Will MasterCard strengthen blockchain anonymity?

man-1461448_1280A curious application just crossed the desk of the United States Patent & Trademark Office. Two weeks ago, MasterCard applied for a patent on its new “… method for anonymization of a blockchain transaction.” 

“MasterCard’s idea sounds an awful lot like a mixer or tumbler,” reported TNW the day after MasterCard filed its application, “a system often used by cybercriminals to launder dirty cryptocurrency.” 

That may not be an exaggeration. While there are plenty of reasons behind the appeal of blockchain’s anonymity to the law-abiding—from security concerns, to an intrinsic preference for privacy, to a desire to keep Big Brother’s nose out of their business—there’s no question that anonymity protects people who are up to no good. 

And it appears that MasterCard indeed proposes to eliminate what little penetrability exists in blockchain transactions. On the day following the application, Coindesk’s Nikhilesh De explained that  … 

… most blockchain ledgers are not actually anonymous. The [MasterCard] application explicitly notes that transactions can be traced due to “the nature of the blockchain as an immutable ledger.” 

As a result, it’s possible to identify all of the transactions that are associated with a specific blockchain wallet using public data. 

To wit, De goes on to cite the following from MasterCard’s application

“… such data may, as it is accumulated and analyzed, eventually reveal the user behind a wallet or at least provide information about them … However, the existing communications and attribution structure of blockchain technology such as bitcoin require identification of where the transactions are emanating and terminating, in order to maintain the ledger … Thus, there is a need for a technical solution to increase the anonymization of a wallet and the user associated therewith in a blockchain.” 

MasterCard’s technology, continued the above-referenced TNW article,  

… works by providing a primary address for a transaction, this address then stores the transaction data including the amount and final destination address. 

Meanwhile, a new transaction and digital signature is created, with a new private key. This new transaction is responsible for ensuring the funds reach the desired person. 

As a result, when you receive funds the sender address will be associated with the MasterCard system, and not the identity of the sender. 

None other than the International Monetary Fund has expressed a keen interest in piercing blockchain anonymity. Earlier this year, IMF Managing Director Christine Lagarde blogged

The same reason crypto-assets … are so appealing is also what makes them dangerous. These digital offerings are typically built in a decentralized way and without the need for a central bank. This gives crypto-asset transactions an element of anonymity, much like cash transactions. 

The result is a potentially major new vehicle for money laundering and the financing of terrorism. 

“One recent example,” Lagarde continues, “reveals the scope of the problem”: 

In July 2017, an international operation led by the United States shut down AlphaBay, the largest online criminal marketplace on the internet. For more than two years, illegal drugs, hacking tools, firearms, and toxic chemicals were sold all over the world through AlphaBay … Before the site was taken offline, more than $1 billion had been exchanged through crypto-assets. 

Of course, money laundering and terrorist financing is only one dimension of the threat. Financial stability is another. The rapid growth of crypto-assets, the extreme volatility in their traded prices, and their ill-defined connections to the traditional financial world could easily create new vulnerabilities.   

Yet CNBC recently suggested that government poses no imminent threat to blockchain anonymity, citing assistant to the president and White House cybersecurity coordinator Rob Joyce’s remarks at the Munich Security Conference in Germany: 

Joyce emphasized the need to better understand the cryptocurrency’s risks and benefits before embarking on any sort of regulatory regime. 

“I think we’re still absolutely studying and understanding what the good ideas and bad ideas in that space are,” he said when asked about the potential for government regulation. “So, I don’t think it’s close.” 

Privacy and money laundering are not the concern of the U.S. Patent & Trademark Office. Its job is to determine whether a submission represents a “… new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” If so, it may grant the inventor “a property right.” 

Things could get interesting if MasterCard receives its requested patent and the IMF or the United States government doesn’t like it. 

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The virtues of impersonal digital banking

Too personal?

Too personal?

