Use Mobile for payments

Mobile payments in China

Researchers estimate that there were only 83.5 million online payment users in China in 2006, due to the lack of access to payment cards. Admittedly, Tencent with the QQ coin has enabled more payments outside the banking system, but the lack of access to e-payments has been an inhibitor to the democratisation of commerce in China.

However, this is changing and changing fast with UMPay, a Joint Venture between Unionpay and China Mobile, targeting this space through mobile services.

According to UMPay, e- and m- payment users will exceed 500 million people next year and there are already 100 million m-payment users under the UMPay scheme. That’s more than the total number of online payment users only two years ago.

UMPay launched in 2003 and provides China Mobile users with a comprehensive mobile payment platform and mobile payment system provide mobile wallets, financial message services, top-ups and mobile ticketing.

Where they are going to gain the greatest growth is from rural farmers though. This is the strategy of UMPay today - to saturate the rural locations with UMPay access - and will take the 100 million users through the half a billion number in the very near future according to UMPay CEO Bin Zhang.

I was lucky enough to catch up with Mr. Zhang in Hong Kong and asked him to briefly explain their strategy. Here's a short version of our discussion** and apologies for the sound, but we were in the middle of a conference

Mobile finance is fast demonstrating its power in countries that are using such technologies to leapfrog established financial infrastructures.

In China's case, this is a sophisticated mobile financial service from billing and payments to utilities and transportation. In other words, a comprehensive use of mobile for banking and financial services.

We could learn a thing or two.

crisis is an economic

Warren Buffett said yesterday that the US economy had “fallen off a cliff”, describing the current crisis as “an economic Pearl Harbor” as concern spread about the US Administration’s fitful attempts to halt the collapse of the American banking sector.

The leading investor, an informal adviser to President Obama whose financial diagnoses are widely respected – even though he conceded that he failed to predict the severity of the crisis – said that the economy had come “close to the worst case” imagined, and that recovery would be slow.

Mr Buffett, a multibillionaire, said that the entire banking sector had been hours from collapse in September, and would have imploded without the $700 billion Wall Street emergency bailout.

Mr Buffett also spoke of the growing fears over Mr Obama’s muddled approach to the central issue in solving the economic crisis: what to do with the banks’ $2 trillion of toxic debt that is threatening the collapse of the financial sector. Mr Obama and his Treasury chief, Timothy Geithner, have said that they do not want to nationalise any banks but they are coming under increasing pressure after massive and repeated injections of cash into crippled financial giants such as Citigroup, Bank of America and AIG have failed to stem losses.

Mr Geithner, who is woefully understaffed at the Treasury Department, has yet to come up with a detailed plan to stabilise the financial sector. Mr Buffett told CNBC that there needed to be a “very, very clear message”, adding: “People are confused and scared. People can’t be worried about banks, and a lot of them are.”

Whats the big barrier?

this about disruptive models of banking and payments, such as complementary currencies, the new European Exchanges, Paypal, Zopa and SmartyPig.

The aim is to illustrate that there is the potential to do banking without banks.

This is not to say that, we believe people want to do banking in a different way, and even to do banking without banks. It's possible.

This is a theme explored by Banking as a Service and many of the other presentations, discussions and dialogues you will read on this blog.

Much of the dialogue is there to create a discussion, no more and no less. It is not to promote or demonstrate it has to be this way, just that it could be.

And each time the same questions are nearly always raised:

"Ah, but no-one trusts those new forms of finance which is why they stay with us."

So what does this mean: trust?

Does anyone trust the bank these days?

After the collapse of so many institutions, can banks really claim any trust at all?

Not necessarily.

The banks admit that trust is no longer guaranteed, and so we then move onto the next barrier to disruption:

"These new forms of finance do not work because they are not regulated."

Sure, and the banks were regulated with light touch, principles-based, self-regulation and look what that did for us.

Does regulation work in banking?

Not necessarily.

That's why the G20 and all the supervisory bodies are scrambling around to find a new way to regulate the system.

A Global Deal.

But if banks aren't trusted and regulation hasn't worked, are there really any barriers to new entrants in banking?

"Yes", say the bankers. "To be a bank you have to be licenced by the Central Bank, and many of these new players do not have that guarantee."

"And what does that mean?"

"It means that if we fail, the government guarantee the return of our customer's money."

