Archive for February, 2010

Remove Volatility

Today I was confronted with volatility. In a two week period gas prices had gone from 2.395 to 26795, quite a climb of less than 14 days.

Volatility, this is what we must remove from peoples lives. Stability and comfort are what is important. Having gameful activity to allows us to contribute to the whole. Being idle is unproductive and only benefits the traders who prey on short term activity to enjoy profits from volatility.

Our President must accept that the Wall Street lobby must be squelched for a while as volatility is banded from the marketplace. This will take an acceptance on the part of the wealthy that they cannot take it beyond the grave and before that excessive income is not acceptable to the healthy grow of civilization.

Set a maximum salary of say 2 million.

Foreign exchange markets are another area of concern. Volatility based on war and famine must the mitigated out of the civilization.

Our civilization is global and provisional limitations such as food subsidies need to be removed.

Remember they are simply subsidies paid by the tax payer. Government should be limited to a percent of the population; remembering its role is to only assure the the primitive functions of justice, liberty, freedom and security.

Regulation is something that must be removed and a new form of peer review established with responsibility to maintain quality, service, stewardship for the planet, and a judicious use of nature resources. Free enterprise is encouraged by remembering that it is the relationship between the customer and proffer that ultimately decides success.

The Future of Money

I took offence when I looked at the picture included in the article published on Wired.

http://www.wired.com/magazine/2010/02/ff_futureofmoney_move/

The arduous path that he has carved out for a card transaction assumes a lot of unnecessary intermediaries that have included themselves within the picture.

For me the story can be simplified.

Credit card processing involved a minimum of five parties.  The Issuing bank and its technology arm, the acquirer and its network and the scheme (Visa, MasterCard … ).  Everyone else is about the realities of the ISO marketplace and the proliferation of parties offering added value services along the transaction path.

 

 

Remember a credit card transaction is simply

 

Swipe/Tap/Dip/PIN.

Add transaction amount, time, merchant etc.

Ask Acquirer for approval.

Acquirer passed to scheme

Scheme routes to Issuer

Issuer approves and sends back the authorization.

then if necessary sign receipt

That night batches of requests for payment are sent from the acquirer to the Issuer with the Scheme, reconciled and settled.

 

Then there is ACH.  Yes the technology needs a modernization the functionality must be stream lined and ubiquity must be embedded in the pricing model.

Electronic checks that are facsimiles of hand written checks cleared through the Check 21 system should not be eliminated, they are efficient and provide a great personal audit trail.  handling the paper should be pushed as close to the original transaction as possible so that personal accountability is induced.  The person I handed the check to has the check.  So if there is a problem I have to deal with him.

Otherwise all the necessary transactions are possible and with the move to STP “straight through processing” the ability to assure availability of funds can be assured.

What are most of the other schemes.  First like American Express they are three party solutions with a man in the middle holding funds on account in a pre-paid scenario or capable of submitting as your proxy transactions into the ACH and card systems.

Yes the three party system is the most efficient.  Unfortunately it has one problem, it is not open.

Visa and MasterCard, although viewed as restrictive, are open systems.  They accept; any properly sanctioned bank as a member willing to abide by the rules and maintain sufficient reserved.  For a new system to acquire this status either means they become a bank and meet those incremental regulations or they focus on building critical mass as American Express has proven can be done.

So as this next article concludes, what is can improve and probably is better than something new.

http://www.wired.com/magazine/2010/02/ff_futureofmoney/all/1

The Future of Money: It’s Flexible, Frictionless and (Almost) Free

This is what I have done as the following snapshot indicates:

www.andreae.com/presentations

In a paper recently published by the Federal Reserve they begin to consider what actions the FRB should take to drive the further adoption of P2P electronic payments and the reduction in paper checks.

http://www.bos.frb.org/economic/ppdp/2010/ppdp1001.pdf

Their introduction speaks to the differences in adoption of electronic payments in the USA and Europe.  Intriguingly they include privacy concerns as a key issue.  This being said, having lived in Europe for 15 years, I am not sure the desire for privacy is greater in America.  What can be said is that the moment when the underlining infrastructure was developed defines the ideas and feature sets.  Newer systems learned grew as other economies embraced and proved the viability of innovative ideas.

They go on to discuss the fate of eCash (Mondex, VisaCash) and the need to create ubiquity in order to assure success.    Clearly, as they outline, the major adoption issue in the field of payments is achieving a density of merchants willing to accept a particular means of payment  and simultaneously demonstrating a significant number of consumers willing to employ said means of payment.

Unfortunately for the inventors of neat solutions the reality is that without figuring out how to assure ubiquity the new idea they will not be a success.  If we look at contactless, MasterCard clearly recognised this reality and funded the initial investment in equipment.  Without this investment one wonders if PayPass would have reached the low levels it has.

The interesting thought that emerges from this paper is that the wide spread deployment of mobile phones means that an infrastructure that both merchants and consumers have is in place and if one can find an intuitive means of exploiting this installed base, part of the deployment problem is mitigated.

In my heart, I believe mobile will allow the establishment of new ways of paying,  The next question can today’s infrastructure support P2P payment instructions and will the issuers and acquirers figure out how to make money without cannibalizing existing revenue streams.