This week I’m doing a 180 from last week, when I discussed the importance of infusing a personal feel into digital banking and how to do it. Important as the (seemingly oxymoronic) personal digital touch is, this week I want to examine …

The pros of impersonal digital banking. 

There are certain products that, no matter how common or needful, people can be reluctant to be seen purchasing. For them, online shopping is a godsend. Abashed about what the Walgreen’s clerk may surmise? Just order that lice shampoo online, from the privacy of your home. It’ll come in a plain wrapper so not even the UPS driver will know. 

Shyness about purchasing certain items in plain view is not new. In 1950, a new line of rat poison was launched by a fellow whose last name was—what else?—Ratner. He branded it d-Con, ran aggressive radio ads targeting areas known to have rats, and sat back waiting for sales to roll in. To his surprise and disappointment, none did. Then Ratner added this line to his commercials: “So that no one will know you have a rodent problem, d-Con is always mailed in a plane wrapper.” Then, sales take off.*

People haven’t changed. There are many products that today’s consumer prefers not to be espied plopping down on the check stand. This is true even for products that everyone needs and uses. Pmnts.com recently put it this way:

No, we aren’t talking about drugs or stolen goods or other illegal products or purchases that anyone with enough determination can procure online. We’re talking about more mundane items that range from certain types of personal hygiene products, over-the-counter medicine and weird things like cat brushes—even toilet paper that some people once had to horse trade asking another person to buy for them in a physical store—that they can now by online, embarrassment-free.

Chances are each of us knows—or has even been—the person experiencing angst when buying products of a personal nature. In fact, purchase shyness is so prevalent that a number of news and entertainment sites have lists of items that people are grateful at last to be able to purchase discreetly, thanks to the privacy—and impersonal aspect—of the Internet. 

Buzzfeed, for instance, lists “21 Slightly Embarrassing Products You’ll Be Glad You Can Buy Online.” Some of the items surprised me. Call me a social lummox, but it wouldn’t bother me to walk up to a checkout counter and pay for products the likes of toilet bowl cleaner, a selfie stick, shoe deodorizer, or bathroom scales. 

Well, maybe the selfie stick.

I can, however, better understand some of the items, such as hemorrhoid ointment, a copy of Fifty Shades of Grey, an STD test, morning after meds, ringworm balm, or, for that matter, handcuffs.

One product showing up on a few lists was new to me: a glow-in-the-dark cat brush that fits over your tongue. I totally get why someone might be shy about being seen buying one of those. What I fail to totally get is wanting to buy one. Much less use it.

Embarrassment that hinders face-to-face sales creates an online marketing opportunity. In “How to Make Money Selling Embarrassing Products on eBay,” The Balance Small Business advises that people “appreciate the anonymity of the Internet”; that online shopping lets them “transact business privately without questions, remarks, or strange looks from employees or shoppers in stores”; and, most important for its readers, that online shoppers “… will pay a premium for embarrassing products”:

Some consumers are not price sensitive. They are more concerned with finding the product they want, fast shipping, and privacy. It is not unusual for consumers to pay three times retail for a particular product online because of the privacy factor. This concept may seem backward—isn’t eBay for buying items at a cheaper price? Not always. Some buyers seek very specific products and purchase on eBay strictly for the privacy factor.

Granted, most banks don’t sell rat poison, anti-fungal ointment, or pregnancy tests. But banks nonetheless deal with sensitive and personal matters, such as balances, overdrafts, loans, budgets, insurance, earnings, and investments. 

Dealing face-to-face with a live banker means disclosing personal financial matters to a human. Given turnover, oft times the banker may be a perfect stranger. By contrast, digital apps are gloriously non-human, never gossip, make no judgments or assumptions about balances, provide no opportunity for others to see or overhear what a client would rather they didn’t, and never inadvertently say a little too loudly “you’re overdrawn,” “you’re late on your loan payment and there’s nothing we can do about the penalty,” or “holy smokes that’s a lot of money.”

So there’s the marketing challenge: To ensure that digital banking has a personal feel, while promoting the advantages of detached, impersonal banking for the times customers want it.


