I have been reading the news items on the volume of counterfeit notes surfacing in India. It looks like more than half a billion dollars worth of fake rupees are circulating around the country. The banking industry must be quaking in their boots on the volume of menace they carry. It is distressing to note the thumb sucking responses and comments - terror trail, economic terrrorism, police cases.....
What is the most telling response to fake notes? Electronic money. Central Banks and regulators will be better off devoting their energies to promoting Electronic money (debit cards, credit cards, mobile payments, ACH, etc) rather than investing in technology to make currency notes more 'secure'. Till date, I don't think any country has managed to come up with a fool-proof currency note that can't be replicated.
But how does one bite the bullet here? While digital money is growing, it is still nowhere close to consumer spending on cash. In India, a considerable amount of spend occurs in cash to stay outside the tax net.
If you ask me, at least one country should take the lead and simply stop printing currency notes for mass circulation. Invest that money to strengthen the electronic payments network. Shock treatment may work well where medication hasn't so far! It may sound quite a drastic step; but may be the only way to get people to using electronic currencies.
It only takes one bold move to complete the revolution.
Thursday, August 28, 2008
Monday, August 18, 2008
Dumb & Dumber
I notice a lot of attention in the blogosphere to this article on how the Internet (Google in particular) is turning humanity into a mass of 'thoughtless' nerds with a poor attention span and limited ability to assimiliate useful knowledge. You can read the article here -http://www.theatlantic.com/doc/200807/google
The author's (Nicholas Carr) thoughts set me thinking on a few fronts. Aren't we all turning into 'comfortable automatons' secure in our digital world that seems so easy - mobile, internet, GPRS, Google search...? Everything seems to be within reach and just a click or a few tabs away. This kind of echoes what my father used to rant in my school going days - "using the calculator will turn your arithmetical abilities to dust". The question is whether we will be happier with our manual devices and reliance on our brains and wits to go through our daily lives. The current argument by Carr remind me of an essay by Isaac Asimov in the early eighties where he argued against notion of societies living in 'backwater' scenarios and away from the urban jungles. Asimov said that modern human simply cannot go back to the woods. Taking the same thought process, can humanity today move in any direction except forward in the digital 'evolution'.
Much is being made of the arrival of 'semantic' web that will enable users to intelligently interact with the web to a level of personalization never seen before. Carr's fears of human intelligence being replaced by AI would be magnified to a much greater degree in Web 2.0.
The moot point is - whether our over dependence on the Web to govern our lives is turning us to digital zombies? Are our lives flitting like a fly from one crumb to the other?
Certainly an interesting topic of debate that promises to enhance the much vaunted 'digital divide' of our world!
The author's (Nicholas Carr) thoughts set me thinking on a few fronts. Aren't we all turning into 'comfortable automatons' secure in our digital world that seems so easy - mobile, internet, GPRS, Google search...? Everything seems to be within reach and just a click or a few tabs away. This kind of echoes what my father used to rant in my school going days - "using the calculator will turn your arithmetical abilities to dust". The question is whether we will be happier with our manual devices and reliance on our brains and wits to go through our daily lives. The current argument by Carr remind me of an essay by Isaac Asimov in the early eighties where he argued against notion of societies living in 'backwater' scenarios and away from the urban jungles. Asimov said that modern human simply cannot go back to the woods. Taking the same thought process, can humanity today move in any direction except forward in the digital 'evolution'.
Much is being made of the arrival of 'semantic' web that will enable users to intelligently interact with the web to a level of personalization never seen before. Carr's fears of human intelligence being replaced by AI would be magnified to a much greater degree in Web 2.0.
The moot point is - whether our over dependence on the Web to govern our lives is turning us to digital zombies? Are our lives flitting like a fly from one crumb to the other?
Certainly an interesting topic of debate that promises to enhance the much vaunted 'digital divide' of our world!
Mobile Food stamps
Mobile Food Stamps
09/07/2008 14:23:57
With the global food crisis raging on, it is time for countries and international organisations to think of creative ways to address the issue. Giving free rations is not a viable economic answer. Consumers reeling from price hikes don't need food aid; they need assistance on the pricing.
One of the common solutions to address food inflation is issuing food stamps. Some countries like India issue 'ration cards' that entitle holders to purchase food items at low rates from designated shops.
In today's 'Goog-Mobile' world, I think it is time for countries to use the ubiquitous mobile phone as a channel for distributing food stamps. Governments can tie up with mobile operators and aid agencies to send 'food credits' to citizens mobile numbers. I had pleaded in one of my earlier blogs that it is time for the mobile phone to be used as a citizen ID. The added benefit of your mobile carrying 'food currency' makes it all the more attractive. Already, in countries like Kenya, the mobile credits are used as a P2P currency unit. So, why not download food stamps to mobile phones of needy citizens. The needy consumers will just need to go to designated shops, pay by mobile phone and collect their food items. Mobile phones and numbers are perhaps the fastest growing consumer item across the world - particularly in the Third World. Governments should come out the traditional mode of thinking and look for digital solutions. In fact, donors from across the world can actually donate mobile credits by uploading contributions to mobile numbers at the MSP's website!
