Real Time Payments Network

Bank Note Money Usd Funds Bills Us-dollar DollarThe clearing house has released business principles that outline the operation of the real time payments (RTP) Network. A full set of guidelines is here.

These are important inasmuch as they set out key points, among them most importantly:

TCH runs the RTP network as a utility for the benefit of the industry and RTP fees shall continue to be flat for all participants regardless of size, and shall not include volume discounts or minimum volume requirements.

It does though, contains a super-clause, which is typical of the monopolistic “free market” here in America. In an effort to restrain competition, and limit the ability of smaller financial institutions, the clause reads:

These principles apply so long as the RTP network is the only provider of faster real-time clearing and interbank settlement.

So here we are again, with another great example of limited competition. Who would provide an alternative, well, as listed in a prior post, the big tech companies are not likely to sign-up and get locked into RTP charging. Also, the Federal Reserve is considering a Faster Payments Network.

Sigh, here we go again, more glacial progress and lack of choice. Don’t stop ordering checkbooks anytime soon.

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Stock buybacks rule – Tax breaks enable

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Photo: Roberto Machado Noa/LightRocket via Getty Images
As predicted, not by the tweeter in chief, but by almost anyone who understands big companies and executive, stock buybacks hit an all time high in 2018 and are likely to be higher again in 2019.

This is a big deal, companies that buyback their stock, are reducing the number of shares available on the market. That generally means the share price goes up. Share prices are often one of the main ways executives are measured, their bonuses are usually dependant on the share price. Also, because the price of each share goes up, it makes it harder for lower and middle class people to get in on the action.

buying your own shares is like eating your own young, a glorified share manipulation gamble

The other reason share buybacks are import to watch, is they effectively use the companies cash to “eat themselves”. That cash is then no longer available for Capital investment, new building, equipment and other necessary expansion expenditure. Citigroup reports that companies buying back their own stock, spent more money doing that, than at any time since 2008.

Home Depot announced a $15-billion buyback in February, as a way to artificially hedge their share price, after they announced they’d miss expectation on revenue. Cynical share price manipulation. I have no idea if they used repatriated tax money, but if they miss earnings again this year, the share price will drop. Of course the executives and board will be ok, they’ll have sold their shares at the newly inflated share price, which is down on it’s 2018 high(212.39), but not nearly as low as it would have been if they’d not bought their own shares.

Next time a big business closes an office near you, and jobs are lost, don’t take their reason at face value. When did they last do a stock buyback, and how much cash was repatriated under the Trump/GOP tax break for 2018?

‘Why does a check take as long to clear today as it did in 1982?’

The latest American Banker Podcast mirrors my recent post about Tech taking over the banks. Aaron Klein, a Brookings Institute fellow, makes a compelling argument for why the American banking system needs to be updated, unlike my general frustration, knowing that better is perfectly possible.

Among other reasons, Klein points out that people who are unfortunate enough to have their bank account balance at or near zero, deserve better. They need to know how long a check will take to process, how long before the deposit is final, and when they can plan payments for bills based on availability of funds. It’s well worth a listen. You can hear it below, or take the link over to the American Banker.

Faster Payments – Will tech eat the banks?

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Checks and Pony Express

At last the big, big tech companies are driving the US Federal Reserve to sponsor and get behind a faster payments initiative.

Amazon, Apple, Google, PayPal, Square, Stripe and Intuit, have all co-signed a letter supporting the the Fed being in charge of the development of a system that can connect all the banks and credit unions in the U.S. to speed up payments. I’ve long complained here that the US System is laughably out of date, and the system Automated Clearing House and its associated network is still loosely based on the delivery times of the Pony Express and definately around checks.

The ACH itself still describes itself as a using batch processing and a store-and-forward system. And that’s exactly the problem, the store-and-forward part and the regional centers deployed to support it are largely based on the old Pony Express delivery model. The ACH and it’s partners have pivoted since the push by the tech giants, to lauding their fraud and safety. Largely the only reason they can is because of the huge inefficiency and delays built into their system, rather that the inherent security qualities they’ve developed.