* Eicoff, Alvin Or Your Money Back. New York: Crown 1983

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Building digital banking relationships

I heart digitsWITH THE CONTINUED move to digital banking, there looms a danger of losing the personal touch. That doesn’t bode well for an industry built on strong relationships. 

Contrary to what some may think, there’s no reason that automation cannot promote human connectedness. In an insightful article for The Financial Brand, LendKey’s chief marketing officer Lewis Goldman advises:

Based on the evidence from companies that have successfully navigated this challenge, including leading financial institutions, strong relationships between digital brands and their customers are often built on these three pillars:

1. Creating an emotional connection

2. Delivering a great user experience

3. Using data to improve products and services without encroaching on privacy

People who remember or have studied marketing in the pre-digital era may detect a familiar ring. Goldman’s advice is not so different from what marketers preached back in the day. They stressed the importance of using data not just to contact but to connect with customers. The Response Agency’s Steve Cuno wrote in his curiously titled book Of Marketing and Emasculated Goats:

Finding your target market has to do with locating customers and prospective customers … Reaching your target market has to do with connecting in a way that makes them more likely to receive your message.

For a financial institution, locating customers is a piece of cake. You have their email addresses, since it’s rather built into the account opening process.

Good: You can find them. Better: Here are tips for reaching them.

Be prompt.We all understand the importance of fast loading times. But how about when a client sends an inquiry? There’s no excuse for taking days to reply. Okay, maybe there is an excuse, like you’re understaffed, but it’s not an excuse that’s likely to make customers feel like they’re in a valued relationship.

Keep in touch. Emails and e-newsletters alike are mass blasted, but an email can feel more personal. There is no shortage of excuses to touch base. You have your clients’ birthdays on file; you can send a note of appreciation; you can send the occasional “Let me know if there’s anything I can do for you”; you can send news of interest; you can offer a favor, such as a freebie or discount; and you can use data to recommend relevant services. (Contrary to what Elizabeth Warren said, properly executed cross-selling can indeed be a service.) 

I’m not suggesting doing away with e-newsletters. Only that sometimes a more personal touch works wonders. But exercise care. Keep the email brief, and don’t get so specific that you creep people out privacy-wise. Also, there’s an art to personalized copy. To get a handle on that, I recommend studying up on successful direct mail sales letters from days of yore.

Pre-populate. It gets old, filling in the same data for every inquiry or application. You have the technology to spare your client the tedium.

Keep design accessible. People give up on too-difficult-to-navigate websites. Design should ensure that eyes easily espy the links they’re looking for. Moreover, good design doesn’t impinge on but enhances readability. 

Dispense with non-requirements. Many financial institutions’ forms and applications request information that isn’t needful. The more questions and boxes a client must answer and check, the more likely that client is to bail.

Write like a human. In the aforementioned article, Goldman points out a good example of Citigroup’s lightening the mood by presenting government-mandated questions under the subhead, “Questions we have to ask.” That’s refreshingly real. I might have taken it a step further with “Questions the government makes us ask.”

Say something useful. Consider this gem from the website of, well, never mind which financial institution:

Running a business is not for the faint of heart. You have hundreds of things to worry about. You need accounts that will run themselves and a partner who will be there every step of the way. Let us recommend the following …

The first three sentences say nothing. “Let us recommend the following” isn’t much better, since it’s implicit that the recommendations follow. They’d have been better off dispensing with the whole paragraph and cutting straight to the list of services.[i] Maybe if they’d thought harder, they’d have come up with an intro that actually said something. If boiling down a convoluted paragraph leaves copy that’s utterly unimpressive or needless, consider it an opportunity to work a little harder toward saying something of substance. Or doing without the paragraph. Customers won’t miss it.

Keep humans readily on hand. Ever dealt with an online business where getting to a real human was next to impossible? Or with a phone menu that offers no option to speak with a representative? Such have become so much the rule that customers are mightily impressed when you make it easy to text or call a real person, and when that real person responds promptly. (See above, “Be prompt.)