The road to digital currency can begin at the most basic necessity - FOOD!
09/07/2008 14:23:57
With the global food crisis raging on, it is time for countries and international organisations to think of creative ways to address the issue. Giving free rations is not a viable economic answer. Consumers reeling from price hikes don't need food aid; they need assistance on the pricing.
One of the common solutions to address food inflation is issuing food stamps. Some countries like India issue 'ration cards' that entitle holders to purchase food items at low rates from designated shops.
In today's 'Goog-Mobile' world, I think it is time for countries to use the ubiquitous mobile phone as a channel for distributing food stamps. Governments can tie up with mobile operators and aid agencies to send 'food credits' to citizens mobile numbers. I had pleaded in one of my earlier blogs that it is time for the mobile phone to be used as a citizen ID. The added benefit of your mobile carrying 'food currency' makes it all the more attractive. Already, in countries like Kenya, the mobile credits are used as a P2P currency unit. So, why not download food stamps to mobile phones of needy citizens. The needy consumers will just need to go to designated shops, pay by mobile phone and collect their food items. Mobile phones and numbers are perhaps the fastest growing consumer item across the world - particularly in the Third World. Governments should come out the traditional mode of thinking and look for digital solutions. In fact, donors from across the world can actually donate mobile credits by uploading contributions to mobile numbers at the MSP's website!
The road to digital currency can begin at the most basic necessity - FOOD!
Money Laundering through Digital Currencies
I was reading this new report by US DOJ on how digital currencies are increasingly popular with money launderers(or is it laundries?) - http://www.usdoj.gov/ndic/pubs28/28675/index.htm
The DOJ notes that digital currencies 'combine the intrinsic value of gold and other precious metals as well as the designated value of national currencies with the worldwide reach of the Internet to create an ideal mechanism for international money laundering'.
To me this statement clearly declares that digital currencies are the best thing that have happened for the criminal fraternity. They no longer have to rely on cumbersome processes of transferring money through mules and have people open bank accounts to wash dirty currency. As ever, the shadowy world is the first mover and adopted innovations to benefit from the digital revolution; leaving the legitimate world to debate on regulations and consumer security!
The report defines digital currencies as 'privately owned online payment systems that allow international payments, which are often denominated in standard weights for gold and precious metals.' This really seems to suggest that the criminal world can literally start and operate a 'parallel' digital currency system with full settlement and transfer mechanism. Who knows, perhaps there is one already operating! All that needs to be done is to 'digitise' systems like 'Hawala' and other money transfer mechanisms tailoring them to the online world and lay down the rules for settlement and exchange.
I am sure sooner or later we will stumble upon a seamlessly operating 'underworld digital currency' on a global scale while the legitimate financial world will continue to debate and get only their feet wet in the deep waters of digital currencies.
The DOJ notes that digital currencies 'combine the intrinsic value of gold and other precious metals as well as the designated value of national currencies with the worldwide reach of the Internet to create an ideal mechanism for international money laundering'.
To me this statement clearly declares that digital currencies are the best thing that have happened for the criminal fraternity. They no longer have to rely on cumbersome processes of transferring money through mules and have people open bank accounts to wash dirty currency. As ever, the shadowy world is the first mover and adopted innovations to benefit from the digital revolution; leaving the legitimate world to debate on regulations and consumer security!
The report defines digital currencies as 'privately owned online payment systems that allow international payments, which are often denominated in standard weights for gold and precious metals.' This really seems to suggest that the criminal world can literally start and operate a 'parallel' digital currency system with full settlement and transfer mechanism. Who knows, perhaps there is one already operating! All that needs to be done is to 'digitise' systems like 'Hawala' and other money transfer mechanisms tailoring them to the online world and lay down the rules for settlement and exchange.
I am sure sooner or later we will stumble upon a seamlessly operating 'underworld digital currency' on a global scale while the legitimate financial world will continue to debate and get only their feet wet in the deep waters of digital currencies.
Buddy - can you spare me a Billion?
It is amusing to see how the banking industry is snorting in relief that Citi Bank declared a 2Q 08 loss of 'only' $ 2.5 Billion. Things have come to such a pass that a bank like IndyMac going under has only elicited marginal interest. Just as social scientists declare '40 is the new 30', the banking gurus seem to say 'Billion is the new million'! UBS, Bear Stearns, Lehman ..... these giants have got the whole world talking like investment bankers - in billions.
