Matt Wilcox Pro

In 1796, Dr. Edward Jenner observed that people once infected with cowpox, which is seldom deadly, later tended to prove immune to smallpox, which often is. It was from that observation that Jenner went on to develop a smallpox vaccine.

Hang on to your hat, because I’m about to liken cows to digital payments.

The late eighteenth century dairy industry grew in response to market demand for dairy products. That it would prove crucial to developing a lifesaving vaccine was pure serendipity. Likewise, the current digital payments industry grew in response to market demand, in this case for speed and convenience. That it is now a major part of curbing SARS-CoV-2 transmission is, too, pure serendipity.

According to Square, none other than Coco-Cola debuted the first mobile payment transaction …

… in 1997. The beverage retailer created special vending machines that enabled consumers to pay for their drinks by sending text messages from mobile devices.

Wikipedia confirms Coca-Cola’s innovative vending machine and adds a bit of backstory:

In 1983, a research paper by David Chaum introduced the idea of digital cash. In 1990, he founded DigiCash, an electronic cash company, in Amsterdam … It filed for bankruptcy in 1998. e-gold was the first widely used Internet money, introduced in 1996, and grew to several million users before the US Government shut it down in 2008 … PayPal launched its USD-denominated service in 1998.

The moment the market experienced digital payments convenience, the race was on to see who could deliver the best, the easiest-to-use, the most secure, the most comprehensive, and the fastest. Nor has the race slowed. Today it is less that accepting mobile payments and touchless cards presents a competitive advantage—and more that not accepting them presents a competitive disadvantage.

Digital payments in turn spawned today’s massive gig economy—a term that has existed only for a couple of years. Suddenly people were turning to Lyft and Uber and paying via their respective apps instead of calling cabs. People were ordering restaurant food via GrubHub, DoorDash, and others, and paying via those companies’ respective apps.

Digital payments, touchless cards, and the gig economy caught on because people liked them and, as a result, demanded them. Little did anyone suspect that in the spring of 2020 the entire world would be advised to socially distance, stay home if at all possible, and avoid hand-to-hand contact.

All of which, though difficult enough, would have been all but impossible without a gig economy to deliver needed goods to our door—and without digital payments to obviate the need for tangible currency.

Indeed, prior to the pandemic, McDonald’s came up with an app that let customers pre-order, pay via the app, and pull into a designated parking space where an employee would walk the order to their car. Now, a few months into the pandemic, the McDonald’s innovation has become a widespread, vital health measure, and is generically called “curbside pickup.”

So it is thanks to digital payments that, not by design but by serendipity, as Finextra recently reported, that UK citizens have been able to go …

… an average of 44 days without using cash as they ditch notes and coins for contactless payments during the Covid-19 pandemic, according to a survey from Nationwide Building Society. Of 2000 people polled by Nationwide, more than a quarter have gone two months or more without cash. Nearly a third admit they don’t even remember what they last bought with cash. Meanwhile, the building society’s customer data shows a 44% increase in tap-and-pay transactions since the week of 23 March, when Brits were asked to stay at home.

Only a few years ago, such would not have been possible. What began as a convenience is now a need. Even Boomers, typically last to embrace new technology, are taking advantage of digital payments. PYMTS.com recently reported:

U.S. millennials were early adopters of person-to-person (P2P) payment apps, while Baby Boomers sought out financial institution-based P2P options and older consumers were slow to join in—until now. Fiserv’s Vice President of Product Management Derek Swords told PYMNTS in a recent interview that P2P usage across demographics is on the upswing, especially since the COVID-19 outbreak.

“[The pandemic] is kind of throwing lighter fluid on a fire that was already burning,” he said … “we are seeing new user growth at about 19 percent and transaction growth increasing by roughly 9 percent per month. We’re certainly seeing more people jumping into the pool and starting to take advantage of P2P through their bank or credit union.”

Swords said consumers haven’t just been rethinking their payment methods during weeks of being stuck at home: They’ve radically rewritten their lives to adopt digital solutions for a host of interactions, from work to school to shopping.

And while the post-pandemic recovery is now underway, there’s reason to suspect consumers won’t immediately abandon their digitized lives, Swords said. Digital systems that work better than their pre-pandemic analogs will likely see continued gains — and Swords believes that includes P2P payments.