In summary: 

Just like a brand, a relationship isn’t what you claim. It’s what you do. 

[i] The drivel about “a partner who will be there every step of the way” will impress no one, largely because it’s pure hot air. You’re not a partner and, no, you won’t be there every step of the way. If you don’t believe me, think about the last time a client on the rocks fell months behind in payments. I bet your CEO didn’t say, “That’s okay. We’re partners every step of the way, so we’ll ride this one out with you. Just pay us when you’re back on your feet.”


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What QuotePro payment kiosks reveal about consumer preferences

QuotePro-Kiosk-Watkins-Auto-NO-ShadowAstute readers may be aware that the digital payments industry has become a thing. 

And no wonder. It’s fast. You don’t have to carry around a wallet full of cards or cash. You can pay bills without leaving home, even without getting out of bed, if you want. You avoid nasty germs that like to ride around on currency. Apps update balances so you don’t have to do math, and they provide an electronic trail so you can prove that, yes, you really did pay that bill on time. 

Yet cash doesn’t seem to be surrendering its popularity. As I cited before, the Federal Reserve Bank of San Francisco’s 2017 “State of Cash” report reports: 

Despite innovations in smartphone technology and mobile payment apps … The amount of currency in circulation has increased steadily over time, and demand for higher denominations has accelerated in the years since the 2008 financial crisis. 

The enduring popularity of cash is demonstrated, if not dramatized, by the manner in which people are choosing to use QuotePro’s new self-service payment kiosks. 

More than 100 kiosks placed in various business locations accept payments via cash, check, credit card, and debit card. That much isn’t new. It’s the speed with which the kiosks make funds available to creditors that makes them unique. Powered by Fiservs CorPoint® cash management technology, these kiosks provide creditors with provisional, next-day credit for deposited funds. (Full disclosure: Fiserv is my employer.)

But, going back to cash, here’s the curious thing. Per a November 6, 2018, Fiserv press release …

… when given a choice between cash, check, credit and debit card, 70 percent of consumers paying at these kiosks are choosing cash. 

I am no psychologist, but somehow I doubt that the 70 percent are choosing cash from a fondness for handling bacillus cereuscorynebacterium diphtheriae, or escherichia coli. Whether it’s practicality or pure nostalgia, there is something enduring about cold, hard currency that makes people loath to give it up.

The QuotePro-Fiserv kiosks turn cash into ones and zeros and then back again. Cash deposited at the kiosk becomes a digital payment only temporarily. Once it’s picked up and processed, the digital payment re-becomes cash. 

There are notable conveniences at both ends. People who pay with cash can do so in a risk-free environment. And merchants receive funds faster and need fewer armored car pick-ups.

I don’t pretend to know how long cash will continue to be around. But it’s clear that the digital payments industry will only grow and someday may well take over. In the meantime, ever-evolving technology lets them play nicely in the same sandbox. 

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Initiative Q:
A show about nothing?

Q w ?sFans of the TV series “Seinfeld” will recall an episode in which Jason Alexander’s character, George Castanza, tries to interest Jerry in selling NBC on “a show about nothing.”

Seinfeld: So, we go in to NBC, we tell them we got an idea for a show about nothing.

Castanza: Exactly.

Seinfeld: They say what’s your show about, I say nothing?

Castanza: There you go.

Seinfeld: I think you may have something here.

That’s what came to mind as I looked into Initiative Q, which these days is showing up in an increasing number of headlines. Were I to parody its selling proposition, the result might be something like this:

You: Why should I sign up?

Initiative Q: Because you don’t want to miss out.

You: On what?

Initiative Q: We haven’t decided.

You: Sounds good to me.

I don’t think the parody is entirely unfair. Notwithstanding, as of early this month over four million people have signed up for Initiative Q. And the folks behind Initiative Q aren’t exactly banking naïfs. According to its “About” page, Initiative Q is …

… the brainchild of Saar Wilf, a serial entrepreneur who started his first payments start-up in 1997, and later founded Fraud Sciences, which redefined the payment security space and was acquired by PayPal in 2008.