Apart from a few merchants of doom, everyone seems to be wishing away the crisis by harping on 'we reaching the end of the curve'. The number of big wigs trawling around the globe for additional capital would certainly give the airlines some cause for cheer. The 'capital lounges' in the GCC countries' SWFs resemble a doctor's waiting room.
It now looks like our sensitivities have been so numbed by the billions of dollars flowing down the gutters that we look to becoming oblivious to the potential failures of an important part of the financial industry - small and medium banks. Poor Bradford and Bingley only got a passing show of interest in their rights issue caper. What happens to the average man on the street when your neighbourhood banks start folding up? Are we now in a world where we prescribe 'Capitalism for the poor and Socialism for the rich'? Clearly, the banking industry appears to moving its value system at a pace beyond our understanding.
Perhaps, the next stage is where we react only to figures in Trillions. We seem to have made a start last week in the news item of Citibank's $ 1.6 trillion off balance sheet holdings. Small fry like me who still count in thousands aren't likely to attract any attention!
Apart from a few merchants of doom, everyone seems to be wishing away the crisis by harping on 'we reaching the end of the curve'. The number of big wigs trawling around the globe for additional capital would certainly give the airlines some cause for cheer. The 'capital lounges' in the GCC countries' SWFs resemble a doctor's waiting room.
It now looks like our sensitivities have been so numbed by the billions of dollars flowing down the gutters that we look to becoming oblivious to the potential failures of an important part of the financial industry - small and medium banks. Poor Bradford and Bingley only got a passing show of interest in their rights issue caper. What happens to the average man on the street when your neighbourhood banks start folding up? Are we now in a world where we prescribe 'Capitalism for the poor and Socialism for the rich'? Clearly, the banking industry appears to moving its value system at a pace beyond our understanding.
Perhaps, the next stage is where we react only to figures in Trillions. We seem to have made a start last week in the news item of Citibank's $ 1.6 trillion off balance sheet holdings. Small fry like me who still count in thousands aren't likely to attract any attention!
Monday, April 28, 2008
Cash -back - still the king!
For all of us who have been tom tomming electronic money, digital payments and mobile payments, this report by the British Retail Consortium is a bucket of cold water splashed on our face! See http://www.brc.org.uk/details04.asp?id=1360
This report actually says that cash usage in UK has gone up and going strong! Reticent consumers; burnt by credit card and other debt, appear to be playing safe and sticking to 'jingle' payments. So, all our enthusiasm to write off cash and sneer at anything that isn't digital seems to be prematurely misplaced. If this is the scene in UK, you can imagine how much cash is required in emerging markets.
I also recommend this report by Mike Lee - CEO of ATMIA posted here -
http://www.epaynews.com/resources/hundredyearsofcash.pdf
Mike believes that cash will still dominate for at least another 100 years.
So, Cash even if not the King, will at least be a Princess courted by all of us!
This report actually says that cash usage in UK has gone up and going strong! Reticent consumers; burnt by credit card and other debt, appear to be playing safe and sticking to 'jingle' payments. So, all our enthusiasm to write off cash and sneer at anything that isn't digital seems to be prematurely misplaced. If this is the scene in UK, you can imagine how much cash is required in emerging markets.
I also recommend this report by Mike Lee - CEO of ATMIA posted here -
http://www.epaynews.com/resources/hundredyearsofcash.pdf
Mike believes that cash will still dominate for at least another 100 years.
So, Cash even if not the King, will at least be a Princess courted by all of us!
Wednesday, April 9, 2008
Thought for food
Going by the events of the 10 days, it looks like Lady Subprime who has been grabbing all our attention has serious competition. The 'World Food Crisis' threatens to take us back to the basics and make us forget all about CDOs, Ninja loans, mortgage, etc. Many countries like India, China, Philippines, Thailand and most of Asia have taken extreme measures to curb the runaway inflation of food commodities. Most of them have banned export of rice and other food grains to curb rising prices and address shortages. The Middle East countries (GCC states) who have traditionally operated on 'oil for everything' model now face a converse scenario on food. They now look exactly as what the oil consuming countries face on fossil fuel.
This to me, looks like we are on a crisis of such fundamental nature that people will stop thinking about banks and financial market woes! Egypt witnessed the worst food riots in recent history. Ruling governments are all jittery over the mass demonstrations and protests over food prices. Much has been made of the effects of global warming, diversion of agricultural land to alternative fuel inputs, commodities trading and even GM foods.
So, we are going to see a mass movement of economists, analysts and social scientists to analyzing whether old Malthus has finally arrived on his theory. How is this going to affect the banking industry? The big S word - Stagflation promises to be the buzzword. Any hopes we had on emerging markets being decoupled from the US crisis is under question now. Emerging markets now find the very 'feel good' growth that was being hailed is a major cause of inflation.