For example, he said, when consumers use a P2P service like Zelle, which financial institutions can offer to their customers via Fiserv, “more likely than not, they’re going to keep using it because they find that it really meets a need in their lives.”*

What began as gee-whiz technical innovation and caught on by virtue of convenience has, by serendipity, turned out to be a boon to survival. There’s no doubt that by the time the current pandemic subsides, it will have left in its wake substantive societal changes. Handshakes will likely be a thing of the past. Hand washing will be a more frequent habit, at least for a while. And how people conduct business—and, especially, how they pay—will likely never be the same.

*Disclosure: Fiserv is my employer.

Hard to believe, but four years have passed since the UK voted to exit the European Union. Here’s a look back at predictions made within the payments industry at the time. Originally posted June 16, 2016

* * *

Unless you were away climbing Kilimanjaro, you likely heard that last week the UK voted to secede from the European Union (EU).

In the final tally, 48 percent voted to remain while 52 percent voted to secede. In the aftermath, the media have spilled over with reports of UK citizens now ruing the vote for Brexit, short for “British Exit.” There are tales of people who didn’t bother voting but now wish they had, people who were misled by campaign misrepresentations or misunderstood the issue, people who—incomprehensibly—voted for Brexit to make a statement while counting on it to fail, and people who voted for Brexit but would now change their vote if they could. It’s important to keep in mind that such are anecdotal and not statistically valid. Whether to take the reports with more than one or two grains of salt remains to be seen.

The Brexit vote has raised myriad questions or, perhaps more accurately, myriad fears regarding economic and political outcomes. As for what Brexit portends for the payments industry, there has been an explosion of informed opinions, few of which paint the rosiest of pictures.

Prior to the vote, CNBC’s Arjun Kharpal quoted German venture capitalist Andreas Haug:

… other regions will grow stronger at the expense of the U.K. in the event of a Brexit … The fintech sector will take a huge hit. Teams in the U.K. are supported by the financial industry, and a constructive government and regulator, but if you can’t roll your product out European-wide, a lot of teams will move away.

Telis Demos wrote in The Wall Street Journal:

Europe is a key region for payments experimentation, with licenses allowing technology upstarts to make digital transfers across borders, a contrast to state-by-state regulation in the U.S. Several fintech firms such as TransferWise Ltd., Klarna, PayPal Holdings Ltd. and Circle Internet Financial Ltd. do business across the EU.

But the U.K.’s exit from the EU could add hurdles and disrupt discussions about how upstart firms and technologies can work with incumbent banks and networks.

BrickVest CEO Emmanuel Lumineau blogged in Financial IT:

Without doubt the UK is now a less attractive option for fintech investment platforms who want to operate across Europe. Platforms such as Brickvest are typically regulated by the FCA whose framework allows us, and companies like ours, to target investors across Europe. Brexit now means firms will eventually need to find a new regulator on the continent in order to continue doing business across Europe. Cities such as Paris, Berlin or Frankfurt can offer this. Consequently, BrickVest may have to shift some of our business and team abroad. Paris and Berlin are established fintech hubs, so it would be logical for us to open an office there, while maintaining a London office to support investment activity both locally and internationally.

Ultimately, the UK’s exit from the EU will limit the growth potential of UK-based fintech companies. These companies, as they will no longer be equipped to navigate the complex regulatory environment across borders, will be confined to doing business only in the UK. Eventually it will lead to London losing its fintech hub status.

Not all predict doom and gloom, however. 11:FS co-founder and director Simon Taylor blogged quite the positive take:

Banks in the UK have a rocky few weeks ahead, but the rank and file within banks and those in the fintech community can start the fight back now. We need a good Brexit, Brexit light and we need to solve the real challenges banks face. Call me an optimist, but I think we can.

All of the above-cited articles and blogs are well worth reading in their entirety.

So, what’s my take on the implications of Brexit for the payments industry? I’ll give you my short-term predictions after a little while, and my long-term predictions after a long while. I find that predictions are most easily made in retrospect.

As I write, demonstrations continue around the country and show no signs of slowing. They have been for the most part peaceful and appear united in taking on systemic racism. 

I realize that some people take exception to the term systemic racism. I find it apt, but my goal today is not to argue terminology. There’s no denying that, on average, black people earn less, land fewer job interviews, are arrested more often, receive harsher sentences, and are more likely to be beaten and even killed by police than their white counterparts. Even when researchers take pains to control for extraneous variables, gross disparities remains evident. So, call it what you will—systemic racism or some other name—either way, it exists, and it must end.

The extent to which racism is conscious and overt versus unwitting and subtle is beyond the scope of this post. For now, suffice it to say that no one is immune. And that includes the banking industry. This has been demonstrated by notorious cases like this one in 2012, in which the government found 34,000 instances where a financial institution had charged … 

… African Americans and Hispanics higher fees and rates on mortgages compared with white borrowers with similar credit profiles, according to documents filed in the U.S. District Court for the District of Columbia.  

