the route taken by many Brazilian armed robbers who have decided to move into the electronic age by kidnapping people off the street and then forcing victim’s families to send them money by credit transfer using the new Pix instant payments platform. In fact this mode of operation has become so common that the central bank has been forced to restrict the use of the instant payments platform and if a bill in the São Paulo Legislative Assembly becomes law, it will prevent financial services providers and payment institutions from processing payments through Pix at all until the Central Bank improves consumer protection.
(Pix is the instant payment system launched by Banco Central do Brasil in October 2020. Funds can be transferred between checking, savings or prepaid accounts in seconds. Anyone with a ID and a mobile phone can use the service, which has been a huge success, with something like tw0-thirds of the adult population using it. It carries about three-quarters of the nation’s transactions.)
The end of cash doesn’t mean the end of crime. But it does mean that we have to do proper risk analysis on its replacements, whether these are going to be electronic money (eg, instant payments in the UK, where authorised push payment fraud is out of control is already more than card fraud), electronic cash (in the form of public or private digital currency) or cryptocurrency.
(This is an edited version of an article first published on Forbes, 25th January 2022.)