The final irony may be in the US morphing into an attractive destination - with low prices and adequate food supply! The economic wheel may twist around to where we started.
This to me, looks like we are on a crisis of such fundamental nature that people will stop thinking about banks and financial market woes! Egypt witnessed the worst food riots in recent history. Ruling governments are all jittery over the mass demonstrations and protests over food prices. Much has been made of the effects of global warming, diversion of agricultural land to alternative fuel inputs, commodities trading and even GM foods.
So, we are going to see a mass movement of economists, analysts and social scientists to analyzing whether old Malthus has finally arrived on his theory. How is this going to affect the banking industry? The big S word - Stagflation promises to be the buzzword. Any hopes we had on emerging markets being decoupled from the US crisis is under question now. Emerging markets now find the very 'feel good' growth that was being hailed is a major cause of inflation.
The final irony may be in the US morphing into an attractive destination - with low prices and adequate food supply! The economic wheel may twist around to where we started.
Monday, March 24, 2008
Future Management V 2.018
Chartered Management Institute - UK has released an engrossing report on the what the workplace/ organisation will look like in 10 years. You can download the report and 'accessories' from;
http://www.managers.org.uk/client_files/user_files/Milburn_21/Management%20Futures%20Report%20Final.pdf
The report called 'Management Futures' outlines how our working world is going to look like when viewed through three prisms - 'World continued' - Probable, 'Unexpected Future' - alternative worlds and the 'Desired Future'.
The only gap I see in the report is lack of attention to the most basic human element - 'stupidity'. The recent events in the financial world (sub prime!) shows that humanity is still governed by the base values of greed and stupidity. Whatever happens, it is unlikely that we, as a human race, are going to display any fundamental change in our driving forces. I think we will continue to have equivalents of Enron, WorldCom, Subprime in varied forms or mutants.
------------------------------------
On another front, it was gratifying to note that 'Visa takes Life' through a bumper IPO. The Visa adv campaigns say 'Life takes Visa' - so we are happy to note that it holds true the other way around too! This was one IPO that the whole world collectively worked to make it a success. It is an irony of our times that a company sells itself on the tag line 'it does not offer any credit and hence runs no risk of default!'
But all said and done, our badly battered world needed some cheer!
http://www.managers.org.uk/client_files/user_files/Milburn_21/Management%20Futures%20Report%20Final.pdf
The report called 'Management Futures' outlines how our working world is going to look like when viewed through three prisms - 'World continued' - Probable, 'Unexpected Future' - alternative worlds and the 'Desired Future'.
The only gap I see in the report is lack of attention to the most basic human element - 'stupidity'. The recent events in the financial world (sub prime!) shows that humanity is still governed by the base values of greed and stupidity. Whatever happens, it is unlikely that we, as a human race, are going to display any fundamental change in our driving forces. I think we will continue to have equivalents of Enron, WorldCom, Subprime in varied forms or mutants.
------------------------------------
On another front, it was gratifying to note that 'Visa takes Life' through a bumper IPO. The Visa adv campaigns say 'Life takes Visa' - so we are happy to note that it holds true the other way around too! This was one IPO that the whole world collectively worked to make it a success. It is an irony of our times that a company sells itself on the tag line 'it does not offer any credit and hence runs no risk of default!'
But all said and done, our badly battered world needed some cheer!
Sunday, March 23, 2008
Card Fraud - truly globalized!
APACS released the latest figures on UK Card fraud - http://www.apacs.org.uk/2007Fraudfiguresrelease.html
It really shows how good criminals are in quickly exploiting 'systemic' loopholes. UK spent more than a billion pounds to implement chip and pin. Shows how truly globalized the criminals are! If ChipPin impedes my fraudulent activities in UK; no problem, I simply copy the magstripe and use it 'non' chip countries. Well, the biggest non EMV country is the US. Overall card fraud has increased 25% in 2007 over 2006. This is mainly driven by the 77% hike in overseas fraud. Online fraud rose 33%. I think these figures will look the same for all countries across the world.
Total card fraud losses stand at a mind numbing £535.2m. So, what do we infer from these figures?
-Whatever level of Chip / EMV security you put in a country, criminals will always find a way to clone magstripes and use them in places where EMV hasn't reached yet.
-Criminals will continue to thrive in the online world. With the surfeit of social networking and other areas for interaction, there is ample opportunity for criminals to indulge in 'social fraud'.
-As long as the US remains out of bounds on EMV, counterfeit fraud cannot be stamped off.
-With the economic downturn and heightened jobless levels, more vantage opportunities caused by desperation.
All in all, expect these figures to up further in 2008. There is nothing to suggest that criminals are getting dumber or restricted in any way. If anything, worsening economic conditions are going to lead to more power to card fraud and swelling in the ranks of fraudsters.