Or this, more recent civil action against Fannie Mae filed on behalf of the National Fair Housing Alliance and “twenty local fair housing organizations.” The suit alleges that Fannie Mae … 

… did not conduct routine maintenance and marketing of REO properties in predominantly African-American and Latino neighborhoods but did maintain and market its REO properties in predominantly white neighborhoods. According to the complaint, after conducting a lengthy nationwide investigation of over 2,300 Fannie Mae REO properties, Plaintiffs informed Fannie Mae of the details of their findings, but Fannie Mae refused to change its behavior. Fannie Mae’s actions, the complaint alleges, have had a significant harmful impact on neighborhoods of color throughout the country, threatening the residents’ health and safety and diminishing surrounding property values. 

Or this report, just six months ago, from the New York Times: 

… racism has been baked into the American banking system. There are few black executives in the upper echelons of most financial institutions. Leading banks have recently paid restitution to black employees for isolating them from white peers, placing them in the poorest branches and cutting them off from career opportunities. Black customers are sometimes profiled, viewed with suspicion just for entering a bank and questioned over the most basic transactions. This year, researchers for the National Bureau of Economic Research found that black mortgage borrowers were charged higher interest rates than white borrowers and were denied mortgages that would have been approved for white applicants. 

Nationally published newspaper columnist Leonard Pitts, Jr. put it quite succinctly in his excellent piece earlier this week: “… we process racism as a loathsome character defect, when really, it’s the water in which we swim.”

Clearly, the financial services industry has work to do.  

It won’t be easy. We’re talking about changing human attitudes and behavior, which is a never-ending battle. For proof, trace any social reform’s progress from its inception to the present. Note that I said “to the present,” not “to its attainment.” No group striving for equality has yet reached what could reasonably be deemed “attainment,” progress notwithstanding. 

But that’s no excuse not to try. 

Nor is an easy solution to be found in claims of alleging color-blindness, an empty claim at best. As Adia Harvey Wingfield wrote for The Altantic,  

Many sociologists … are extremely critical of colorblindness as an ideology. They argue that as the mechanisms that reproduce racial inequality have become more covert and obscure than they were during the era of open, legal segregation, the language of explicit racism has given way to a discourse of colorblindness. But they fear that the refusal to take public note of race actually allows people to ignore manifestations of persistent discrimination … 

… it is no longer socially acceptable in many quarters to identify oneself as racist. Instead, many Americans purport not to see color. However, their colorblindness comes at a cost. By claiming that they do not see race, they also can avert their eyes from the ways in which well-meaning people engage in practices that reproduce neighborhood and school segregation, rely on “soft skills” in ways that disadvantage racial minorities in the job market, and hoard opportunities in ways that reserve access to better jobs for white peers. 

How digital banking can hep lead the way

If innate bias is inevitable when humans meet face-to-face, what happens when you remove the faces?  

You can do that with a digital banking transaction. The meeting is not face-to-face but code-to-code. There need be no visual first impression. A digital transaction needn’t be racist, sexist, or anything else-ist. So it’s reasonable to hope that digital banking can rise above human bias. 

Yet reasonable though the hope may be, its outcome is not guaranteed. In a post easier this year, I pointed out that artificial intelligences (AIs) “… mine databases. If biases happen to be built into data-gathering processes—and not necessarily by design—AIs can hardly avoid emerging with similar biases.” I cited a Finextra report quoting Senior Reporter Madhvi Mavadiya, who, writing about gender and hiring practices, pointed out that “… technology can be as biased as humans if it replicates past hiring decisions and in the past, AI recruitment tools have realised that it discriminated against women because it attempted to find employees like its current workforce, namely, men.” The same can happen with respect to race.  

There’s a good chance that biases have already found their way into our databases. We need to root them out. 

Especially with the renewed attention that demonstrations are bringing to the issue, there’s no excuse not to redouble our efforts in purging bias from our digital transactions. While we wait for humans to catch up, digital can lead the way, even set the example, for fairness. 

We humans have never been very good at focusing on more than one thing at a time. (Most people who think they can multitask are kidding themselves.) So it’s not surprising that, with the COVID 19 pandemic dominating headlines and exerting uncommon influence over our daily routines, other bits of news may slip right by. 

