Month: December 2019

Was 2019 the year central bankers got interested in retail payments?

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Through 2019 the spectre of Facebook’s stablecoin initiative, Libra, has stalked the world’s central bankers. With a potential reach in the billions and the fact that it would bypass existing national currencies, the proposal put the frighteners on England’s old lady and central bankers around the world. But perhaps there is unity in fear, and during 2019 we have seen cooperation between central banks. The central bankers have been clear on Libra: “there is an open mind, but not an open door.” In addition, they have been thinking carefully about the reasons Libra attracted such positive coverage. 

The Bank of England’s future of finance review concluded that despite the ongoing revolution in online commerce, payments are often more expensive than they need be and take too long to clear. This is amplified for cross-border payments which can cost up to 10 times their domestic equivalent. Central bankers in the UK, Eurozone and US are all taking action to address this. The US Federal Reserve has proposed building a real-time payment system, FedNow; and, the ECB has thrown its support into an initiative to enable SEPA Instant payments at point of sale, PEPSI (Pan-European Payment System Initiative). In the UK, the Bank of England has pioneered efforts to enable non-Bank PSPs to access central bank money, and will consult further in 2020. 

Historically central banks don’t tend to worry about the low-value payments made by the person in the street. They care about the high-value wholesale payments. This has changed in 2019, and I do not expect a reversal. As the central banks central banker, the Bank of International Settlements (BIS), concluded recently the development of cryptocurrency, the entry of big tech firms into financial services and the Libra proposal has “propelled money and the payment system to the top of the policy agenda.” And BIS has asserted the central role of central banks in payment systems. To paraphrase Agustin Carstens, BIS’ General Manager, it doesn’t matter how a payment system is organised central banks must provide the foundations of that system. These foundations include the unit of account, settlement finality, liquidity provision and regulatory oversight. 

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Learning from India’s payment revolution

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The search engine Google, in its recent submission to the Federal Reserve’s consultation on the proposal to create a real-time payment system, FedNow, urged the US central bank to learn from India’s payment system. In India, the National Payments Corporation of India, a non-profit partnership between the central bank and commercial lenders, has built the Unified Payments Interface (UPI).

The UPI launched in 2016 and is a real-time interbank payment system that also harnesses the philosophy of open banking. Technology companies can build applications that can transfer funds in and out of payment accounts held at banks. The rate for growth in the use of the UPI has been dramatic. The monthly volume of UPI digital retail transactions has risen seven-fold since the beginning of 2018. In November 2019, there were more than a billion transactions, totalling around $27 billion in value. The UPI has facilitated the large-scale adoption of digital retail payments in India, increasing from 65% in 2013/14 to 95% in 2018/19. 

India has shown that open payments infrastructure can address policy problems like financial inclusion. For instance, India has gone from only 27% of adults holding a Bank account in 2008 to 80% in 2017. It also can enable significant innovation and competition. However, payments infrastructure alone will not solve all these problems. It must go hand-in-hand with trusted digital identity services, appropriate data protection arrangements and robust fraud protections. This together with wider Government initiatives like demonetisation appear to have moved the needle on financial inclusion.

But, before we get too carried away on the growth trajectory of payments in India it is worth bearing in mind that India is starting from a low base. Despite the staggering growth in the use of cashless payments, the average Indian made under 20 cashless payments during 2018.

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Two sources

JimMeyrick

[This will not be the usual fare]

Yesterday evening (9 December) according to “senior Tories” (Robert Peston, ITV Political Editor) and “two sources” (Laura Kuenssberg, BBC Political Editor) a Labour activist punched a Conservative party advisor. The incident apparently occurred when the Health Secretary (Rt Hon Matt Hancock) visited Leeds General Hospital.

This didn’t happen. But for several hours apparently it had. The perpetrator had been arrested. The protesters got to the hospital in taxis paid for by the Labour Party. None of it true.

One assumes this is part of the rough and tumble of election campaigns. However, what struck me was the “two sources” line from Laura Kuensberg. Racking my brain, I remembered a piece by Peter Oborne in October for Open Democracy. Entitled “British journalists have become part of Johnson’s fake news machines” The article is worth revisiting.

Mr Oborne’s article starts with an autopsy of a Mail on Sunday front-page splash during one of the fevered Brexit period that eventually led to the passing of the Benn Act that would prevent a “no deal” Brexit. The Mail on Sunday’s original story asserted that “the Government is working on extensive investigations into Dominic Grieve, Oliver Letwin and Hilary Benn and their involvement with foreign powers and the funding of their activities.” Strong stuff, but was there an investigation? According to Oborne’s account, the Number 10 press office and Cabinet Office spokesmen denied the existence of such an investigation.