"Fraud is like electricity; it is shocking and follows the path of least resistance."
It really shows how good criminals are in quickly exploiting 'systemic' loopholes. UK spent more than a billion pounds to implement chip and pin. Shows how truly globalized the criminals are! If ChipPin impedes my fraudulent activities in UK; no problem, I simply copy the magstripe and use it 'non' chip countries. Well, the biggest non EMV country is the US. Overall card fraud has increased 25% in 2007 over 2006. This is mainly driven by the 77% hike in overseas fraud. Online fraud rose 33%. I think these figures will look the same for all countries across the world.
Total card fraud losses stand at a mind numbing £535.2m. So, what do we infer from these figures?
-Whatever level of Chip / EMV security you put in a country, criminals will always find a way to clone magstripes and use them in places where EMV hasn't reached yet.
-Criminals will continue to thrive in the online world. With the surfeit of social networking and other areas for interaction, there is ample opportunity for criminals to indulge in 'social fraud'.
-As long as the US remains out of bounds on EMV, counterfeit fraud cannot be stamped off.
-With the economic downturn and heightened jobless levels, more vantage opportunities caused by desperation.
All in all, expect these figures to up further in 2008. There is nothing to suggest that criminals are getting dumber or restricted in any way. If anything, worsening economic conditions are going to lead to more power to card fraud and swelling in the ranks of fraudsters.
"Fraud is like electricity; it is shocking and follows the path of least resistance."
Mobile phone - birthright of every world citizen!
In one of my earlier blogs, I laid out the opportunity of mobile numbers being used as 'citizen ID' and enabling access to credit to the huge mass of unbanked citizens of the world.
Well, I now go a step further - we need a 'Universal Declaration of Mobile Phone Rights'. I think it is about time the United Nations passed a resolution requiring every country to issue mobile phone to its citizens. All the global talk of identification, rights, cheap credit is meaningless without a global platform on which every world citizen can enjoy rights.
Companies like Mi phone are coming out with a $ 20 mobile phone. See www.mi-fone.mobi/
Very soon, a phone will be as affordable as a watch and it makes sense for the world to seize this opportunity and get the world 'mobile'.
As a popular advertisement by a MSP in India goes ; 'Air, Water, Food .... .. Network'.
Time to make mobile phone a basic human right.
Well, I now go a step further - we need a 'Universal Declaration of Mobile Phone Rights'. I think it is about time the United Nations passed a resolution requiring every country to issue mobile phone to its citizens. All the global talk of identification, rights, cheap credit is meaningless without a global platform on which every world citizen can enjoy rights.
Companies like Mi phone are coming out with a $ 20 mobile phone. See www.mi-fone.mobi/
Very soon, a phone will be as affordable as a watch and it makes sense for the world to seize this opportunity and get the world 'mobile'.
As a popular advertisement by a MSP in India goes ; 'Air, Water, Food .... .. Network'.
Time to make mobile phone a basic human right.
Regulations ahoy!
What is the most likely event to emanate from all the downslides in the financial market? Yes, the plethora of new laws and regulations. We saw Sarbanes-Oxeley in response to Enron and World Com. We had the Patriot Act after 9/11.
So, what do you expect from the subprime crisis - new laws, of course! The first salvo seems to be fired off by the US House Committee on Financial Services - see here http://www.house.gov/apps/list/press/financialsvcs_dem/press0320082.shtml
Congressman Barney Frank has called out for a 'systemic risk regulator' to obviate malpractices seen recently. He has also called out for reforming the regulatory system (yet again!), reassess capital, margin and reserve requirements, monitor auction/mortgage securities.
Will regulatory zeal curb the rising Tsunami of red ink splattering across various areas of the financial world? The Insurance industry has already sounded the alarm hooter. AIG announced its worst ever 4Q results last week and called it 'a bigger event than Katrina'. Other insurance companies are no better. Total write downs and credit losses have touched $ 38 B. The New York Times observed last week that the term CDOs appeared in the newspaper only thrice before 2005; but almost every week since the summer of 2007! Our lives are permanently scarred by sub prime.
So, you think that strict laws following bailouts will keep financial institutions wary of transgression? I am not so sure! Like for Y2K, Sar Box, Basel II, the IT consultants and solution providers will be off to the races.
From my perspective, I think the regulators should impose the 'common man's understanding' yardstick to all the investment banks. All products and offerings should be approved by a certain percentage of investors, bank customers that they have understood the products! This way, at least we will be saved from scratching our heads on CDOs, SDVs, hedges, etc and wondering how these complicated items take us down into the recessionary dumps. At the least, if we are going downhill, we should know why.