I refer in particular to disturbing news about data for sale on the Dark Web. Take, for instance, a cyber attacked on Italian email service provider Email.it reported by TechRadarPro a few weeks ago. It seems that Email.it … 

… suffered a cyber attack that saw the data of over 600,000 users put up for sale on the dark web … data included information such as passwords in plain text, security questions, email content and attachments for users who signed up or used the free email service between 2007 to 2020.

Or, how about this, reported about two weeks ago by WeLifeSecurity: 

More than 500,000 Zoom accounts are now up for grabs on hacker forums hosted on the dark web. Some are going for less than a US cent apiece while others are given away for free. 

In a statement provided to BleepingComputer, cyber-intelligence company Cybel said that it noticed free Zoom accounts being offered on hacker forums around April 1st as a way for hackers to increase their notoriety. The accounts were posted on text sharing sites where ne’er-do-wells offer lists of email address and password combinations.

Or this, reported about a month ago by Yahoo Finance:

Cybersecurity firm Sixgill … highlighted two devices for sale on the Dark Web, an EMV chip card skimmer and a skimming device to steal credit card information from a gas pump. The “all kind” fuel pump skimmer connects to the pump’s power and can “operate indefinitely,” the post brags. Besides devices that skim people’s data, there’s a lot of data already hacked and ready for use. There’s a trove of data of “bank employees” from a Russian hacker, and a database for sale containing emails from “various staff” at one university.

The marketplace has only grown in volume and breadth since a 2005 McAfee report entitled “The Hidden Data Economy.” “This underground marketplace has evolved to include almost every conceivable cybercrime product for sale or rent,” it said. 

Just six months ago, Forbes reported that it was possible to purchase a “$20,000 bank loan for $30.” It gets worse:

Access to a compromised bank account, known as a “bank log” in cybercrime parlance, with a balance of $10,000 (£7,900), could be yours for $25 (£19.75), for example. While personal information packages that enable a criminal to steal the victim’s identity, or “fullz” as they are known, and achieve a promised $20,000 (£15,800) bank loan cash-out were on offer for just $5 (£4) more. If that sounds cheap, fullz packages start at around $4 (£3) as they are seen as a commodity item within these circles.

How much does it cost to purchase illicit, personal financial information on the Dark Web? Not much, it turns out. 

VPNoverview.com did some digging and found that you purchase someone’s bank details for $50-200, social media info for $12.99 (Dark Web shoppers, it seems, as are prone as any other to view $12.99 as closer to $12 than to $13), and personal data for $40-200. The site warns,

With basic knowledge of your accounts, it can be much easier for hackers and scammers to steal your identity, but just how much would it cost for them to scam their way into your life? There are programs openly available that will force entry to multiple social media accounts for as cheap as $12.99. Using the information they gain from your social media, they can … sell the account on or transfer available funds … verify themselves as you … purchase items using linked cards … [and] steal personal information from private messages / hidden information.

Moreover, it reports, you can pick up a $2,000 Amazon gift card for $700, a PayPal account with a $12,000 balance for $1,200, and a $7,500 money transfer for a mere $1,125.

Writing for Digital Trends about VPNOverview’s report, technology reporter Anita George commented, 

… hackers can also sell access to the breached databases of various companies. And the report actually lists a few companies with breached databases, the costs for access to these databases, and the number of records a person would have access to once they purchased that access …

In an emailed statement sent to Digital Trends, comments from VPNOverview’s cybersecurity analyst, David Jansen, shed a little light on why VPNOverview researched all this in the first place … “Our findings show that thieves and hackers could easily gain access to your most important accounts and spill your information on the dark web, where it is sold for next to nothing and used for all sorts of malicious purposes. The large-scale availability of stolen and counterfeit passports, driver’s licenses, and online accounts leaves us all vulnerable to identity fraud and cybercrime.”

We no longer have the (small) assurance that only the sophisticated cyber criminal can abscond with personal financial information. The above-referenced McAfee report cautions that “current tools, products, and services can allow anyone to become a cybercriminal, regardless of technical ability.” The authors warn against assuming that …

… there exists a hidden doorway into an underground marketplace for nefarious products that is not accessible to us muggles. In reality, this marketplace is not nearly as well hidden as we imagine, and it certainly does not require prior knowledge of a secret public house and its hidden courtyard.

In the economic depression that is all but certain to follow the current pandemic, let’s hope integrity wins out with the vast majority of the desperate masses.

(I would be remiss if I failed to add that TransArmor Personal Data Protection, from my employer Fiserv, lets businesses tokenize data in motion, in use, and at rest, creating a higher level of security for their customers than ever. Click here to read the Fiserv press release.)