While a fast payments network should not be implemented over the public Internet, it’s simply both unbelievable, and unacceptable that my bank cannot not directly send money from my account to your account. This isn’t about Bitcoin and similar nonsense, it does require databases that have the attributes of a Blockchain, but it doesn’t require a Blockchain. This isn’t spin to invest in some imaginary new technology, it is merely a plea to move to a modern switching network, with updated apps.

I don’t transfer money around in Europe or the UK anymore, maybe once a year or so. However, I’ve been able to use the UK Fast Payments network via my UK Bank, FirstDirect, to instantly pay other banks/accounts in the UK, as well as transfer money from UK Pounds Sterling to Euro’s in a German bank in less than 2-hours, all at not cost to me, and using a single system, rather than a secondary system, branded app, or external service. Faster Payments isn’t just a year or two ahead of the US, it’s currently celebrating its 10th Anniversary, and will likely be on its 15th before the US has anything.

That’s mostly why services like PayPal, Stripe, Square, PopMoney exist. To allow the banks and credit unions offer a service they themselves can’t offer. Also, when originally launched it was a way of charging extra for a service that was faster and more flexible than their ACH system offered. Any institution currently charging for these services is charging for lipstick on a big now.

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I first came to the USA in 1983 to work on the server-side of worlds first home banking system, Pronto, at Chemical Bank in New York; in 1987, I was hired by IBM UK in their London Banking Branch, to help London banks like Lloyds Bank, NatWest and TSB, as well as Abbey National, prepare their systems to start Year 2000 (Y2K) testing.

Finally, in 1998, was the Chief Architect for IBM in their NatWest (Business) Online implementation. The first at-scale version of Internet banking at National Westminster Bank, after failed projects by Sun Microsystems and Microsoft.

nwol

I have some idea of the complexity of updating and integrating batch, hub and spoke systems, it’s no cheap or easy. While it’s easy to assert the banks don’t want to change because as everyone believes, “they are making money out of the delays”. They are really not, in any meaningful way. What they are doing is simply avoiding making key investments and dressing it up under the guise of safety and security. Now they are blaming the “lack of a mandate“.

as everyone believes, “they are making money out of the delays”

And that’s what is likely to be their undoing. They’ll continue to push back and resist, until so much of their business has shifted to non-core systems. While the likes of Amazon and Google have to be in the ACH, and have Fed backing and security, they can increasingly provide a home run around the traditional banks.

What’s a #blockchain?

I posted the above to twitter, but its not really a joke. #blockchain has become the emperor’s new clothes and to some degree, @AARP is right.  The original article may be a little more aimed at humour than technical depth, but it’s not wrong.

A few of my friends have already been cold called and offering blockchain backed securities and similar. We know that’s mostly just marketing BS, but they don’t know. So this is, whatever you think, a good way to get them thinking about it.

For 90+ percent of the AARP readers these are good enough descriptions. The people who are AARP members who need to know about Bitcoin and Blockchain, already do and won’t be influenced by @brucehorovitz full article.

1535400878477-lost_and_foundIf you are really interested in the concept, and a non-tech example of #blockchain, Vice has one of the best examples I know of. It explains how, since 1995, how the theory of a blockchain and public ledger have been used in a non-technical solution. It covers and explains the use of a digital document store. The key to their store, was in fact to publish the unique hash for every document, and rather than use a technology solution as the public ledger, simply to publish the unique hash in the New York Times.

A more technical explanation is by Steve Wilson, on Constellation Research, called Blockchain Plain and Simple, covers the subject, and keeps on topic.

Retail vs Investment Banking

I’ve no idea what long term this change will make, but was delighted to receive this notification from my UK Bank, first direct, and HSBC subsidiary.

Something we are (very) unlikely to see here in the US in the near future.

Letter from HSBC

What is says is

We wanted to let you know that in line with new regulations introduced after the global financial crisis, later this year HSBC will be changing the way it’s structured in the United Kingdom (UK).

The new rules mean all banks with deposits of UKP 25bn or more will have to keep their “retail banking” business seperate from their “wholesale and investment banking” businesses, also known as ‘ring-fencing’.