So, what do you expect from the subprime crisis - new laws, of course! The first salvo seems to be fired off by the US House Committee on Financial Services - see here http://www.house.gov/apps/list/press/financialsvcs_dem/press0320082.shtml
Congressman Barney Frank has called out for a 'systemic risk regulator' to obviate malpractices seen recently. He has also called out for reforming the regulatory system (yet again!), reassess capital, margin and reserve requirements, monitor auction/mortgage securities.
Will regulatory zeal curb the rising Tsunami of red ink splattering across various areas of the financial world? The Insurance industry has already sounded the alarm hooter. AIG announced its worst ever 4Q results last week and called it 'a bigger event than Katrina'. Other insurance companies are no better. Total write downs and credit losses have touched $ 38 B. The New York Times observed last week that the term CDOs appeared in the newspaper only thrice before 2005; but almost every week since the summer of 2007! Our lives are permanently scarred by sub prime.
So, you think that strict laws following bailouts will keep financial institutions wary of transgression? I am not so sure! Like for Y2K, Sar Box, Basel II, the IT consultants and solution providers will be off to the races.
From my perspective, I think the regulators should impose the 'common man's understanding' yardstick to all the investment banks. All products and offerings should be approved by a certain percentage of investors, bank customers that they have understood the products! This way, at least we will be saved from scratching our heads on CDOs, SDVs, hedges, etc and wondering how these complicated items take us down into the recessionary dumps. At the least, if we are going downhill, we should know why.
Tuesday, February 19, 2008
Debt and Fraud - the inescapable facts of life in 2008
"The two most common elements in the universe are hydrogen and stupidity", so goes a wise crack.
The way the world is going in 2008, it looks like Debt and Fraud are going to the two most common elements in our lives. Never in economic and social history have these subjects taken so much of our daily lives. Even my school going son has heard of 'sub-prime' - words that were the exclusive bastion of credit professionals. In my school days, we only knew about prime numbers in Maths!
Let us take debt first. Debt in all forms - mortage, credit card, loans, student, toxic, ninja ..... has permeated our daily lives. So much so, that debt is beating global warming as the greatest urban obsession. Never before have so many parts of our society looked at debt. I think more people now across the world are aware of the indebtedness of Americans and its likely implications on the rest of the world. A wonderful example of how much debt dominates our lives is indicated at the following event laid out in http://www.keepitinyourpants.org/. A video contest has been launched offering a top prize of $5,000 for the best student-made public service announcement regarding credit cards. A new contest for budding filmmakers is the growing problem of "Debt Disease" among young Americans. The first-place winner of the "Keep It In Your Pants" contest -- open to students 14 years of age and older enrolled in middle school, junior high, high school, college, or graduate school -- will receive a $5,000 scholarship for school-related expenses.
Another event indicating our love for debt -Leading U.S. and international scholars will gather to examine the phenomenon of debt at “A Debtor World: Interdisciplinary Academic Symposium on Debt,” sponsored by the American Bankruptcy Institute (ABI) and the University of Illinois College of Law. The symposium, scheduled for May 2-3, at the University of Illinois in Champaign, Ill., will feature a paper and presentation by each of the expert speakers on a topic related to the accumulation, psychological effects or resolution of debt. The purpose of the Debt Symposium is to take a scholarly examination of debt as a phenomenon, rather than as a problem or solution. It will feature leading U.S. and international scholars who have written about debt or issues related to debt in a wide range of academic disciplines such as sociology, psychology, history, philosophy, law, neuroscience, business, economics, finance, strategic management and organizational theory."
The other subject dominating our lives now is the F word - Fraud. KPMG's recently released Fraud Barometer - http://www.kpmg.co.uk/news/detail.cfm?pr=3028 confirms our worst fears on vulnerability - with record levels of fraud coming into the open in UK. I suspect that Fraud will continue to engage our attention. In a perverse way, Fraud is simply a follow up on Debt. The classical theory of Fraud states that for Fraud to thrive, it requires an incentive and circumstances. In the present debt driven times, stretched debtors have more than enough incentive and willing to take the risk; circumstances also present themselves! Organized gangs and phishers are going to find many ordinary people willing to be mules - with so many burdens. As a wise soul put it -"Fraud is like electricity; shocking and follows the path of least resistance".
On Fraud, do check out the latest release by the FTC on rank order of consumer complaints. ID Theft is right on top. http://www.ftc.gov/opa/2008/02/fraud.shtm
The way the world is going in 2008, it looks like Debt and Fraud are going to the two most common elements in our lives. Never in economic and social history have these subjects taken so much of our daily lives. Even my school going son has heard of 'sub-prime' - words that were the exclusive bastion of credit professionals. In my school days, we only knew about prime numbers in Maths!