Mmmm ... if that's the only reason customers stay, it's not a great case for keeping the business models of the past is it?

The banks of tomorrow are arising already.

They are nothing like the banks of the past and they may not have the licence, trust or regulatory endorsements that the old banking system had ... but do they need it?

.

power of low latency

Last Thursday was one of those days where you wake up knowing it’s going to be a good one and you go to bed realising that it was … for some that is, but not for everyone.

In my case, I was up with the birds to get into the City and chair a conference all about trading technologies, from smart order routing through low latency equities exchanges and beyond.

On the way into the conference I discovered that for my good friends Peter Randall might not be having his best day as the headlines held the news that he had left Chi-X. This shocked me as Peter was joining our Financial Services Club’s panel on low latency that very evening.

I rang Peter and obviously gave him my best wishes and that I totally understood that he would not be able to join us that evening and wished him well. Then, in the spirit of the City, I immediately grabbed Hirander Misra, COO for Chi-X, and asked if he would take Peter’s place that evening which he did.

Joining Hirander were Todd Golub, COO of NASDAQ OMX and Yann L’Hullier, CIO of Turquoise.**

Terry Quigley of Colt Telecom and Chris Pickles of BT both joined us as well. Terry and Chris are key advocates and deliverers of low latency networking.

The results were also fascinating and, to an extent, staggering so I'm going to provide here a collection of clips and slides from the evening. The video clips are variable in quality due to the various converters used, and Slideshare isn't accessible for everyone, but here's a complete multimedia view of the evening.

what's going on In Ireland, cash or just a cheques

What it shows is that Ireland is still extremely reliant on paper payments, particularly cash and cheques.

Ireland has historically had a policy of such usage, and the government has actively discouraged electronic payment until recently by taxing citizens for using debit and credit cards. This is illustrated by Slide 5, which shows that the volumes of paper payments processed have remained remarkably constant during the last four years.

Equally, I was amazed at Slide 9 that shows the use of cash per capita has been surging between 2006 and 2007. Is this the result of the credit crisis I wonder, or the fact that every newsagent, post office, public house and field in Ireland has recently seen off-premise ATMs deployed? If you don’t know btw, Ireland has more ATMs than any other country in Europe per capita, as illustrated by Slide 11.

Therefore, although card values are rising, cash is still dominant (Slide 12).

Cheques are also rampant and Slide 13, 14 and 18 put this in context. They are also fascinating slides in their own right.

For example, slides 13 and 14 show that whilst Ireland’s use of cheques is not as bad as France, the value of cheque is massive. This implies that cash is traded for general sundries and small trading, whilst cheques are for the big stuff.

Slide 18 particularly speaks volumes, as countries such as Britain and France have actively been targeting the reduction in the usage of cheques.

In the UK for example, we have many firms that decline cheques completely or will only accept them with a high processing fee or value.

France has seen cheques reduce from over half of all payments in 1990 to under a quarter today, and it’s reducing further.

Ireland’s cheque usage remains constant – another sign of a government that has encouraged paper payments by discouraging electron ones, and a culture where paper is more trusted than bytes.

The other charts and stats are also worth reviewing.

roll-out - SQL and XML

Wow. What a stir I caused when I put XML and SQL side by side! Thanks to all of your for your feedback.

Please correct me, but I believe there are two reasons for that interest: the first is simply that this is a novel and unusual idea. The second is that ISO 20022 being work in progress, the people involved in it are (quite rightly) protective about it.

The idea is not to run ISO 20022 down, nor to say that SQL is an alternative to XML. Saying that car A is good and putting it side by side with car B does not necessarily mean that car A is the same as car B, nor that car B is bad. In fact, the purpose is rather to contrast them, by which I mean, their initial similarities might then lead us to learn something interesting from their differences.


The crux is deployment or, to use Swift terminology, roll-out. And a model case I often think of, is precisely Swift, because they have been able to succesfully manage all these evolutions over the years -- my first arms were with USE/BKE, then I witnessed SwiftNet, and so on. The vast majority of these roll-out efforts have been fruitful and the ecosystem is still prospering (which was not granted either). No flattery intended here -- it is fact.