Of course, this won’t stop another global financial meltdown, but at least in principle, they won’t be gambling with our money. If it happens it will still have as dramatic impact since the stocks, shares, futures, and companies will be hit the same way and everything will lose value as it did before. When all is said and done though, this is a good move.

Your move Elizabeth Warren.

Just checking in…

My disdain for the US Banking system should be obvious to anyone who follows my blog. Their attempts at modernizing, really are just “lipstick on a pig”.

While most countries are looking for ways to get out of the check processing business, and many to avoid it all together, using micro-banking and straight-through-processing to enable both a more effective user experience, and also reduce risk inherent in a real-time banking system. The UK even initially announced an end-date for the use of “cheques” in 2018, although that was later withdrawn. It’s still possible to transfer money between accounts in different banks within the UK banking system almost instantly and within 15-minutes, and for free.

Not so here in the USA. Much to my disappointment, I recently ran out of checks for my Texas FCU. It was the easiest and most effective way to pay some big bills for the construction work we’ve been doing, as well as bills for our wedding. I went online to the FCU and clicked order checks, it took me to an external website, where I was unable to order checks. Turns out the 3rd party had my address from when I first ordered 250 checks back in 2006.

You can’t change the address online, I had to call the FCU, they had to go through the update process and order the checks for me. Sure enough 8-dys later they appeared in my mailbox.

Mobile Ready Checks

Much to my “surprise” the checks have changed, just a little bit. They now include accommodation of the process which allows us to pay cheques in by taking pictures and submitting them on out phones via an app. I’m sure someone is feeling pretty smug, they’ve just invented pig lipstick.

Everything a consumer or non-financial institution does in terms of moving money around depends on the ACH, it’s not just checks, it’s pretty much anything online. Hey, but there’s an eCheck API.

Bloomberg had a good article on America’s addiction to checks back in July, by @kate_robertson – I think though they tackled it from the wrong angle, the reason people are addicted is because they work, and the patchwork of alternatives and restrictions on how they can be used has put them off if they’ve tried them.

My local credit union, Elevations FCU does a pretty good job at working within the confines of the American Clearing House and Federal Reserve straight jackets. Their technology is pretty solid, and their process limits, reasonable. Their mobile app has fingerprint sign-in, a good UI, and access to Popmoney, with useable daily and monthly limit. Their effectiveness and ability to innovate though is still hampered by the “system”.

My Texas FCU, Amplify, so mirrors their roots and seems incapable of escaping them. They started life as the IBM Federal Credit Union in Texas in 1967, and they’ve struggled much like their namesake to move with the times. While they have Internet/Web banking, I’ve had numerous problems and one acknowledged defect between their web and backend systems which frustrated my efforts to avoid paying by checks. They also claim Texas State rules prevent them from allowing various amounts above $1,000 in an out of accounts, especially Home Equity Line of Credit (HELOC) accounts.

Mixed legacy and cultural appropriation

[3/22/17 Edit to add audio from soundcloud]

On Friday I had a half-hearted attempt to explain to our 8-year old why I wouldn’t wear green, and why I could NOT celebrate St Patrick’s Day. It’s really quite staggering the level of cultural appropriation St Patrick’s Day has achieved. A celebration of the worst caricatures of the Irish, drunk, leprechauns, and four leaf clovers

Then today, on reporting the death of Martin McGuinness, former deputy first minister, and A former Provisional Irish Republican Army (IRA) leader. I was listening to BBC Radio, and among the people to be quoted was former British Prime Minister John Major. I never held Major in great esteem but what he had to say, for the most part summed up my feelings.

I do think that is unforgivable and will neither be forgotten nor forgiven when one looks back on the legacy of Martin McGuinness, and I don’t excuse any of that. I cannot find any redeeming quality in what he did over those years.

But I do recognize what he subsequently attempted to do and the part that he subsequently played in building a peace process.

Go 3-generations back and you’ll find Protestant Irish blood, my grandfather’s parents were from Northern Ireland, but that’s not it. Ireland was a non-issue when I was growing up, it was rarely mentioned. sure, we knew what was going on. Events like Bloody Sunday and “the Troubles” had been constantly in the news since 1969.