Let us take debt first. Debt in all forms - mortage, credit card, loans, student, toxic, ninja ..... has permeated our daily lives. So much so, that debt is beating global warming as the greatest urban obsession. Never before have so many parts of our society looked at debt. I think more people now across the world are aware of the indebtedness of Americans and its likely implications on the rest of the world. A wonderful example of how much debt dominates our lives is indicated at the following event laid out in http://www.keepitinyourpants.org/. A video contest has been launched offering a top prize of $5,000 for the best student-made public service announcement regarding credit cards. A new contest for budding filmmakers is the growing problem of "Debt Disease" among young Americans. The first-place winner of the "Keep It In Your Pants" contest -- open to students 14 years of age and older enrolled in middle school, junior high, high school, college, or graduate school -- will receive a $5,000 scholarship for school-related expenses.
Another event indicating our love for debt -Leading U.S. and international scholars will gather to examine the phenomenon of debt at “A Debtor World: Interdisciplinary Academic Symposium on Debt,” sponsored by the American Bankruptcy Institute (ABI) and the University of Illinois College of Law. The symposium, scheduled for May 2-3, at the University of Illinois in Champaign, Ill., will feature a paper and presentation by each of the expert speakers on a topic related to the accumulation, psychological effects or resolution of debt. The purpose of the Debt Symposium is to take a scholarly examination of debt as a phenomenon, rather than as a problem or solution. It will feature leading U.S. and international scholars who have written about debt or issues related to debt in a wide range of academic disciplines such as sociology, psychology, history, philosophy, law, neuroscience, business, economics, finance, strategic management and organizational theory."
The other subject dominating our lives now is the F word - Fraud. KPMG's recently released Fraud Barometer - http://www.kpmg.co.uk/news/detail.cfm?pr=3028 confirms our worst fears on vulnerability - with record levels of fraud coming into the open in UK. I suspect that Fraud will continue to engage our attention. In a perverse way, Fraud is simply a follow up on Debt. The classical theory of Fraud states that for Fraud to thrive, it requires an incentive and circumstances. In the present debt driven times, stretched debtors have more than enough incentive and willing to take the risk; circumstances also present themselves! Organized gangs and phishers are going to find many ordinary people willing to be mules - with so many burdens. As a wise soul put it -"Fraud is like electricity; shocking and follows the path of least resistance".
On Fraud, do check out the latest release by the FTC on rank order of consumer complaints. ID Theft is right on top. http://www.ftc.gov/opa/2008/02/fraud.shtm
Tuesday, February 5, 2008
Credit Card Acid Rain?
While the US (and the world) is groggily trying to get back on its feet after the mortgage sucker punch, the knockout punch seems to be flying in! The toxic sub prime home mortgage debt of USD 900 B may be overwhelmed by an acid rain of credit card debt pouring in. The US has more than a Trillion USD of credit card receivables that is largely securitized through asset backed securities.
In its G-19 Consumer Credit report last year, the Federal Reserve estimated the nation's credit card debt at about $3,000 for every man, woman and child in the United States. Other studies indicate the average credit card debt borne by a card holder is close to $10,000.
And why do I believe the credit card debt wallop will be more painful? Simple, cards have not only provided issuers with stupendous ROI but also sustained consumer spending across the US economy. In fact, the online shopping boom wouldn't have been possible without plastic credit. APRs on credit cards have held firm even in a declining federal interest rate regime. The sheer profitability of credit card lending meant the banks could continue to take higher 'risk charge' on their portfolios and still continue to grow. Sub prime card APR rates go as high as 42% in the US. The customers who used their credit cards to pay mortgage bills will now show up as defaulting on a higher cost debt.
The consumer addiction to 'shop on minimum monthly payments' may be coming to roost soon. The signs are already showing up. American Express' US Card services (top end card issuer) made a loss provision of USD 1.1 Billion (US business only) in 4Q 2007; leaving it with a small change net operating profit of USD 7 million for US cards business. If the premium segment is needing added provisions - imagine the effect on the mass / subprime segments who live off their credit cards!
A mortgage like meltdown in the credit cards industry will have wider implications - retailers, restaurants, travel agencies......
The US post office will be the most affected - card issuers sent out 5.3 billion mailers to prospective customers in 2007 - this is twice the combined population of India and China receiving card offers. All the temptations of great offers, balance transfers, 0% 'tart' rates may now show up on issuer balance sheets.
US card issuers have so far engaged in outsourcing credit card processes and back office services. Now looks like they have to find a way to outsource card debt!
In its G-19 Consumer Credit report last year, the Federal Reserve estimated the nation's credit card debt at about $3,000 for every man, woman and child in the United States. Other studies indicate the average credit card debt borne by a card holder is close to $10,000.