Featuring prominently on Wilf’s team is George Mason University American economics professor Lawrence H. White, who per Wikipedia “… is considered an authority on the history and theory of free banking.”

Initiative Q’s introductory video claims: 

Today’s payment systems were designed decades ago. They’re vulnerable, slow, complex, and expensive.

I suppose that’s true, provided you’re not up on what’s happening in the payments industry. Most consumers aren’t, which could go a long way toward explaining the four million and counting. Anyway, it’s Initiative Q to the rescue. From its FAQ page:

Initiative Q is building the payment system of the future. The Q payment network will integrate the best technological improvements that have been made in the payment industry over the last few decades to create a flexible, easy-to-use and inexpensive payment network.

Yeah. No one is doing that. Right?

Trouble is, Initiative Q explains, a new payment system can only launch if lots of merchants and lots of consumers participate, and lots of merchants won’t accept a new payment system that doesn’t have lots of subscribers, and lots of subscribers won’t accept a system that lots of merchants don’t already accept. A “classic chicken and egg” problem, the website calls it. But if that’s so, it raises questions as to how already existing, widespread payment systems ever started. Perhaps Apple Pay, Google Wallet, RFID, Visa, MasterCard, mag stripes, chips et al are figments of our collective imagination.

Initiative Q’s website explains that it …

… solves the adoption problem by associating the payment network with a new global currency, and distributing this currency to early adopters for free.

Exactly what form Initiative Q’s global currency will take is officially TBD. About the only thing we know is that a “Q”—Initiative Q’s monetary unit—isn’t a cryptocurrency. In fact, it isn’t anything. In a recent piece for Mashable Stan Schroeder wrote:

… There’s no product or service yet … there’s nothing solid there—no beta to sign up for, no test environment to try, no technical document that explains how the product works. 

And Initiative Q confirmed this, flat out. 

“Q is trying to gather a large user base of people who want it to succeed and then building the payment network itself — a network that is not limited by backward-compatibility requirements. Thus, the system itself has not been developed yet, nor is there a test environment.”

This is disarming in an odd way. With no product being developed yet, there’s nothing to try out, review, praise, or criticize. The stakes are both incredibly high (“trillions” of dollars, remember) and extremely low.

Not a few commentators liken Initiative Q’s marketing approach to a pyramid scheme, a characterization Initiative Q parries in an explanatory video. Yet the comparison is not unwarranted, provided we’re not talking about an illegal pyramid. Early enrollees are promised a larger return than later enrollees, and they can increase that return by recruiting more enrollees after them. These are hallmarks of pyramid schemes. But illegal pyramid schemes have one more hallmark: enrollment requires goods or cash, which Initiative Q doesn’t do. They make that clear right off the bat in the above-referenced introductory video:

Before we begin, two important points. First, we don’t want your money. We just want you to join. Second, there’s a real chance joining today will entitle you to receive a significant sum in the future.

It would be to Initiative Q’s credit that the voiceover doesn’t suggest a specific “significant sum” if the accompanying visual didn’t show a participant gleefully watching a line graph go from zero to $150,000 in under five seconds. Which the accompanying visual indeed shows.

True to its word, Initiative Q doesn’t ask for money. Signing up requires your name and email address, period. (Signup is by invitation. See their FAQ, “How can I get myself invited?”) 

Exactly what Initiative Q will do with its four-million-and-counting database remains unclear. Wilf promises not to market the data and to destroy it should he throw in the towel. Meanwhile, critics worry that a database comprising millions of people inclined to embrace get-rich-quick schemes based on scant information dangles an attractive target before hackers.

I lean toward the many who view Initiative Q with a skeptical eye. But who knows. If a decade ago you’d said texting would overtake voice calls, I’d have viewed that with a skeptical eye, too.

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