What followed was years of activity in England and London, throughout my formative years. Starting in 1972 with the Aldershot barracks bombing, and stretching through the Old Bailey Bombing, I was first working at the Rupert St market in London in 1974 on Saturdays. That year was the worst year for IRA bombs, they killed over 50-people, and injured more than 1,000. This included throwing bombs in two London night clubs. Bombs were behind and inside Post boxes, in publish rubbish/trash containers

Through the remainder of the 1970’s it’s hard to explain the content I had for the Irish people. In the summer of 1980, I took my first business trip to Dublin, and during that trip was spat at, and had lighted cigarettes flicked at me while walking down the street, because of my accent. And so it was, that the Irish were just Persona non grata.

We spent most of the 1980’s in the USA, specifically in New York. At that time, fundraising for the IRA in New York and Boston was a big thing. The likes of Adams and McGuinness were often on TV News giving very one sided views of their campaign against the British Government, and the British people.

Having returned to the UK and joined IBM, the random bombings carried out by the IRA continued, while often focussed on military targets, they were not always. Two IRA bombers blew themselves up in our town center while trying to set and detonate a bomb. I was working at the London computer center for the TSB Bank, on an upgrade to their software early morning in London on April 24th 1993, when at 10:27 am, the Bishopsgate bombing occurred. Their office off St Dunstans Hill was just half a mile from the bomb site, we heard and felt the blast. It followed another massive City of London blast in 1992 at the Baltic Exchange(now the site of The Gherkin).

So, no I was never in a bombing, as far as I’m aware none of my family were impacted by a bombing, but somehow it seems like asking a New Yorker to celebrate Al-Qaeda day on September 11th, to expect me to celebrate St Patrick’s Day.

As I said to the 8-year old, I’m happy you are having a fun day, I’m glad there is peace now in Northern Island but I can’t really dress up.

Bring back what jobs?

Look, the jobs that are lost, are not coming back, get over it. When Trump claims he’ll bring back jobs, he either has no idea what he is talking about, or he envisions some dystopian future where Americans are more like slaves than they’ve been since, well, slaves.

China and Mexico are not the problem, automation is. Even if Trump were able to force companies to bring manufacturing back to ‘Merica, through punitive tax and trade barriers, the manufacturing won’t be the same as it was, ever.

Listen to this recent extract from NPR’s All Things Considered. Bertram de Souza of The Vindicator talks about steel mills following a recent visit of Trump to Youngstown Ohio.

The next wave of automation is coming, it’s in driverless vehicles, it will have a dramatic impact on employment. Automated delivery trucks, automated taxi’s, autonomous vehicles will make a large dent in the current employment of some 3-million in America. While many cities are salivating over the ability of self-driving, autonomous vehicles to fix their broken road and transport infrastructure, that’s missing the point.

There are many detailed, and complex reports on the impact of automation, pick your favorite organization and search their website, McKinsey and Company(2014); Stanford Business School(2015); Pew Internet(2016) and on, and on.

Equally there have been a few superficial recent reports in the news media, this one from US Today. One of the better, more recent articles is from Rex Nutting over on Marketwatch.Rex Nutting over on Marketwatch.

I’ve been horrified by the lack of actual policy discussion and examination of the context, detail and and lack of clarity even where there is policy. This is something we should have had a real debate about when, what and how we handle the future of automation.

It’s not as if the impact of automation is new. Depending on how you classify automation, it’s been going on since the invention of mills, but importantly since the computer became pervasive in business.

As far back as the late 1960’s it was a discussion topic. In the early and mid-1980’s automation had become a key issue for governments and businesses. This was a classic of it’s time.