The reason why it has always worked out, despite the unavoidable grumblings here and there, is that Swift staff paid enough attention to what skills people had in the banks, what equipment was required, what training they needed and so on. They were always careful to provide a realistic roadmap to help any bank -- big or small, advanced or without in-house IT staff -- catch up and stay close. Everybody had to make it together, or nobody.

So, roll-out is not merely a technological proposition. It has to do with people, processes, systems and the environment. With constraints such as culture, capacity to accept change, cost, security policies, and how each tool fits into the balance of things.



That being said, let us get down-to-earth: suppose that today I want back office staff in my bank to be more effective in exchanging and processing interbank data. I want them to be able not only to make reports, but I want to empower them with something that will help them better exploit information from data feeds, fund administrators, back offices of other banks. They also must be able to provide data in the same way when requested.

And, since it is time of short budgets, they must be able to do it with whatever tool they already have on their desktops.


So I am going to train them.


Let us first check that they already know the part of FIN that relates to their job, because otherwise I would first send them to get trained by Swift. Since FIN is already deployed, that is a must.


Then what I am going to teach them? XML or SQL?

• First XML: certainly, quite a few actors in the financial world are able to ship data in XML format. But what tool (that we already have) should I to teach my staff in order to exploit it? How to write an XSL stylesheet for their browser ? Programming javascript and the DOM model, in the browser? vbScript from the command line? And when that is done, how do we criss-cross that with other data get it into a usable report ? Let us face it: XML is complex for non programmers and, for now, should better be left to IT departments. I do hope that this will change,with user-friendly tools, but that is not possible yet.
• With SQL, by contrast, I know with certainty that I can give two or three half-days of training and already get a significant increase in productivity. I know that if I teach them some Access, they will be able to import Excel and CSV files from their brokers, custodians or correspondents, mix all that and produce useful reports. Those who already create Excel macros will make good candidates.

Soon, the "rest of us" start to naturally exchange data using mdb files (preferably from a network disk), or through e-mail if necessary. And after a while, querying "serious" databases like SQL Server or Oracle,with Access,and exporting that to Excel becomes a normal thing.


The interesting part, is that SQL is not really the enemy of XML. Because then, back offices can work out ways to import XML data into their home-made relational databases and exploit it. That could even help them accept it.


Perhaps spreading the knowledge of SQL into back offices might even help pave the way for ISO 20022!

Germany's banks .................

Over the past few months, the liquidity crisis storms have hit Germany as hard as any market. The German government had to bail out HypoReal Estate (HRE) and pumped €500 billion into the banks, a figure that is about to double.

The question this raises in my mind is whether there are some more surprises yet to come out of the German bank system - another Black Swan** - and, having investigated a little, it seems there might be one or two.

Germany’s banking system is unlike most, as there are few large commercial banks. The largest banks, such as Deutsche, Dresdner, Commerzbank, are known primarily because they have large overseas operations. Domestically, the banking system is mainly comprised of regional and private banks, and then there are the standalone savings banks, known as Sparkasse banks. Sparkasse banks are the German equivalent of American savings and loans institutions, except that they are owned by local governments rather than private investors. Hence, they are immensely trusted by Germans, and manage almost $1 trillion in deposits.

With 2,500 banks in Germany and 45,000 branches, Germany also has one of the densest banking networks in the world.

There are other differences in the German banking system and markets in that there are relatively few foreign banks. Although the number of foreign banks increased sharply during recent years, due to the growing globalisation of business activities, they cater mainly for firms from their home country.

For example, under the recent European legislation the Markets in Financial Instruments Directive, MiFID, any bank can offer investment services in Germany under a home-host passport. This means that the bank is regulated by their home country, with only their code of conduct of their branch operations regulated in Germany. This code of conduct relates to the advice they give to their client and the suitability of the products they provide to them in a German market context.

Therefore, there are few dealings in Germany where Germans are exposed to foreign bank dealings, and probably why only 1 in 10 Germans invest in the stock markets compared to half of Americans.

All of this paints a conservative risk avoidance society and financial structure.

No.

Not at all.

Unfortunately, for many Germans, their biggest banks have leveraged themselves to the point of collapse in this liquidity crisis, similar to the American, British and other banks.

This is disputed by German's bankers, but the “big banks” such as Deutsche Bank, Dresdner Bank, HypoVereinsbank, Commerzbank and Postbank, are all merging and consolidating as a result.