The Mail on Sunday stated when questioned by Open Democracy:

We stand firmly by our story. Two separate sources in Downing Street told us that officials in Number 10 were gathering evidence about allegations of foreign collusion by MPs opposed to a No Deal Brexit. When the prime minister was asked about our story on the BBC ‘Today’ programme on 1 October he responded that there were ‘legitimate questions to be asked about the generation of this legislation’.

Two separate sources again.

Mr Peston even wrote a long reply to the piece. I won’t summarise it. However, he proudly writes that:

[the role of a] conscientious political reporter then and now has been to distinguish palpable nonsense spouted by aides from information that genuinely represents the policy of the Government.

So was the non-existence of a punch a policy that brave Mr Peston was relaying with “maximum transparency permitted under conventions that govern political reporting in the UK”? Or simply that the policy is distraction, and some journalists are just hapless pawns in the game?

I hope that this is life lesson for Mr Peston and Mrs Kuenssberg and other British journalists prone to such errors. Maybe they won’t in future simply transmit what comes out of the mouths – or whatsapp accounts – of their “two sources.” But, I will not hold my breath.

So what chance do us unwashed folks have? How can we hope to know what has actually happened in our politics when the political editors of our two largest television networks apparently do not fact check what was a clear incident that either happened or did not. It seems at the minute they simply get the story from one (senior) bloke with a vested interested and check it with his mate.

I donate to fullfact.org. I suggest others should too.

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Gotta have it – Wearable payments increase 800% in EU (28 November)

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In just one year, the number of wearable transactions made in Europe has risen eightfold. Mastercard figures show that European consumers were able to use payment-enabled wearables in 26 EU countries using over 30 different devices. The Dutch were the most prolific users of wearables to make payments, and the Netherlands accounted for a third of all wearable transactions. The UK accounted for 18% of the total. Globally the most wearable payments were made in Australia.

The Mastercard figures are based on payments made using active and passive wearables. A passive wearable is something like a ring or a key fob, and you use it like a contactless card. You can approve the transaction by entering your PIN on a payment terminal. With active wearables, like a smartwatch, you can enter your PIN on the wearable itself and complete the payment with a single tap.

However, the distinction between active and passive wearables is increasingly blurred. Natwest has announced that it is issuing a payment fob linked to a customer’s fingerprint that will allow contactless payment of up to £100. Is this active or passive? The use of biometrics blurs this distinction, and the use of biometrics in payments is increasing. For instance, earlier this month, Barclays released an improved version of its VeinID reader for corporate customers. The new version is smaller, more portable and wireless-enabled. These changes are driven by improvements in technology, a desire for greater security and regulations – biometric authentication in its broader form, inherance, can be one of the two factors required for authentication under PSD2.

Read more:

– Mastercard, wearable payments are taking off across Europe: eightfold increase in transactions in just a year: https://newsroom.mastercard.com/eu/press-releases/wearable-payments-are-taking-off-across-europe-eightfold-increase-in-transactions-in-just-a-year/

– Finextra. NatWest tests biometric payment fob: https://www.finextra.com/newsarticle/34888/natwest-tests-biometric-payment-fob

The choice of a new generation (26 November)

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The European Central Bank (ECB) has relaunched its retail payments strategy. It has put dislodging the card schemes at the heart of the policy. It plans to “actively foster pan-European market initiatives for retail payments at the location of the purchase or interaction.” ECB Governing Council member, Benoit Cœuré, wants European banks to use the SEPA instant payment scheme to facilitate instant, secure and inexpensive payments online and in bricks and mortar stores.

Mr Cœuré lamented the absence of a European solution for point-of-sale and online payments. The fact that ten European countries have national card schemes that do not accept cards from other EU countries is not acceptable to him. However, twenty European Banks are plotting to fill the gap. The so-called Pan-European Payment System Initiative – or PEPSI – is trying to create an alternative to Visa and Mastercard.

For the initiative to get the ECB’s seal of approval Mr Cœuré wants PEPSI to offer the following: Pan-European reach; be convenient and cost-efficient; safe and secure – it should have the highest levels of fraud protection and provide consumer protection with robust complaint and refund procedures common brand and logos; and, finally, global acceptance. Mr Cœuré wants to see a clear roadmap on the future of PEPSI. If Visa and Mastercard are the real thing, will PEPSI be the choice of a new generation of Europeans?

Read more: Benoit Coeure (ECB), Towards the retail payments of tomorrow: a European strategy: https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp191126~5230672c11.en.html