A human teller can handle up to 200 transactions a day, works 30 hours a week, gets a salary anywhere from $8,000 to $20,000 a year plus fringe benefits, gets coffee breaks, a vacation and sick time… In contrast, an automated teller can handle 2,000 transactions a day, works 168 hours a week, costs about $22,000 a year to run, and doesn’t take coffee breaks or vacations. – Bennett, 1983

This is a well used quote from a report called “Bank Systems and Equipment” by Bennett et al 1983 and often misquoted and attributed to Nobel Prize winner, Wassily Leontief and  Faye Duchin, who used it in their seminal 1986 work “The Future Impact of Automation on Workers“.

img_20161107_125230I worked on an IBM Corporate study in 1998, following the release of Dunkerleys book, the jobless economy.  I still have the books on my home office book shelf.

Many of us were uncomfortable with what technology was capable of doing to our society, much more than our jobs. I’d seen it first hand and contributed to the loss of hundreds of jobs. When I first arrived at Chemical Bank in New York city in 1983, there were hundreds of people, mostly women, sat in large rooms, processing incoming credit card authorization phone calls. Within 3-years, they were all gone. Their positions had been eliminated. Replaced by simple automation of the repetitive tasks they did using search and a “database” lookup.

Some of the information and outlook from that IBM study found it’s way into this presentation I gave at meetings and conferences around the world at that time.

Automation was, and is unstoppable without a much bigger debate. Trump alone can’t fix it or stop it. Automation is a result of three, equally powerful trends.

One. The absolute fear and revulsion in America of Unions, their impact, power and influence. Sterns 1963 paper “Automation-End or a New Day in Unionism?” captured the potential impact of automation on Unions.

Two. Big corporations and the way the market values them, their ability to balance investment against revenue and more importantly profit. Investors and the market don’t care how business makes profit, and the tax authorities allow investments to be written off against profit. So removing expense, in the form of employees, and improving profits is always on the agenda.

Three. The continual consumer march towards ever more consumption and disposable, cheap goods. Perhaps more than the loss of jobs, if pernicious tax and trade barriers were implemented by any politician or President, we would see a revolt among the people, who more than anytime in history, want their stuff as a measure of their value.

So, we can’t stop automation, the jobs are not coming back. Where does that leave us?

I’m inclined to agree with Musk. The only way around the impact of automation is a universal basic income. That’s what we should have been debating this election cycle. Not fucking emails, walls, muslims and pussygate, let alone if somewhat left leaning Bernie Sanders proposals were socialism by the back door. Without serious discussion on these difficult topics, America will continue to into social conflict and fear.

Even if Trump gets elected today, those 5-million jobs we’ve already lost, and another 5-million are not coming back.

Everything wrong with the US Financial System in one man

I’ve been avoiding blogging during the election cycle to stay away from turning my blog into another pile of steaming bile.

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Image from occupy.com

The more I learn about Strumpf(any coincidence to John Olivers #makdonalddrumpfagain purely coincidental), the former CEO of Wells Fargo, the more he becomes the poster boy for everything wrong with the “too big to fail” banks.

The head of any organization sets the strategy, and the tone of the implementation of the organizations strategy. Bad ones do only one, or neither. Strumpf seems to be in the later category based on his testimonial to a House panel on the recent Wells Fargo creation of unwanted accounts, charges etc. When a major corporation has to fire over 5,000 lower level employees, the is no way the CEO wasn’t responsible for the culture that allowed this to happen.

As if that wasn’t bad enough, this morning I read Kathy Kristofs article about Strumpfs stock sale, prior to announcement of the settlement over the illegal activities. While reading this it’s worth making a mental note of the numbers and sheer scale. Remember that ordinary bank customers were charged around $2.4-million in charges related accounts they hadn’t asked for. Apart from this at least having the appearance of insider dealing/trading it reveals the absurd and clearly unjustified amounts of money in the system.

Stumpf sold nearly 3 million Wells Fargo shares in 2016, which is almost 10 times the 351,991 shares he sold the previous year, according to SEC filings. His profit on the 2016 sales amounted to $65.4 million.

Strumpf must be investigated for this, and an example made of him. Otherwise, the country and it’s leaders are sending the same message to the financial industry titans, as they would be sending to their organizations, bending and breaking the rules is OK.

For more on Strumpf, Nomi Prins has a list of his “crimes” and failings while CEO.