And why do I believe the credit card debt wallop will be more painful? Simple, cards have not only provided issuers with stupendous ROI but also sustained consumer spending across the US economy. In fact, the online shopping boom wouldn't have been possible without plastic credit. APRs on credit cards have held firm even in a declining federal interest rate regime. The sheer profitability of credit card lending meant the banks could continue to take higher 'risk charge' on their portfolios and still continue to grow. Sub prime card APR rates go as high as 42% in the US. The customers who used their credit cards to pay mortgage bills will now show up as defaulting on a higher cost debt.
The consumer addiction to 'shop on minimum monthly payments' may be coming to roost soon. The signs are already showing up. American Express' US Card services (top end card issuer) made a loss provision of USD 1.1 Billion (US business only) in 4Q 2007; leaving it with a small change net operating profit of USD 7 million for US cards business. If the premium segment is needing added provisions - imagine the effect on the mass / subprime segments who live off their credit cards!
A mortgage like meltdown in the credit cards industry will have wider implications - retailers, restaurants, travel agencies......
The US post office will be the most affected - card issuers sent out 5.3 billion mailers to prospective customers in 2007 - this is twice the combined population of India and China receiving card offers. All the temptations of great offers, balance transfers, 0% 'tart' rates may now show up on issuer balance sheets.
US card issuers have so far engaged in outsourcing credit card processes and back office services. Now looks like they have to find a way to outsource card debt!
Tuesday, January 8, 2008
P2P -- Power to Phishers!
The onset of the New Year gets me thinking on what are the likely fads and buzz words in 2008. 2007 has already enriched our vocabulary with 'sub prime' , 'Ninja loans' and other such terms that a Credit dog's delight. Come to think of it, some of the fads like mobile payments have been around for some time now!
I came across a report by Javelin Strategy Research outlining the potential of P2P business. P2P seems to have caught the eye of mobile operators, payment organisations and banking community in general. The high profile visibility attached to P2P lending/networking sites like Zopa, Prosper and Facbook seems to suggest that social networking sites are going to play a much bigger role than just connecting people.
However, the Risk dog in me sniffs trouble here. Who is going to regulate these sites and how? As ever, it is highly likely that the nefarious elements in our world are likely to make smart use of the P2P avenues than the masses.
Imagine a money laundering 'enterprise' wanting to spread its funds around. Well simple; use lenders on sites like Zopa, Prosper and Facebook. We have seen numerous cases of phishing 'mules' used by criminals to wash their dirty money. Just a few months ago, there was a landmark case of hundreds of poor immigrants being asked to deposit small amounts of cash into their bank accounts and then transfer them to accounts of criminal enterprises and withdraw through ATMs. To me it seems quite easy for a launderer to get ten 'mules' on each of these sites. Even if each mule lends 10,000 dollars a week on each site, the numbers can be mind boggling! Who knows, the pleasant face lending small ticket amounts at 'easy terms' may actually be a front of something more sinister. Social lending is on a mass scale, of small amounts, and quite often very personalized. The USP of 'anonymous' borrowing (i.e. not have to go to a bank and prove your creditworthiness) may be a bugbear.
While P2P may sound exciting and holding forth tremendous possibilities, the potential darker fallouts need to be sized up and regulatory authorities have to figure out a way of control. Banks may see their multi million dollar spend on compliance and KYC being circumvented by social networking sites offering credit.
I came across a report by Javelin Strategy Research outlining the potential of P2P business. P2P seems to have caught the eye of mobile operators, payment organisations and banking community in general. The high profile visibility attached to P2P lending/networking sites like Zopa, Prosper and Facbook seems to suggest that social networking sites are going to play a much bigger role than just connecting people.
However, the Risk dog in me sniffs trouble here. Who is going to regulate these sites and how? As ever, it is highly likely that the nefarious elements in our world are likely to make smart use of the P2P avenues than the masses.
Imagine a money laundering 'enterprise' wanting to spread its funds around. Well simple; use lenders on sites like Zopa, Prosper and Facebook. We have seen numerous cases of phishing 'mules' used by criminals to wash their dirty money. Just a few months ago, there was a landmark case of hundreds of poor immigrants being asked to deposit small amounts of cash into their bank accounts and then transfer them to accounts of criminal enterprises and withdraw through ATMs. To me it seems quite easy for a launderer to get ten 'mules' on each of these sites. Even if each mule lends 10,000 dollars a week on each site, the numbers can be mind boggling! Who knows, the pleasant face lending small ticket amounts at 'easy terms' may actually be a front of something more sinister. Social lending is on a mass scale, of small amounts, and quite often very personalized. The USP of 'anonymous' borrowing (i.e. not have to go to a bank and prove your creditworthiness) may be a bugbear.
While P2P may sound exciting and holding forth tremendous possibilities, the potential darker fallouts need to be sized up and regulatory authorities have to figure out a way of control. Banks may see their multi million dollar spend on compliance and KYC being circumvented by social networking sites offering credit.
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